The past few months have been a difficult time for many economies around the world. The financial tsunami has spread from the US to Europe and other parts of the world, including Asia. Hong Kong is not immune from this global process.

Although our financial markets are unavoidably affected by the financial turmoil, our banking sector overall remains healthy and robust, with local banks' capital adequacy ratio well above international requirements. Our property market has also remained calm, though we are seeing some orderly downward adjustment in housing prices which reflects the operation of market forces.

That said, we understand that we must remain vigilant, and should take every opportunity to reinforce our strong fundamentals that underpin our success, with a view to riding out from the current storm and emerging even more competitive.

Our Chief Executive in his Policy Address last month announced the establishment of a Task Force on Economic Challenges. The aim is to assess the impact of the global financial crisis on Hong Kong's economy and its industries, and propose specific options for the Government and business community to address the challenges as well as to identify new business opportunities.

In addition, our Financial Secretary has introduced a number of measures to reinforce our financial infrastructure. Two days ago we announced another $10 billion package to provide additional guarantees for small and medium enterprise loans.

We are fully confident that our strong fundamentals, which include our commitment to competition and free-market economy, sound regulatory framework and prudent risk management by financial institutions, will stand us in good stead in tackling the current crisis.

Today I will share with you how our strong fundamentals have helped Hong Kong maintain its position as a transportation and logistics hub in the region during these turbulent times, and what we are doing to strengthen our competitiveness.

The trade and logistics sector is a pillar of Hong Kong's economy. The sector contributes towards 27% of our GDP and provide jobs for one in four of our workforce. We operate one of the busiest ports in the world handling an all-time high of 24 million TEUs last year.

Our international airport has also been the world's busiest for international air cargo since 1996 and last year handled over 3.7 million tonnes of air cargo. Each week there are about 5,800 flights to 155 destinations, and 450 container liner sailings between Hong Kong and over 500 destinations worldwide. Last year, about a quarter of the Mainland's international trade routed through Hong Kong, worth some US$525 billion.

I believe that a combination of key factors have made Hong Kong a leading transportation and logistics hub in the region. It is easy to forget the fundamentals that have brought us thus far. I was pleasantly reminded of how important it is to maintain our competitive advantages when I read Prof Michael Porter's, the Harvard competitiveness guru, cover story in Business Week's last issue.

He wrote a critique on America's economic strategy and used three indicators to judge its long-term competitiveness: openness to capital flows, low trade barriers and absence of distortions from taxes and subsidies. Of these three indicators, Hong Kong was top of the list.

In addition, we also enjoy strategic location. We are at the heart of East and Southeast Asia, and right at the mouth of the Pearl River Delta. We are within four hours' flying time to all the major cities in Asia Pacific. We also have a customs regime that is highly efficient and user-friendly. It operates round the clock to provide the best possible service to the industry.

The global financial crisis is undoubtedly the most imminent challenge to us. As a small and externally oriented economy, our transportation and logistics sector is particularly sensitive to the global market.  Any drop in world demand or more cautiousness among exporters in accepting orders fuel uncertainty for the sector. We have already seen a decline in air cargo throughput in August and September this year.

Fortunately we have been cushioned against the impact of the global financial crisis by our positioning vis-a-vis Mainland China and intra-Asia trade. Given our strengths, 70% of passengers and 50% of air cargo flying to and from our airport are traffic between Hong Kong and Mainland China and other Asian destinations.

This strong intra-Asia network advantage, coupled with unconstrained air cargo access and much expanded passenger links to points on the Mainland, as well as liberal air services arrangements with most of our Asian neighbours, will continue to serve us well in the difficult times ahead.

On the sea cargo front, among the South China ports, Hong Kong Port has the most frequent intra-Asia shipping schedule, and around two-thirds of the containers handled by our port is cargo originated from or destined for the Mainland and other Asian economies. This should give us some cushion against the prevailing storm. In fact, hub ports like Singapore and Hong Kong may fare better in the short term during this crisis with consolidation of shipping schedules in face of global export decline.

With the growth in the domestic demand of the Mainland China which is expected to contribute to a GDP growth of 8% to 9% in 2009, and with Asia relatively less hard hit by the financial tsunami, this would provide an important source of stability to the world economy and to Hong Kong.

While strong intra-Asia trade will provide some cushioning effect, we recognize that we are facing increasingly fierce competition from neighbouring ports and airports, particularly from those in the Pearl River Delta region.

This is especially the case now that direct flights between Taiwan and the Mainland are due to increase from 36 flights per week to 108 flights per week, covering a total of 21 cities on the Mainland.

