Donald Tsang, Financial Secretary, Hong Kong
(Speech at the 1996 IMF/World Bank Annual Meetings, Washington DC, USA)I would like to thank you for coming today to this luncheon and allow me to welcome you all in advance to the 1997 Annual Meetings of the World Bank/IMF, which will be held in Hong Kong.
1997 marks an important year in the history of Hong Kong and China. Much has been said and written about Hong Kong in 1997: some make a lot of sense and others, sheer nonsense. When I was first appointed as Financial Secretary, a local wit told me that, given the political transition we face, this was a "mission impossible". I did not agree and saw my mission in a more positive light. Yes, 1997 will be a historic year for Hong Kong. My challenge is not only to see through the transition, but to build the foundations for a stronger and more prosperous Hong Kong beyond 1997. Events have since unfolded and shown that it is not only a possible mission, but one that is already being realised. Perhaps we should think more of sense and sensibilities.
Let me start with the "dollars and cents" part of the equation: the economy. There is no doubt Hong Kong has been an economic success story. Of the 25 high income economies classified by the World Bank, between 1985 and 1994, Hong Kong had the second fastest growth in per capita real income. This is a record which any Minister of Finance would be proud of.
It is true that Hong Kong has experienced uninterrupted economic growth in real GDP over that past 35 years. As we evolved into a service economy in the 1990s, we have stabilised onto a trend growth rate of about 5 per cent in real terms. Considering that Europe is still struggling with recovery, and the rest of Asia is adjusting for the overheating in the last few years, the consolidation that has taken place in Hong Kong is a blessing in disguise. Our inflation has slowed down to 6.1 per cent for the first eight months of this year. Our property market has fully recovered, with a healthy demand at the primary market, and our stock market has been one of the leading performers in 1996. Our banking sector has had bumper year and the Hong Kong dollar stands rock solid against a strong foreign exchange reserve and no public debt.
The global outlook for Hong Kong's major trading partners is positive. The US economy is still moving ahead briskly, the Japanese economy is slowly but surely recovering, while the rest of Asia is adjusting to the overheating of the last few years. As Governor Dai will surely reiterate, the Chinese economy, which has spurred Hong Kong's growth, has achieved an excellent soft landing, with declining inflation, an enviable strong growth and a healthy balance of payments. All these add up to good signs for the Hong Kong economy and the transition through 1997.
The political side of the equation also gives us much hope. In the last few years, we have had to live with a political cloud that shadowed Hong Kong's continued economic success. Thankfully, Sino-British relationships are continuing to improve, while tensions across the Taiwan Straits have eased considerably. In the last few months, we have witnessed several major milestone in co-operation that would lead to a smoother transition through 1997 -
In my view, good sense and sensibilities from all sides have prevailed over rhetoric, and this is as it should be, in the continued development of the Hong Kong's economy, and in augmenting its position as a premier international financial centre.
Someone asked me what my major concerns were. I have gone on record to say that post 1997, once people wake up from the excessive pessimism, there will be a real boom in Hong Kong. Our current stock market P/E ratios and sovereign risk ratings have been low reflecting undue pessimism about the change of sovereignty. A re-rating to even the normal levels associated with our neighbours will bring in a flood of investment into Hong Kong and a surge in activity. Ironically, through 1997, I may have to once again deal with the dangers of overheating.
Let me now turn to the key challenges that Hong Kong faces post 1997, and the opportunities that these entail. There has been a school of thought that as the Hong Kong economy matures, its growth will naturally slow down. Hong Kong, as an increasingly service-oriented economy, with an aging population, will suffer malaise of welfarism and stagflation. I want to demonstrate here why this view is plainly wrong.
First, Hong Kong is already a post industrial economy, with more than 80% of our GDP attributable to services. Between 1980 and 1994, the share of services in our economy rose by 16 percentage points - a larger rise than in any of the OECD economies.
Second, of all the global service economies, Hong Kong has the best conditions of staying the course of fast growth, fast transformation. Consider the following:-
Third, we are not complacent. In my first Budget Speech, I have already mapped out the way forward for Hong Kong as a service economy. I set up a Task Force on Services Promotion and received considerable advice from private sector members. The Task Force has already set out an eight-point "Framework for Action" and 14 individual Action Agendas. An expert working group is already working on how we can continue to upgrade Hong Kong's financial technological infrastructure to meet its future needs.
In the past two years, we have taken the opportunity to review completely our strengths and weaknesses. Hong Kong's problems have never been a shortage of demand, as manifested by extremely low unemployment rate and slightly higher inflation. Hong Kong's strategic advantage of being the key international services centre for the Chinese economy illustrates this point very simply. Consider the following. Currently equities turnover per capita in China is less than 1% of that in Hong Kong. As the Chinese securities market opens up, and the average equities turnover reaches even a tenth of that in Hong Kong, we will see a turnover of US$2-3 trillion annually. The consequential demand for financial services from Hong Kong, from securities trading, investment banking, and related accounting and legal services would simply be astounding.
The basic complaints against the high costs of doing business in Hong Kong are essentially supply-side oriented - shortage of land and high cost of skilled labour. In both areas, we have moved to ensure that such issues will not be constraints on future productivity and growth. Specifically:-
In short, the ingredients to Hong Kong's success will all be maintained.
To sum up, Hong Kong's great strength is the entrepreneurship, innovation, resilience and flexibility of her people operating in an enlightened, stable and legal environment and on an unrivaled level playing field. There are great opportunities, as well as challenges in the years ahead through 1997. I am fully confident, that with good sense and sensibilities, Hong Kong's glorious days are yet to unfold.
As I put it in my first Budget speech, Hong Kong's destination is "a high value-added, technology-based manufacturing sector and a world class services sector". I invite all of you to share with us in making this vision a reality.
On behalf of my colleagues, let me invite you once again to visit us at the World Bank/IMF Annual Meetings in Hong Kong this time next year. You will see for yourself the brand new Convention Centre Extension that we are building for the occasion. It is a fitting symbol of the confidence that we all have in the future of Hong Kong, well beyond 1997.