All ears: The Chief Executive said his administration will continue to uphold the vision of "people-based" governance. It will gauge the mood of the people more accurately and listen more closely to their opinions.

Hard-won economic achievements of the past few years bear witness to Hong Kong's unique advantages, Chief Executive Tung Chee Hwa said, "and prove that our positioning and strategies are correct. I am confident that we will continue to sustain our development as long as we proceed with unwavering determination."

Presenting his policy address today, he said the bubble economy and superficial prosperity before Hong Kong's return to China bred a false sense of superiority.

"We were not alert enough to the looming challenges of globalisation and the knowledge-based economy. We did not react in time to solve the structural problems of our economy or respond promptly to the Mainland's economic advances.

"As a result, we needed more efforts and extra time to eliminate these impacts. Although our economy has now recovered, many problems and hidden dangers still remain. We must stay alert to the challenges that lie ahead."

Mr Tung said government policies and measures to deal with the bursting of the real estate bubble and the serious fiscal deficit "no doubt caused the public pain and unease. In retrospect, our mindset was inadequately prepared for the dual impacts of political change and economic downturn, nor did we have the necessary experience to respond appropriately."

This was reflected in the failure to establish the vision of "people-based" governance, he said.

Reforms put heavy burdens on people

"In formulating policies, we fell short of 'thinking what people think' and 'addressing people's pressing needs'. Second, we were not sufficiently mindful of the impact of some policies on the community's capacity to bear and the potentially controversial nature of these policies. We introduced too many reform measures too hastily, putting heavy burdens on our people.

"We also lacked a sense of crisis, political sensitivity as well as the necessary experience and capability to cope with political and economic changes. We were indecisive when dealing with emergencies. These shortcomings and inadequacies have undermined the credibility of our policy-making capability and our ability to govern."

After much soul searching, the administration has taken heed of public criticisms of its governance and responded positively to the people' s aspirations, he said. Over the past year, officials had focused on improving governance and will continue to do so.

"We will fully implement 'One Country, Two Systems' and adhere strictly to the Basic Law in our governance. We will uphold freedom, implement the rule of law and safeguard the independence of the judiciary," he said.

Society's core values to be preserved

The Government will also preserve society's core values, which include:

* continuous self-improvement;

* honouring agreements and contracts;

* fair competition;

* respect for personal dignity;

* protection of private property;

* charity and benevolence;

* filial piety; and

* social harmony.

Mr Tung said his administration will continue to uphold the vision of "people-based" governance. It will gauge the mood of the people more accurately and listen more closely to their opinions. It will also engage more representatives of various groups to join advisory bodies.

A review of the District Councils' functions will be undertaken and they will get help in resolving community problems, "referring them if necessary to higher levels for expeditious resolution."

Principal Officials have been asked to support District Officers to help them function more effectively. "We will deliver on the 'people-based' service culture, pay constant attention to public aspirations and respond actively," he said.

Policy research gets $60m over three years

The Government's policy research capability is to be enhanced, by allocating an additional $20 million a year for the next three years to the University Grants Committee. It will be used to promote public policy research in higher education institutions through the Research Grants Council.

'We attach great importance to engaging people from different sectors, particularly the middle class and professionals, in the formulation of public policies. We will better co-ordinate the determination of priorities for new policies. We will strengthen our communication with the media, better gauge public reaction to policies and respond promptly. We will safeguard public interests, resolve conflicts and actively enlist the support of different sectors of the community," Mr Tung said.

Social harmony key to economic, constitutional development

For social progress, economic prosperity, constitutional development and better living, a stable environment is necessary, Mr Tung said. To maintain social harmony in the face of rapid social change, the government has taken five key steps. They include:

* Insistence on the principle of fairness in governance. "While ensuring the efficiency of our free market and its capacity to create wealth, we also seek to properly balance the interests of different social strata and sectors. We are resolutely against 'collusion between business and the Government' and will strictly enforce our monitoring systems to eliminate any 'transfer of benefits'";

* Implementation of "people-based" governance and practical measures to mitigate antagonism between different strata. "We will seriously address the problem of poverty to break the cycle of inter-generational poverty. We will take good care of the disadvantaged";

* Maintaining the stability of the middle class. "We will create a favourable environment for their personal advancement by providing more learning opportunities, enhancing the quality of education, increasing training and re-training opportunities, as well as actively promoting economic development. We will work hard to improve governance and provide more opportunities for their participation in public affairs";

* Enhancing Hong Kong people's understanding of our country and strengthening their sense of national identity. "We will seize the opportunities brought about by the development of our country to understand the spirit and principles of the Central Government's policies towards Hong Kong. We must endeavour to avoid giving our country worries and trouble. We will help those who still have doubts about or feel antagonistic towards the Central Government to change their minds"; and

* Promotion of inclusiveness, unity and respect for different viewpoints. "On the basis of upholding the 'One Country, Two Systems' principle and Hong Kong's prosperity and stability, we advocate rational discussion on different views to seek common ground while accommodating disagreements. We should strive for consensus despite differences, and progress in a united manner."

Democratic development to unroll in gradual manner

Mr Tung noted the Government will take forward democratic development in a gradual and orderly manner, in accordance with the provisions of the Basic Law.

"We are following the Basic Law and the interpretation and decision made by the Standing Committee of the National People's Congress in April 2004 to consult the public in a step-by-step manner on the methods for selecting the Chief Executive in 2007 and for forming the Legislative Council in 2008," he said.

"We firmly believe that as long as we can maintain prosperity, stability and social harmony, our democratic constitutional system can develop at a faster pace. The ultimate aim of universal suffrage as set out in the Basic Law can be achieved at an early date."