III. Clear Positioning A.Long-term Strategy 36. The SAR Government, while carrying out its daily business, has at the same time undertaken long-term planning for Hong Kong. The Executive Council and various policy bureaux have taken the initiative to explore the way forward. The Commission on Strategic Development, which was established early last year, studied trends of global and regional development, assessed different scenarios and provided valuable input for the formulation of long-term policies. It will issue a report on the study by the end of this year. 37. Hong Kong's reunification with the motherland has removed the problem of limited planning horizons. We are now able to start thinking long-term. Moreover, given that Hong Kong's external and internal circumstances have changed so much in recent years, long-term strategies have become essential. B.Three Momentous Changes 38. As I have pointed out earlier, we have successfully dealt with two major challenges over the past two years. Now, as we move towards a new era, we are faced with three momentous changes. First, the world's economy is becoming more globalised as a result of free trade and advances in information technology. Second, our country's success in reform and the implementation of open-door policies in the last two decades has brought about changes in the economic relationship between Hong Kong and the Mainland. Third, Hong Kong's economy is now undergoing another round of economic restructuring. New challenges and opportunities are emerging. Let me outline these three changes. Globalisation of the World's Economy 39. International trade has become increasingly open in the past 50 years. The conclusion of the General Agreement on Tariffs and Trade and the subsequent establishment of the World Trade Organisation (WTO) reflect the progressive removal of trade barriers relating to goods and services. Technological advances in communications and transportation have drastically reduced the distance between markets. Transaction procedures have been streamlined. Suppliers from all corners of the world now engage in keener and more direct competition. We will be able to compete in the world market successfully only if we can provide a wide range of high quality, innovative and technologically sophisticated products and services, and have good access to information. Rapid Economic Development on the Mainland 40. Two decades of rapid economic growth on the Mainland have continued to narrow the gap between Hong Kong and the key cities there. The Mainland has a wealth of talented people. Their knowledge and capabilities in many areas have advanced rapidly as a result of extensive international exposure in recent years. Their diligence and frugal lifestyle also give them a competitive edge. Unless we consciously improve, our lead will disappear. We are faced with great challenges. But we are also seeing great opportunities. According to the World Bank, China's gross national product currently ranks 7th in the world, and will rise to 2nd or 3rd place by 2020, with an enormous cumulative growth in the interim. Nothing can stop China's advance. If Hong Kong can play an active part in the process, not only will we make a contribution to our country, but we will also benefit. Economic Restructuring 41. With the bursting of the asset price bubbles in some Asian economies during the financial turmoil, competition in the region has intensified. Hong Kong cannot count on a recovery led by asset inflation. Also, some labour-intensive service industries have followed the lead of the manufacturing sector and moved to the Mainland or overseas. These together with globalisation and the development of the Mainland's economy, are leading to another phase of economic restructuring for Hong Kong. Operating costs in Hong Kong have now lowered, and many firms have implemented internal restructuring to enhance productivity. But we must develop and strengthen our advantages further, turn increasingly to innovative, knowledge-intensive economic activities, make the best use of information technology, reduce our costs further to enhance our competitiveness, and restructure our economy in the most advantageous direction. Failing that, we will lose out to our competitors and go into decline. The Government is acutely aware of the competitiveness issue, and everything that it does in the economic sphere is intended to improve our competitiveness. 42. Many cities in the Asia-Pacific region are growing very quickly and catching up fast. We cannot continue to rely on past strengths. The current situation calls for urgency in action. We must stay alert, grasp opportunities and respond positively. We must face the new reality: Hong Kong must position itself firmly and clearly in the global economy. C.A World-class City 43. I have on many occasions during the past two years spelled out our long term developmental objectives, the purpose of which was to establish a clear positioning for Hong Kong. Drawing upon the advice of the Commission on Strategic Development, I said in last year's Policy Address that I firmly believed that Hong Kong should not only be a major Chinese city, but could become the most cosmopolitan city in Asia, enjoying a status comparable to that of New York in North America and London in Europe. Both New York and London are cosmopolitan cities with great depth of talent in culture, technology and education. They are vibrant economies and possess the financial strength to serve the region and the world at large in areas such as finance, trade, tourism, information industry and transport, while being home to numerous multi-national enterprises. Their solid economic foundation has made it possible for their people to enjoy a relatively high average income. 44. Hong Kong already possesses many of the key features common to New York and London. For example, we are already an international centre of finance and a popular tourist destination, and hold leading positions in trade and transportation. These are all pillars of our economy. If we can consolidate our existing economic pillars and continue to build on our strengths, we should be able to become world-class. Then, like New York and London, we will play a pivotal role in the global economy, be home to a host of multi-national companies and provide services to the entire region. 