Buoyant market: After the difficulties of the past few years, our economy is showing signs of recovery, Chief Executive Tung Chee Hwa said.

While the Government is keen to eliminate its fiscal deficit, it will strike a careful balance to safeguard people's livelihood "and give the community adequate time to recover", Chief Executive Tung Chee Hwa said in his Policy Address today.

He assured people that the worst is probably behind us - and said he is optimistic about Hong Kong's economic prospects.

"We expect to see sustained economic growth and a continued decline in unemployment this year," he said. "Hopefully, deflation will disappear in 12 to 18 months."

Hong Kong possesses a superior environment for business, Mr Tung said, listing its many benefits:

* a very safe society;

* judicial independence;

* a level playing field;

* a prime location;

* well-developed infrastructure;

* simple and low taxes;

* harmonious labour relations;

* a clean government; and

* highly efficient public services.

"We have won international acclaim in protecting intellectual property rights," he continued."These favourable conditions have given local people the confidence to continue investing in new businesses and expand the scale of their operations. They have attracted many multi-national corporations and foreign enterprises to set up regional headquarters and offices here."

Much scope for improving the business environment

As globalisation develops and inter-regional as well as inter-city competition intensifies, Mr Tung said, we cannot afford to be content with our existing advantages.

"Relative to neighbouring regions, our business costs are still too high. Our human resources do not yet fully meet the demands of industries requiring advanced technology, rich knowledge content and high added value. For the future, we must continue to focus on nurturing and attracting talents, strengthen our infrastructure, and push for the application of advanced technologies and innovation. We must make further progress with environmental protection and greening to make Hong Kong an ideal home for talented people from everywhere."

To improve the business environment, Financial Secretary Henry Tang will merge and re-organise committees under his purview into a new high-level body to simplify procedures and improve regulation. This should help alleviate frustration among business people.

Core industries' development to be consolidated

The development of Hong Kong's core industries - financial services, producer services, logistics and tourism - will be consolidated.

A task force to be headed up by the Financial Secretary, for example, will co-ordinate planning and development of major infrastructure and development projects on Lantau island.

"An ongoing joint study with the National Development & Reform Commission has confirmed the strategic importance of enhanced co-operation between the Mainland and Hong Kong in logistics and our position as the region's logistics hub," Mr Tung said.

The Administration will also actively plan and support the holding of more world-class events and more cultural activities with local characteristics. Stepping up tourism collaboration with the Mainland, especially the Pearl River Delta, will help achieve this, Mr Tung said.

New growth to be promoted

There are plans to promote new opportunities in manufacturing, new and high-tech industries, creative industries, the local community economy, education, health-care industries, international asset management and environmental improvement.

The Government will study how immigration and related policies can support further development of edcuation, medical and healthcare industries to serve peoploe in the Mainland and elsewhere in Asia.

It will also continue to support the application of new and advanced technologies and promote Hong Kong's transition to a knowledge-based economy.

Working with the financial services industry, it will create favourable conditions for Hong Kong to provide Asia with high value-added services in fund management, corporate investment management, personal banking, insurance sales and investment and savings instruments.

SMEs, professional services win support

The obstacles that prevent local small- and medium-sized professional organisations from participating in Government tenders or consultancies will be minimised, Mr Tung said.

The Administration would also continue its discussions with the Mainland on entry thresholds, recognition of professional qualifications and practice requirements.

"After the difficulties of the past few years, our economy is clearly beginning to recover," Mr Tung said. "The hard work of the people and the economic development strategy plus various measures adopted by the Government are gradually producing results."