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The transcript of the Question and Answer session given by the Financial Secretary at the Hong Kong General Chamber of Commerce Luncheon
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The following is the transcript of the Question and Answer session given by the Financial Secretary, Mr Antony Leung, at the Hong Kong General Chamber of Commerce Luncheon today (June 6):

Question: When you finish your first term of service, how would you like to see Hong Kong and what will be your achievable deliverables?

Mr Leung: Thank you. I think the first question that you may have to answer for me is how long is my term. Well, I am solely at the disposal of the Chief Executive.

I hope that in the next few years, say, take a 5 to 7 year time frame, through our collective efforts, the Government working with all of you and the rest of the community, that Hong Kong would have regained its confidence, the confidence to really conquer the world; that we are truly a world city, a city that serves both the Mainland of China as well as East Asia, a city that is fully civilized, prosperous, free and democratic. Clearly, there are lots that we have to do, and clearly my portfolio focuses mainly on the economic side. But I believe that if we really work on the fundamentals, which includes maintaining the rule of law, a level playing field, making sure that there is a free flow of information, a small, efficient and clean government, providing a very good living environment, maintaining a low tax and simple tax regime, very good law and order, providing the right infrastructure both hard and soft, as well as developing and attracting talent from around the world, and including those in Hong Kong, this environment would be able to attract both capital, cargo, information as well as people to Hong Kong. Then I think we can truly develop Hong Kong into Asia's world city.

Question: Sir, are you going to support the Hong Kong-US Dollar peg policy?

Mr Leung: The Hong Kong....?

Question: The Hong Kong-US Dollar currency peg policy, you will continue to support?

Mr Leung: Well, as I said, I believe two days ago and as was reported in the newspapers yesterday, right now with the economic situation that we have, with the amount of short term capital that is available around the world to buy and sell any currency in the world, small and medium size economies like Hong Kong having a completely open financial system and a freely floating currency may not be sustainable. And that is why I said the other day that, for the time being and for a long time to come, it is not possible for us to change the peg system in Hong Kong.

Question: Mr Leung, you have mentioned about the 5-7 year deliverables, but can you tell us what is your immediate challenge as the new Financial Secretary of the Hong Kong SAR?

Mr Leung: The most immediate challenge is really to help the entire economy restructure and to provide jobs for everybody. As we all know, Hong Kong is moving into a globalized knowledge economy where the competitive edge really is knowledge. To a certain extent we have not been preparing ourselves for it. Luckily, not that many economies in the world are prepared for it as well, I mean the US being one of the more notable exceptions. For the past 15 or 20 years our economy's growth has been driven by rapid rising property prices, an expanding service sector, but we really have not been investing in developing talent, talent of other kinds, except in a buoyant service market.

Just take for example the participation rate in higher education, which obviously has created a lot of discussion recently. Our participation rate today, if we include 18% of our young people entering universities, 8% going into vocational training, and a few other percentage points going overseas, is no more than 30%. Yet, on the other hand, if you look at our neighbouring cities, regions, and also comparing ourselves with the OECD countries, they have a participation rate of well over 80%. Even Shanghai, today, is 68%. So if our future competitive edge is on knowledge and knowledge workers, with a participation rate of only 30% in the past, it clearly does not prepare us well going forward. And that is why the Chief Executive has assigned so much importance to education reform, declaring an increase, actually a doubling, of the participation rate in higher education for the next 10 years. That, really, is our biggest challenge, meaning, how do we provide jobs to all of our people in Hong Kong when we are changing into a knowledge economy, when the competitive advantage is really knowledge. And that is a topic that we all keep thinking about day in and day out within the administration.

Now clearly, education, retraining, life long learning, these are long term measures and they will not produce short term results. More immediately we have to attract talents from around the world, including from the Mainland, to help us develop those higher value-added industries so that they can create jobs there as well as creating jobs for the supporting industries that may not require as many highly skilled people. But in addition to that, we are also thinking about measures to develop other industries that will create jobs for a lot more people that may not be as highly skilled. I think tourism is one area that we are focusing on quite a bit. If we can somehow increase the tourists visiting Hong Kong, it will immediately create a lot of jobs in those services sectors, including restaurants, retailers, etc. And clearly we are here to attract tourists from all around the world. Last year we had 13 million tourists visiting Hong Kong, but more can be done.

Just think about these statistics. Last year, over 30 million Hong Kong people visited the Mainland, 30 million times. Only 3 million of the reverse flow had happened. So there was a discrepancy of 27 million incoming and outgoing tourists in and out of China. Now, if we can somehow close that gap, not so much by preventing our people from going into the Mainland but by increasing the flow from the other side, it will immediately increase employment and other opportunities in Hong Kong.

