Madam President,

A. Introduction

1. This is my fifth Policy Address and also my last Policy Address as the first Chief Executive of the Hong Kong Special Administrative Region (SAR) Government. I will maintain the steadfast course I first set on 1 July 1997 - implementing people-oriented policies, embracing change and rising to meet the challenges with our community. My aim is to build a more civil, affluent, stable, democratic Hong Kong that is full of vitality.

2. On 1 July 1997, Hong Kong was reunited with the Motherland. The colonial chapter drew to a close and the Hong Kong SAR was born, ushering in a new era of 'One Country, Two Systems' and 'Hong Kong people administering Hong Kong' with a high degree of autonomy.

3. The historic mission of the Hong Kong SAR is to successfully implement 'One Country, Two Systems' - a great challenge that has never before been encountered.

4. Over the past four years, the Government and the community have worked together to effectively uphold the rule of law and maintain Hong Kong's liberal and open systems. In this, we have the full trust of the Central Government. The people of Hong Kong now have a better understanding of the Motherland and have affirmed their new identity with the reunification. We have successfully implemented 'One Country, Two Systems'.

5. At the establishment of the Hong Kong SAR, I specifically mentioned that while we could be proud of our economic achievements, we had to be alert to latent problems as some of these would undermine our long-term competitiveness. Just as we were about to tackle these problems, Hong Kong was severely affected by the Asian financial turmoil. This led to the bursting of our 'bubble economy' and to a sharp economic downturn. Although we acted boldly and decisively and successfully weathered the Asian financial crisis, we still needed time to solve the structural problems inherent in our economy.

6. Hong Kong has won international acclaim for realising a smooth political transition and stabilising the local financial markets during the Asian financial crisis. Indeed, our success in rising to such tough challenges did not come easily.

7. Recently we have seen dramatic changes in the world around us and there are even tougher challenges ahead. We are facing the most acute economic problems for many years. The whole community is very concerned about our economic and employment prospects - let me address these issues first.