China's entry into the WTO will be a milestone in history and will herald a new chapter in world trade, Tsang said when delivering an annual budget speech to the Legislative Council.

China will further open up its market to competition and the decision to develop the western areas of China, which "covers@than half of our country," will expand the already enormous China market, Tsang noted.

"These developments will put the mainland on the road to greater prosperity and will open up to the world, especially Hong Kong, vast development potential and business opportunities," the financial secretary said.

It is a significant step that will trigger off a chain reaction throughout Hong Kong's economy, and bring opportunities and challenges to all businesses, big and small, he added.

According to Tsang, some US$4.4 billion, or 70 percent of the capital raised on the Hong Kong securities market were for mainland enterprises last year, and in 2000, the number of overseas companies with regional offices in Hong Kong increased by 20 percent because of Hong Kong's obvious value as an intermediary for developing business on the mainland.

Although Hong Kong is a Special Administrative Region of China, it does not enjoy any preferential trade treatment from the mainland, and Hong Kong's role as an intermediary between the mainland and the rest of the world will come under challenge.

There will be competition not only from overseas markets but also from mainland cities, whose remarkable performance in recent years must not be overlooked. To turn these challenges into opportunities, Hong Kong needs to build on its traditional strengths with pragmatism and a spirit of enterprise.

Tsang said "One Country, Two Systems" gives Hong Kong an enviable advantage. Capitalizing on "One Country, Two Systems", Hong Kong must build on these advantages and reinforce its economic partnership with the mainland, starting with the neighbor, Guangdong, and particularly with the Pearl River Delta, he added.