Also, we need to watch closely the impact of the development that 63 Mainland ports are to be opened for direct sea links with Taiwan very shortly. While we strongly believe that closer economic cooperation between Mainland China and Taiwan will bring much benefit to the region, we are mindful of the need to strengthen our competitiveness in order to gain from the new landscape.

So how do we embrace these challenges and at the same time remain competitive and alert to the opportunities that await? The answer in part, I believe, lies in investing in the future.

We are determined to make substantial investment in transport infrastructure projects which are strategic to maintaining our hub status. The Central Government in Beijing has also pledged its full support towards Hong Kong including fast-tracking infrastructure projects that straddle the boundary between Hong Kong and the Mainland. These projects are already in the implementation stage. They will change the meaning of connectivity between Hong Kong and the Pearl River Delta Region.

These projects include the massive Hong Kong-Zhuhai- Macau Bridge, whose main body is about 30 kilometres long, 6.7 km of which is an immersed tunnel. This three-lane dual carriageway will run across the major navigation channels in the Pearl River Delta. The Bridge will cost about 37.6 billion renminbi.

Earlier this year, the governments involved agreed on the financing arrangement for the bridge. We expect that construction will commence no later than 2010. When it opens, it will take only about 20 minutes to get to Zhuhai from our airport.

With the Bridge, the Western Pearl River Delta will fall within a reachable three-hour commuting radius of Hong Kong, allowing us to tap even more efficiently into the 50 million customer base in the Pearl River Delta. We are also looking at ways to encourage the use of the bridge through reform of the regulatory regime for cross-boundary vehicles.

Another exciting project is the Guangzhou-Shenzhen-Hong Kong Express Rail Link, which will connect Hong Kong with the Mainland's national high-speed railway network. It will enable travelers to go from Hong Kong to Guangzhou in less than 50 minutes, to Wuhan in five hours, and to Shanghai and Beijing in about eight and 10 hours, respectively.

We expect to start construction of the Hong Kong section of this 140-kilometre link next year and the project cost is about $39.5 billion. This high-speed railway will enable Hong Kong to connect to all the key strategic railways in China.

Both projects are expected to yield about 9% economic return, and will provide about 25,000 job opportunities during their construction and operation. Their timely implementation will facilitate our economic co-operation with the Pearl River Delta, and reinforce Hong Kong's position as a premier gateway to the Mainland.

In addition to cross-boundary infrastructure, we will also enhance the capacity of our airport and ports and strengthen our internal logistics network. In co-operation with the Airport Authority Hong Kong, we are actively pursuing the airport midfield expansion project and the third runway proposal. A new air-cargo terminal project awarded earlier this year will increase the annual cargo-handling capacity of the airport by 2.6 million tonnes.

With regard to port expansion, we are looking for the right location for Container Terminal 10, which may be required as early as 2015. To fully leverage on the advantages to be brought about by such strategic infrastructure, we will commence other local transportation projects that will cut short the traveling time of goods and commuters within the territory.

In parallel with hard infrastructure development, we will continue to develop the required software, particularly in the expansion of our aviation network, nurturing fresh talent and IT development.

On aviation, we are encouraged by the progressive liberalisation in air services regime between Hong Kong and our aviation partners. We are determined to press ahead on this front. My aviation team will expedite the process through a structured programme of talks with our aviation partners.

In meeting the demand for skilled labour in the industry, Hong Kong has an open and liberal regime towards the admission of talent. We welcome people from around the world who possess valuable skills, knowledge or experience to work and live in Hong Kong. We have much to learn from Singapore.

Hong Kong introduced the Quality Migrant Admission Scheme in 2006 to attract talented people to enter and settle in Hong Kong without first securing an offer of local employment. We also devote considerable resources in the education and training of transportation and logistics manpower. For example, we are developing a tailor-made training programme for frontline freight forwarding staff together with the industry.

And on IT advancement, we are exploring areas to further improve and streamline services. We have participated in the E-freight Pilot Project of the International Air Transport Association in processing air cargo data electronically. We are also running a pilot study on the On-board Trucker Information System to improve fleet management.

I have just highlighted some of the challenges we are facing in Hong Kong and how we intend to overcome them.

The Chief Executive's Policy Address 2008 has reaffirmed our commitment to pursuing strategic infrastructure. These projects will enhance our competitiveness, create jobs, and inject energy into our economy. Indeed, in the past two sessions, our Legislative Council has approved funding for almost 180 capital works projects worth nearly US$12 billion (HK$95 billion).

We are confident that investing in infrastructure and strengthening our transportation and logistics capabilities will not only help us ride out the current financial storm, but also pave the way for sustainable development and an even brighter future.

Secretary for Transport & Housing Eva Cheng gave this address at a luncheon co-organised by the Hong Kong Economic & Trade Office in Singapore and the Hong Kong-Singapore Business Association.