I have read the newspapers, taken part in TV panel discussions, and answered questions on the radio phone-in programmes - as with every Policy Address it's a bit like Goldilocks & the Three Bears: some say it's not enough, some say it's too much, luckily, some say it's just about right.

Therein lies one of the great challenges we face in government - how to strike the right balance, how to make it just right, for Hong Kong and our people. This is a challenge for business too, which I'll talk about later.

I make no apologies for trying to find the middle ground, striving for consensus, focusing on pragmatic, achievable goals. It might not be a very exciting or revolutionary approach,  but I truly believe it is the right approach for Hong Kong.

It is an approach that has worked, and gets results. And it is an approach that will see us through the rough times ahead. Continuous and incremental progress is what we need, and what we aim for.

Last year, when I spoke at this same event, things were looking pretty rosy for Hong Kong. The economy was doing very well. People were relatively happy and satisfied with the administration. The mood was distinctly upbeat.

What a difference a year can make. Given recent developments, one might say what a difference a day can make.

The economy has been quite okay this year - up to now. But the real fallout from the subprime crisis has yet to hit home. That is why now, more than ever, we need to push ahead with our plans for diversified, sustainable and progressive development.

Satisfaction levels with our administration have slipped - this is an issue we will address squarely with renewed and vigorous engagement of civic society. The strength and effectiveness of our governance, and my leadership, is underpinned by public opinion and satisfaction with our performance. There is no escaping this simple truth.

And the mood, now, is distinctly uncertain and jittery - so, we will do everything we can to calm frayed nerves and anxieties. We will also devote extra efforts to help those who have been left behind by the economic revival of the past few years and who are likely to be affected first, and most, by the looming economic downturn.

Basically, this year's Policy Address is all about embracing the new challenges we face, head-on, together as a community. It's about maintaining confidence in ourselves: confidence in our ability to ride out this financial tsunami; confidence in the strength of our core values to guide us through these difficulties; confidence in the unique and substantial opportunities that we have as a Special Administrative Region of China; and confidence in our community's inherent drive to improve and progress.

How do we take action to maintain confidence? By acknowledging that the flip side of crisis is opportunity. We know that the worst is yet to come. We know it will affect the whole world.

But we also know that eventually the tsunami will recede and reconstruction of the global economy will begin. The credit crunch will ease, global financial markets will start to function normally again, and economic growth will stutter back to life. We will work through it - with the same dogged determination and resilience we have shown before.

I am not downplaying the risks we face - we all know that they are considerable and complex. I am simply acknowledging the facts of what has happened before, and what will happen again this time. Experience is a great teacher.

I know what it's like to stare in the face of a market collapse; what it takes to stop a meltdown of your financial system; and, the enormous efforts needed to rebuild trust and confidence in your market and systems in the aftermath of a financial crisis.

Hong Kong people and Hong Kong businesses also understand better than most what it's like to endure a long and drawn out downturn, and what that does to confidence. But we also know that if we treat these inevitable crises as opportunities to reform, retool and revitalise then the recovery, when it comes, will be robust and sustained, and we will be better equipped to handle crises in the future.

The Policy Address last year - the first of my five-year term - set out a blueprint for progressive development that will help lay the foundations for Hong Kong's medium to long term growth and prosperity.

That game plan hasn't changed. But, obviously the playing conditions have. So, we adjust to deal with the new circumstances while, at the same time, we keep an eye focused on the future.

That is why I announced in the Policy Address that I would set up and chair a task force to monitor and assess the impact of the economic crisis - but more importantly, the task force will propose specific options for the Government and business community to address these challenges, turn them into business opportunities, and enhance our competitiveness in the long run.

You have also seen decisive action this week by the Financial Secretary to guarantee bank deposits and to ensure liquidity in the banking system if needed. These measures were taken to deal squarely with the financial crisis of confidence now plaguing world markets. 

But the Policy Address also includes measures to reinforce Hong Kong's long-term development as a global financial centre - in other words, using the crisis as an opportunity to enhance and strengthen our market.

Our systems, supervisory frameworks and capital adequacy regime are basically sound. But there are areas that can be improved to further boost confidence as well as help the market ride the future troughs and peaks of a globalised financial system.

For example, we will enhance investor protection and education. We will do more stress-testing in the securities sector. We will establish an independent Insurance Authority to provide greater flexibility in operations, and staff recruitment.

We will propose changes to the MPF system so employees have a greater say in how their retirement funds are managed. And we will increase the efficiency of listings, as well step up efforts to attract more enterprises from emerging markets to list in Hong Kong, particularly those from Eastern Europe and Russia.

All of these measures will not only entrench our position as the premier financial services centre in Asia, they will also better equip us to help our country's continued opening up and reform.

This is another long-term goal for Hong Kong. Amid all this international turmoil, we should always remember that Hong Kong has a unique and irreplaceable role to play in our own nation's development. Even though this year marks the 30th anniversary of that opening up process, and even though China is on track to become the world's third largest economy this year, we are just at the beginning of our country's economic renaissance.

