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HK plays crucial role in country's reforms

March 25, 2015


Chief Executive CY Leung

Thank you for this opportunity again to share my thoughts on Hong Kong and its future - your future, our future. For even if you are not from Hong Kong, we plan to be part of your future, if we are not already.


Future doesn't just happen. We make it happen. The future is built on the foundations of our past, on what we are laying right now. It's the vision behind our plans, programmes or policies, the creativity and innovation of our businesses, the sum total of the setbacks, triumphs and determination in each and every one of us.


So to understand Hong Kong's tomorrow, we must first look at our past and the present. What we went through, where we are and what we are facing. From there, we can consider where we want to go, and how we plan to get there.


Hong Kong is a well-researched subject. Numerous articles, books and papers have been written since the 1980s about, for example, displacement by Singapore, and then, around the turn of the century, by Shanghai.


Before 1997, the final demise of Hong Kong was predicted. Many went on record to say that no matter how many other systems we have in one country, we could not have, for example, a separate legal and judicial system from those on the Mainland.


Milton Friedman weighed in to say that there could not be two currencies co-existing in one country. A book appeared in 1995 with the title Who Will Feed China?, warning about food shortage in the country. And just imagine the prospects for Hong Kong if we had over 1 billion hungry people at our doorstep.


Resilient city

All these and many other subjects about Hong Kong are now history. Against the many books written about Hong Kong's future, none has been written about the resilience of Hong Kong and why all the worrying predictions were wide off the mark.


It is a fact that Hong Kong dollar has been alive and well since 1997. It is a fact that we have maintained a separate legal system, and a robust judicial system that is not only separate from the Mainland's, but also independent of the Executive Authorities of Hong Kong.


We now realise that China is big enough to require both Shanghai and Hong Kong, and Asia is big enough to have both Singapore and Hong Kong. And the Chinese people on the Mainland have enough money after paying for their food to come to Hong Kong to shop for branded goods. And the list could go on.


Key reform role

Hong Kong remains highly relevant to China. If one is allowed to be immodest, one would definitely say that we have a key role to play in the country's reforms, the ongoing reforms. At the same time, the Mainland of China is our biggest and most important partner in many ways.


Investments by Hong Kong companies on the Mainland now cover virtually all the sectors. We are now in mining, dairy farming, horticulture, education services, petrochemical, pharmaceutical as well as the usual real estate and professional and obviously financial services. We also have all the corners of this vast country covered. Everywhere we go, from the remote northeast to the equally remote southwest, we come across Hong Kong residents and Hong Kong businesses.


Professional services is one of our fastest growing sectors on the Mainland. It is estimated that 70% of fees earned by Hong Kong-based architects are from the Mainland.


Socially integrated

Let's put aside the dollars and cents for the time being and look at one aspect of social integration between Hong Kong and the Mainland of China. Over the past few years, about one-third of all marriages registered at the Hong Kong Registry were between Hong Kong residents and Mainland residents. It's about one-third.


This Government has been accused from time to time of getting too close to the Mainland, but I can assure you that we do not provide dating services, and it just happened between Hong Kong and the Mainland.


Of course we have our fair share of challenges to contend with. And some of these challenges come with opportunities of historic proportions. Let me briefly mention two.


Towards universal suffrage

One is the move to change the method of electing the next Chief Executive to universal suffrage. To do so, the change has to be passed by two-thirds majority of the members of the Legislative Council, it has to receive the consent of the Chief Executive, and finally the approval of the Standing Committee of the National People's Congress.


The change to universal suffrage is provided for in the Basic Law, which says, I quote, "The ultimate aim is the selection of the Chief Executive by universal suffrage upon nomination by a broadly representative nominating committee in accordance with democratic procedures." Unquote.


I should also mention that whatever the election method, the Chief Executive shall be appointed by the Central People's Government. This substantive - and it's not ceremonial - appointment is necessary and is stated in the Basic Law since the Central People's Government devolves additional powers to the Chief Executive of Hong Kong so that Hong Kong has a high degree of autonomy - higher, much higher, than the autonomy that other local governments in China and outside of China have.


One person, one vote

I have publicly committed to universal suffrage in 2017. So has the National People's Congress. If we can secure two-thirds majority in LegCo, we can make history here and now. We can choose our next Chief Executive, by universal suffrage - "one person, one vote" - for the first time ever, in Hong Kong's history.


For 79 days last year, certain main roads in Hong Kong were occupied. The occupiers wanted genuine democracy and more particularly civic nomination, rather than nomination by the nominating committee as stated in the Basic Law. In the end, two things prevailed. One is the rule of law and the other public opinion. There was no serious casualty.


Injunctions against the occupiers were obtained from the courts. The bailiffs executed court orders with the help of the Police. The Government showed restraint. The public began to lose patience over the Occupy movement. There were serious prospects of the democrats who were behind or supporting the Occupy movement being punished at the elections later this year and next year. So the movement in the end burned itself out.