45. On the other hand, we must admit that Hong Kong lags behind other international world-class cities in many respects, in particular human capital and living environment. However, we should not forget our unique advantages. We have the thriving Mainland next to us. We are a melting pot for Chinese and Western cultures. We are a highly liberal and open society. Our institutions are well established. With such a strong foundation, we should be able to build on our strengths and develop modern and knowledge-intensive industries, erect new pillars in our economy and open up new and better prospects. D.Unique Advantages Strengthening Ties with the Mainland 46. Our economic link with the Mainland is our greatest advantage in developing Hong Kong into a world-class city. China's vigorous economic growth and intensification of reforms offer us new opportunities. Like the manufacturing industries, which moved their production to China in the 1980's, the local service sector has started extending into the Mainland's economy in various forms, creating yet another win-win situation. There is huge potential for co-operation in the commercialisation of new and high-tech innovations, as well as in the development of new industries such as Chinese medicine. The symbiotic relationship between Hong Kong and the Mainland is expected to gain momentum with the admission of China to the WTO. As services are one of Hong Kong's strengths, we can break new ground and work with the Mainland in the development of her export-oriented industries, and in the use of information technology for establishing new modes of business and industrial operations. 47. To support such long-term economic co-operation, an inter-departmental group chaired by the Financial Secretary has been set up to liaise with relevant Central Government authorities and experts on matters related to China's admission to the WTO. Its purpose is to get acquainted with the progress of, and the arrangements for, the opening up of the Mainland market. The group also maintains contact with local business and professional bodies so that they too can better understand the opening-up process and more readily assess market trends. This will enable them to capitalise on business opportunities. Additionally, the State Council's Ministry of Foreign Trade and Economic Co-operation and the SAR Government's Trade and Industry Bureau have agreed to set up a joint committee to strengthen communication on economic and trade issues. Joint Development of the Pearl River Delta Region 48. After two decades of rapid development, the whole of Guangdong Province, including the Pearl River Delta region and Shenzhen, has accumulated great potential for further economic expansion. Following Macau's reunification with China at the end of this year, the 50 000 sq. km. region encompassing Guangzhou, Hong Kong, Macau, Shenzhen and Zhuhai will become a more integrated regional economy. More Hong Kong people will invest, spend, acquire property, travel and settle in the region. The increase in economic strength of the region as a whole will in turn provide impetus for Hong Kong's further growth. Under the concept of "One Country, Two Systems", we will together explore ways to allow the free flow and pooling of manpower, goods, capital and other resources in response to economic forces, so as to rise to a higher level. 49. To cater for the increasingly heavy demand for cross-boundary traffic between Guangdong and Hong Kong, the Transport Bureau is implementing a series of immediate measures aiming at expanding the passenger and freight handling capacity of existing rail and road crossings. The Hong Kong-Mainland Cross-Boundary Major Infrastructure Co-ordinating Committee is actively working on the design and implementation of new cross-boundary links, such as crossings, marine terminals, shipping routes, railways and bridges. In the case of railways, these include the Sheung Shui to Lok Ma Chau Spur Line, which on completion in 2004 will link up with Shenzhen's metro system. As for road improvements, upon the completion of the Shenzhen Western Corridor bridge, the Route 3 network will be extended to link up with Yuen Long Highway, Route 10 and the Deep Bay Link. Infrastructure aside, the SAR Government is also actively considering ways to streamline cross-boundary customs clearing procedures. As we all know, the Hong Kong-Shenzhen boundary is already one of the busiest land crossings in the world. Traffic and trade between Hong Kong and the Mainland will thrive more than one can imagine, once these new projects and streamlined procedures are put in place. Multitude of Tasks 50. I have just outlined to you the issue of positioning Hong Kong. I mentioned that Hong Kong, other than being an important city of China, should also to developed into a world-class city - the New York and London of Asia. In comparing Hong Kong with these two world cities, our sole purpose is to inspire everyone to work harder to achieve greater economic development, so that we will enjoy a richer cultural life and a high standard of living in the future. I also talked about our strengths and our approaches to achieving these objectives. Our per capita income is on a par with other affluent economies. Our infrastructure is comprehensive. The rule of law is secure, and we have well-established regulatory and management systems. All of these are highly prized by many multi-national corporations. However, we still need to make progress in other areas if we want to see Hong Kong develop into a knowledge-based society and scale new economic heights, and become a place that we take greater pride in calling home. 51. Lying ahead of us are many tasks, the most urgent of all being the nurturing of and attracting to Hong Kong the world's most talented people, as well as achieving sustainable development and creating a first-rate living environment. Among the many issues that the Government will tackle next year, the focus will be on human capital and the environment. I would like to talk about human capital first. [more ...]