Speech at Brown-bag Lecture at North Carolina State University

Ladies and Gentlemen,

My pleasure to join you today to talk about Hong Kong, which is home to 7 million people! While Hong Kong, located at the tip of China mainland, may be physically small and compact with an area of 400-plus square miles, we have always been a dynamic and vibrant city that has been ranked as the world’s freest economy for 15 consecutive years by the Heritage Foundation and Wall Street Journal. So, what makes Hong Kong tick?

Let me start by giving you some background facts about Hong Kong. We have been a Special Administrative Region of China since 1 July 1997. We enjoy a high degree of autonomy under the “One Country, Two Systems” Principle, which is entrenched in the Basic Law, our mini-constitution. Our capitalist market, our common law system, our freedoms and rights remain intact. Hong Kong maintains our own status as a free port and separate customs territory. We continue to participate in our own right under the name of “Hong Kong, China” in major international organizations, like the World Trade Organisation, APEC, World Customs Organization.

With not much resources of our own, Hong Kong’s economy is externally-oriented and highly dependent on trade. In 2008, Hong Kong’s total merchandise trade amounted to US$751bn, or about 350% of our GDP. Hong Kong is the world’s 13th largest trading entity in goods. Our services sector also play a dominate role in our economy, contributing to over 90% of the GDP.

Where our trading partners are concerned, the US ranks among the top. Hong Kong is a major export market for US products. On a per capita basis, we imported twice as much from the US as Mexico and about 6 times more than the EU and Japan. We are your no. 1 market for jewellery and parts and no. 2 market for precious or semi-precious stones. With our excellent connectivity, there are more cell phones than people in Hong Kong. At a penetration rate of over 164%, it is no surprise that we are a major market for the US for telephones for cellular networks or other wireless network, as well as other telecommunications apparatus. Among the 3,800+ regional HQ and regional operations of foreign corporations in HK, over 900 of them are from the US, with names like IBM, Wal-mart, and Bank of America, Cree from North Carolina.

But US-HK relations don’t stop just at trade. The American community of 54,000 residents represents the largest foreign group of expatriates in Hong Kong. Our 8 universities have in place student exchange arrangements with American institutions all over the country. Renowned performing artists and cultural troupes have graced Hong Kong in our year-round cultural programmes, while our own artists and art groups are frequently invited to perform in the US. The New York Philharmonic Orchestra and the Chicago Philharmonic Orchestra performed at our Art Festival last year and this year. Hong Kong’s Chinese Orchestra visited the US in 2005 and performed in Washington DC, New York and San Francisco. If you are film-lover, you will know the names of some of our Hong Kong Directors, like John Woo and Wong Kar-wai. And you would not have missed the breath-taking scene in Batman III that was shot in Hong Kong, when Batman jumped off the top of our 88-storey high International Financial Centre in our Central Business District.

Given the close ties between the US and Hong Kong, it follows that when the US sneezes, Hong Kong gets sick. Indeed, the small and open economy of Hong Kong would not be able to avoid the storms from the current financial tsunami. While we enjoyed a positive growth of 2.5% in 2008, we have seen a slowdown in our economy and a decline in our exports in the first 2 quarters of 2009. The Hong Kong Special Administrative Government has recently announced measures of US$ 11bn to tackle the economic downturn, with the focus to stabilize the financial market, support the business and to maintain employment. To this end, we have put in a US$ 13bn loan guarantees to our small and medium-size businesses, which make up over 90% of our total enterprises in Hong Kong.

To accord top priority to the effort to combat the financial crisis, our Chief Executive personally chairs a Task Force comprising of prominent representatives from various sectors of the community to identify the short-term and long-term strategy for Hong Kong. The Task Force identified 6 areas where we will further capitalize on our strengths. They are testing and certification, medical services, innovation and technology, cultural and creative industries, environmental industry and educational services. I would like to elaborate on Hong Kong’s development as an education hub, as I believe this would be of great interest to you.

In today’s globalised, knowledge-based world, we are fully aware of the importance of education. And we believe that Hong Kong is well-positioned to provide quality higher education in the region, because of our cosmopolitan outlook, strong links with China mainland, world-class universities and diversified system of education. Apart from introducing reforms in our schools to ensure Hong Kong students remain competitive, we are also enhancing our investment in research and development. Last year, we established a US$2.3bn Research Endowment Fund to be allocated to our universities to work on researches on themes of a long-term nature and strategically beneficial to the development of Hong Kong. What’s more, we will be introducing a Hong Kong PhD Fellowship Scheme from 2010/11 to attract the best and brightest students to Hong Kong to pursue their PhD programmes in our institutions. Details will be available later in the year.

Apart from entrenching our strengths, we are also leveraging on our close integration with the economy of the China mainland. You may have heard about the free trade pact between China mainland and Hong Kong –the Closer Economic Partnership Arrangement, which facilitated greater access to the China market for firms established in Hong Kong, be they local businesses or international corporations. Hong Kong, as a major financial centre, will be one of the pilot centres for RMB business settlement. What’s more, to weather the current financial turmoil, Hong Kong and China mainland have reached a currency swap pact of US$29bn to provide short-term liquidity support to Mainland operations of Hong Kong banks and vice versa.

We are also excited about the recently-announced Shenzhen Reform plan which sets out closer relationship between Hong Kong and Shenzhen, our close neighbour, in various areas, including aviation and ports, commercial innovation, urban planning, commute and traffic, and infrastructure projects. Under this reform plan, Hong Kong and Shenzhen will complement each other with a view to promoting the establishment of a global center of distribution, trade, innovation and international cultural creativity.

Our local economy has slowed down in the economic turmoil, but we are seeing a tapering off of the impact. The retail sales volume for April has declined by 5.5% on a year-on-year basis, which is a visible improvement from the 9.2% drop in March. Also, tourist arrival continues to increase. We are hopeful that the impact of the financial tsunami will remain short-term. In fact, many have said that a crisis is an opportunity not to be wasted. We are therefore entrenching our strongholds in the meantime and planning ahead for our future. On this note, I welcome any questions or comments. Thank you.