Voluntary windup

The following figures say something about the movement: on 2nd of July last year, 511 people were arrested on Chater Road, Central, for staging the so-called rehearsal of the Occupy Central movement. Five months later, when the real movement took place on the 11th of December at the main Occupy site in Admiralty, when the Police moved in to clear and re-open the roads, only 249 were left to be arrested. So 249 on the 11th of December versus 511 on the rehearsal day. Thousands chose to leave voluntarily the night before and on that morning when the Police moved in.


I should also mention one other point. Throughout the Occupy movement, the handling of the incident was left entirely to the Hong Kong Police. The Hong Kong Garrison of the Chinese People's Liberation Army was never called out from their barracks. It was a reassuring sign on the part of the Central Government of the faith and confidence in the Hong Kong Government and its Police Force.


Will Occupy resurrect itself? The Hong Kong Government as always maintains its preparedness. But I can say that the public, if Occupy happens again, will not be sympathetic.


Sound fiscal position

There is also the economy or, more to the point, there's the world economy to consider. The Chinese Government trimmed its target for economic growth this year to about 7%. Recovery of the economies of the US and Europe is by no means certain.


Given that Hong Kong's economy is significantly tied to the world's, in last month's Budget, the Financial Secretary forecast that Hong Kong's GDP would grow in the coming year anywhere from 1% to 3% this fiscal year. That wide range reflects uncertainties.


If the 2015-16 Budget offers reason for caution, it also underscores Hong Kong's strengths. That includes our sound fiscal position. Our fiscal reserves are now equal to about 20 months of government expenditure.


For the fiscal year ending next Tuesday, we expect a record high profits tax receipt. Our salaries tax receipt is also significantly higher than the original estimate, so thank you to all those who pay these taxes. And we can invest, and invest substantially, in the people of Hong Kong and in their livelihood.


Gov’t spending up 45%

In the five years since 2010-2011, total government expenditure and recurrent expenditure will have soared by over 45%, though we still had a big surplus last year. Education, social welfare and health alone account for 60% of our recurrent expenditure.


Alleviating poverty is also a priority. We do have poverty in Hong Kong. Two years ago, we introduced the Old Age Living Allowance. To date, that supplement has benefited more than 410,000 elderly people in need. And thanks to this initiative, by the end of 2013, our poverty rate had dropped from 15% to 14.5% - a milestone of our fight to reduce poverty, and a testimony to the endeavours of the Government.


Our strategy is to ensure that we have a reasonable and sustainable social security and welfare system in place for those in need. And, no less important, that we encourage young people and adults to become self-reliant through employment.


Expanding talent pool

In that regard, both my Policy Address and the Budget offer a number of initiatives and programmes created to expand our talent pool in those areas where we just don't have sufficient local manpower or professional expertise.


Infrastructure development, for example, is critical to our future, which is why our capital works expenditure has grown from $50 billion a year five years ago to some $70 billion this fiscal year. And it will maintain at the current level in the next few years.


Our annual overall construction expenditure - this covers both the public and private sectors - has reached $200 billion in 2014 and will remain at between $190 billion and $240 billion in the coming few years. The challenge is finding enough skilled manpower to meet our needs. In the Policy Address, I pledged $100 million to boost the construction industry's manpower training and related efforts.


There are blanks, too, in the financial services sector. As the Financial Services Development Council noted in a recent report, Hong Kong needs more financial services professionals in mid- and back-office operations. We are now studying the council's recommendations and will give them our serious consideration.


Tight job market

The labour market remained tight in 2014. Last year, unemployment edged down to 3.2%. Total employment grew by 0.9%, reaching a new annual high.


In short, Hong Kong people are making, and spending, good money. Grass-roots workers have enjoyed particularly appreciable increases since Statutory Minimum Wage took effect four years ago. Since then, average employment earnings of full-time employees in the lowest decile group rose 35%, and this is the extent of increase in four years. The lowest decile group in our workforce are now making 35% more than four years ago. Taking away inflation, the figure is 13%.


The professional and business services, and financing and insurance sectors, are also doing well. They saw robust payroll growth of some 7%, year on year, in the first three quarters of 2014.


Housing progress

Housing and land was, is, and may well remain, one of our continuing challenges. But here, too, we are making progress. Last December, my Government adopted the Long Term Housing Strategy. This was the first long-term housing strategy document since 1998. I'll leave the details for another time. But, based on demand projections, suffice to say that our housing supply target for the coming 10 years is 480,000 units. That's a daunting number, to be sure, but one we must achieve for the people of Hong Kong.


Supplying prime commercial space and land to sustain Hong Kong's economic growth is no less essential. In this respect, let me briefly touch on two areas of great promise for the future of Hong Kong - Kowloon East and East Lantau.


Kowloon East is being developed as an alternative core business district, injecting an additional 5 million square metres - yes, it is square metres, 5 million square metres, so it is more than 50 million square feet - of commercial and office floor area into Hong Kong's stock.