The upside for Hong Kong businesses is enormous. We have what nobody in America, or Europe, or elsewhere in Asia has - that is, the unswerving support of the world's largest developing economy.

A recent report commissioned by the City of London Corporation found that Hong Kong posed the greatest threat to London and New York as the world's top financial centres. The reasons: the strength of our financial services sector, and our unmatched ability to tap the Chinese market. That's a pretty solid vote of confidence in our potential and in our future. 

The current crisis has underscored the need to do much more to develop our economy in the context of national development. That is why we will actively provide Hong Kong's input into the drafting of our nation's 12th Five-Year Plan, which covers the period from 2011 to 2015 - we can no longer afford to take a passive role in this vitally important process. 

We will also do much more to complement the development of Shenzhen, the Pearl River Delta, and Guangdong as a whole. We will focus on making the best use of CEPA to develop the services sectors in Hong Kong and Guangdong; we will help Hong Kong enterprises in Guangdong to upgrade their capabilities and production techniques; and we will better co-ordinate the planning of cross-boundary infrastructure projects.

One crucial area for both Guangdong and Hong Kong is, of course, the living environment. We will work more closely with our Guangdong counterparts to create a green and quality living area in the PRD region. By doing so we will be able to boost the competitiveness of the region as a whole. And, this will also present business opportunities in clean, green technologies and practices, as well as high-tech, high value-added and low-polluting industries.

There are other measures we are taking that will boost competitiveness, create jobs and help bolster the local economy. We will push ahead with the 10 major infrastructure projects I highlighted in last year's Policy Address, as well as many other works projects - these will enhance our connectivity with Shenzhen and the Pearl River Delta, improve the living environment, and increase the efficiency of our transport network.

In the past two financial years, the Government has proposed, and the Legislative Council has approved, funding for almost 180 capital-works projects worth over $60 billion. The peak spending period for many of these projects will be over the next two to three years - exactly at the same timeframe we expect the financial crisis to bite most.

But the peak spending period for most of the 10 major infrastructure projects will kick in for the subsequent two to three years. So, we are looking at a five- to six-year period of substantial spending on infrastructure and works projects.

We will soon establish the West Kowloon Cultural District Authority to start work on this important strategic project for our development as a creative economy and global metropolis. In tandem, we will realign and integrate Government resources and create a dedicated Creative Industry Office to better support this important aspect of our economy.

I have also announced initiatives that will help the further development of the wine industry, the conventions and exhibitions sector, the cruise industry and our research and development capabilities.

We will promote the development of private healthcare by encouraging the building of new private hospitals, as well as testing new public-private models for the provision of healthcare services in the community.

And to further cement our position as a regional corporate base, we have provided new sites and vacant premises that will help the international school sector to expand.

All of these measures are designed to provide business opportunities as well as diversified, sustainable and progressive development for Hong Kong's long-term future. There is no doubt that the globalisation of trade and investment flows provided the environment for the current crisis to take root and flourish.

But that does not mean that we should step back from the process. In Hong Kong, free and open trade is our lifeblood and we are as committed to it today as much as we have ever been. Globalisation has done much more good for the world than harm, and it would be wrong to turn back the tide of progress now because we have hit a rough patch.

As well as tremendous benefits, globalisation has also been the catalyst for gradual and profound change in Hong Kong - changes that society, the Government, and business must deal with.

Rising living standards, higher education levels, the free and fast flow of information - all have combined to nurture civic society in Hong Kong, which has resulted in greater expectations in the community. These expectations are only going to grow.

Nowadays, breakneck and unfettered economic development is not as important to the community as a healthy living environment, a thriving arts and culture scene, varied education choices for children, and world-class healthcare services. These become our new priorities.

Priorities and perceptions have changed. A competition law, minimum wage, food safety, consumer protection, the ageing society, human resource development and the social safety net are all major policy issues that the Government has to address. I'm not shying from them.

Corporate social responsibility is also becoming more important in Hong Kong. Companies are not only expected to be fair and just to their workforce, they are also expected to give something back to the community, to help the less fortunate and to partner with Government and non-governmental organisations in the provision of services or facilities. 

These issues all require a socio-economic and political response at a time when our political system is still evolving to one that is more democratic and inclusive. This is a specific challenge for business - a challenge that I think the business sector has been too reluctant and too slow to deal with.

As I mentioned earlier, the flip side of challenge is opportunity. So I hope that the business sector understands that change is happening, that more change is coming, and that it's up to you to make the most of these changes - or be left behind.

Hong Kong has thrived as a small, open economy. We have thrived because we have proved our mettle as a reliable partner; and because of the integrity of our systems and our people. Most importantly, we have thrived because we never shrink from a challenge. And we always bounce back, better than before. I know this time won't be any different.

Chief Executive Donald Tsang gave this address on his 2008-09 Policy Address at a joint Chambers of Commerce lunch.