Courtesy call: Chief Secretary for Administration Donald Tsang thanks US Secretary of State Colin Powell for travelling to Washington to get an update on Hong Kong's situation.

The US remains positive about Hong Kong and supports the Government's withdrawal of the draft national security bill to seek wide community consensus.

This was the message from Chief Secretary for Administration Donald Tsang after his meeting with US Secretary of State Colin Powell in Washington yesterday.

Despite hurricane Isabel closing the Federal Government for two days, Mr Powell flew in to Washington from Camp David to meet Mr Tsang.

Mr Tsang briefed him on the successful implementation of the One Country, Two Systems principle, Basic Law Article 23 and Hong Kong's rapid recovery from SARS.

"I told him the Government is totally committed to the protection of the rule of law, human rights and the full range of freedoms in Hong Kong," Mr Tsang said.

"And I told him that we are particularly proud of what happened on July 1 when our people demonstrated in a dignified and totally law abiding manner their attachment to the values that I mentioned - the values of freedom, of human rights and the rule of law."

They also discussed other areas of co-operation, including counter-terrorist activities and container security initiatives.

In a speech to the Centre for Strategic & International Studies, Mr Tsang said the One Country, Two Systems principle is working well.

"Our inevitably closer ties with the Mainland should not be seen as an erosion of 'two systems' but as a realisation of the 'one country' part of the equation," he said, adding that it carried significant economic and political benefits for both sides.

"Six years after reunification, we in Hong Kong remain true to the values and institutions that buttress our development as a separate social, economic and political system from the Mainland - a free society under the rule of law and an open, pluralistic, tolerant and outward-looking community."

On Basic Law Article 23, Mr Tsang said the July 1 protest has clearly shown there are deep-seated doubts and divisive sentiment within the community.

"The legislation was withdrawn and the new minister responsible for the legislation was beginning consultations all over again. There was no deadline for when the laws should be re-submitted to the legislature," he said.

Turning to Hong Kong's economic situation, Mr Tsang said economic problems had their roots in the Asian financial crisis, which, by sheer bad luck, coincided with the day after Hong Kong's reunification in 1997.

"The crisis brought a dose of harsh reality to Hong Kong, and its effects are still being felt today. We have endured 57 months of deflation, a 50-60% drop in real estate prices, lower wages, higher unemployment and continued economic restructuring. The Government had to make some tough choices."

In making adjustments, Mr Tsang said the Government remained wedded to the free market.

"That remains today as we adjust to the healthy competition of a rapidly developing Mainland market. While all of the adjustments have actually made Hong Kong a more competitive economic entity, the flip side was that it sapped consumer confidence and robbed Hong Kong of a 'feel-good factor' for several years."

Mr Tsang said the worst seems to be behind us and he hoped that signs of a nascent recovery will translate into more jobs.

Mr Tsang said the economic tribulations and the Article 23 consultations also led to a wider debate in the community about the style of governance in Hong Kong.

While the ruling team had to bear the responsibility for their failures or otherwise, Mr Tsang pledged that the team will work very closely with different political parties, legislators and the public to identify common ground and build consensus, with a view to continued democratic development under the Basic Law framework.