Tapping Lantau’s potential

Further down the development road, there's East Lantau, with its staggering potential for Hong Kong's economic growth. Indeed, we see it as a third central business district, featuring office, hotel and related commercial developments, while rising as a new population centre. That covers a lot of ground, including our long-term needs for housing, as well as social and economic development.


East Lantau will evolve alongside the Hong Kong-Zhuhai-Macau Bridge, which is one of the longest in the world of its kind. The bridge will connect Hong Kong to the prosperous Western Pearl River Delta of Guangdong.


These, and other infrastructure and logistical developments, will strengthen Hong Kong's role as the "super-connector" between the Mainland of China and the rest of the world.


This role has just started to grow. It is underpinned by the "One Country, Two Systems" arrangement, which allows us to enjoy the benefits of being part of China, while retaining our singular strengths. When you are in Hong Kong, you are in China. But then Hong Kong is not just any Chinese city, because we practise "the other system" that provides us with distinct advantages compared to other cities in the country.


Super-connector role

While exploring the enormous Chinese market, you can operate your business in China through Hong Kong. We are well known for our world-class infrastructure, low and simple tax regime, robust banking and financial system, an abundant supply of highly skilled professionals, free flow of information, good corporate governance, independent judiciary and the rule of law.


More importantly, when you operate your business in Hong Kong, you do not compete with government-owned or government-linked enterprises, unless, of course, you want to compete with Disneyland in Lantau, which we own, or the Mass Transit Railway, which we also own. And these are the only two enterprises that Government partly owns.


We are this "super-connector" because we understand both the Mainland and global interests. This understanding has been our core competence for more than a century. We understand both the Mainland and global interests. We are this "super-connector" also because we have open minds and a welcoming attitude to foreign businesses, whom we see as partners more than competitors.


Asia’s business hub

This understanding and attitude make us, among other things, Asia's business hub - where the business world wants to be. And, of course, it has conveniently made us the Chief Information Officer and Chief Knowledge Officer of China.


The successful preservation of the Hong Kong dollar as our legal tender since 1997 alongside renminbi on the Mainland has given us an unexpected connector advantage. Hong Kong is now the world's hub for offshore renminbi business.


Hong Kong banks today handle some 70% of global renminbi payments. At the end of January, Hong Kong's renminbi deposits and outstanding renminbi certificates of deposit were worth more than RMB1.1 trillion - about 60% of the offshore pool of renminbi liquidity.


Renminbi settlement climbs

Renminbi trade settlement managed by Hong Kong banks last year came in at RMB6.3 trillion - a jump of 60% over the previous year. About 500 renminbi bond issuances were arranged in Hong Kong between 2007 and February of this year. Together, they were worth more than RMB370 billion.


In the last quarter of 2014, average daily turnover from our Real Time Gross Settlement system totalled RMB850 billion. That's 80% increase, year on year.


Our "super-connector" role continues to bring us fresh opportunities. The Shanghai-Hong Kong Stock Connect which was launched last November was a recent example, which also assists in the opening up of the Mainland's capital market, as well as the internationalisation of the renminbi as a currency for global investment.


A similar scheme, the Shenzhen-Hong Kong Stock Connect, is now in the works. And that underlines the other developments connecting Hong Kong with southern China.


New opportunities eyed

After the Shanghai Free Trade Zone, the Central Government is creating similar pilot free-trade zones in Guangdong, which is right next door, Fujian and Tianjin. The Guangdong free-trade zone will embrace Hengqin, Nansha and Qianhai.


Each of these areas will, no doubt, create new opportunities for Hong Kong. In turn, Hong Kong, thanks to its "super-connector" role, will enable global business to take advantage of southern China's rising business tide.


The economies of ASEAN are also central to our future. Indeed, ASEAN is a critical part of our business right now. It's our second-largest trading partner, behind only Mainland China. It's also Hong Kong's seventh-largest source of inward direct investment; Hong Kong is ASEAN's sixth-largest source.


ASEAN's combined population, of more than 600 million, is about 100 million more than that of the European Union. ASEAN's workforce is young, its population aspiring, and the region's needs for wide-ranging infrastructure and business services great - and growing.


Shaping China’s future

It's with this in mind that we are in the midst of completing a free-trade agreement with ASEAN's 10 member states. Successful completion of the pact will mark the beginning of a new era for Hong Kong-ASEAN co-operation. More opportunity for Hong Kong trade and business, more prospects for all of you here today.


The future of Hong Kong is not described in 20 minutes. The basic message is simple: that this Government is proactively planning for and shaping the future. Again if I am allowed to be immodest, I would carry on to say that Hong Kong is working with the rest of the country to shape the country's future.


All in all, we are, in countless ways and means, working toward a tomorrow that will reward us all - the community of Hong Kong, as well as the country; the people of Hong Kong, as well as its businesses.


Chief Executive CY Leung gave these remarks at the Credit Suisse Asian Investment Conference 2015.