Question: Antony, in making Hong Kong to become a truly world class city, if you have to name one or two things that you think would be the most important items that warrant attention or warrant improvement, whether from the community ourselves or from the Government, what would those two things be?

Mr Leung: Well, if there are silver bullets like this, I am sure they would have been deployed already. But I think in order to really create or should I say achieve the status of a world city, we have to do quite a number of things. Besides improving the economy, besides really helping the entire economy restructure into a high value-added knowledge economy that we have been talking about for so long, I think the entire community has to work together to see how we can inculcate in our people three senses: a sense of belonging, a sense of direction, and a sense of achievement. We have to work together because Hong Kong is our home, and indeed it is a home that is full of opportunities, a home that we should be proud of. So the Government will have to do its part, but I am sure you all, together with the rest of the community, will have to do your part as well. Make Hong Kong your home, have the feeling that Hong Kong is your home, and really work on multiple issues, both on the social side, the cultural side, as well as the economic side. There are too many things that we need to do but I think if we can somehow think about how we can, together, create these three senses in our people - the sense of belonging, the sense of direction and the sense of achievement - then I think it will be very good.

Now clearly, I have been in the job for slightly over a month - I don't really have all the answers but I am a good listener and actually I welcome your views, including the views from the General Chamber.

Question: You said that you would like to have a small and efficient government. Could you elaborate on what you mean by a small government?

Mr Leung: I believe you can measure the size of the government in a number of ways. One angle is the government expenditure as a percentage of GDP, and right now, as Donald said in his last Budget Speech, we are at a relatively high level of around 21%. The second measurement is the number of employees that are either on direct government payroll or in subvented organisations that follow the government's pay scale. And right now, depending on how you measure it, we are either between 5% to 10% of the population - not so much of the population but of the working work force. So it depends on how you look at it, it is both small and large.

Now, I would like to see the size of the government's spending, as Donald has indicated, reducing to a more reasonable level of around 18% over a medium term period. It can be achieved, obviously, through two means. One is to cut the size of the government's spending or to increase the GDP. In the near term my preference - and actually in the long term - my preference is actually to grow the GDP and grow it fast. Obviously, it does not mean that we will continue to expand the government's expenditure indefinitely but I think somehow, if we can do certain things by increasing the government's investments, by increasing your investments, by increasing consumption in Hong Kong, by increasing the exports, hopefully we can increase the GDP much faster than the increase in government expenditure. These will help us get the percentage of government expenditure down.

In terms of the number of government employees or government subvented employees, likewise, I think in the long run, obviously we would like to have it smaller. But on the other hand one thing is sure, I think the population is going to grow. So if we can somehow serve a larger population by maintaining the number of government employees in subvented sectors, then I think it will help us to reduce the size of the government. Right now my concern within the government is not just the size, not so much the size, but really how can we make the government even more effective and efficient so that we can help you to compete.

We all know that Hong Kong is an expensive place but competing in the knowledge economy is not solely based on cost, it really is based on the quality of service as well as the speed of delivering those services, and speed is something that Hong Kong is famous for. But in the competitive world we have to think about how do we make ourselves even more efficient and how can we deliver our services and goods in a speedier manner. And I believe if the government can somehow make ourselves much more responsive and cut the time in doing things, it will help you in delivering your services and goods faster as well, and that is the angle that I would like to work within the government. And again, also, I would like to hear your views on how the government can deliver services in a more efficient and speedier manner.

Question: Mr Leung, Hong Kong is the logistics centre of Asia. Can you give your views on the supply chain management here and how it can move forward with the changes going on?

Mr Leung: A very good point and this is one area that I have told the media and the Legislative Council that I will be working on to see how we can help Hong Kong develop into a centre of supply chain management logistics centre, as well as e-commerce. Now this is an area that personally I am not very familiar with, having spent 28 years in the financial sector. But I know that Hong Kong has a lot of strengths and indeed we have a lot of experience and success stories in this particular area. We have to work on many fronts. We have to see how we can further strengthen our role as a logistics centre, how we can utilize our airport, our port, our land transportation systems, how we can further connect into the Mainland. The focus is not just on reducing the cost, it really is increasing the speed.

Next, I think in terms of working as supply chain management we have a lot of strengths again. We have the information flow, we have great market information, we have great market access, how can we work together with the Mainland in making sure that all of these parties - the manufacturers of all kinds, the transportation sector in the Mainland - how can we somehow use this web of transportation, of manufacturing, of trading, to make us truly the supply chain management centre in the world is something that we have to work on.

But lastly, let us not forget the information technology side because that really is the catalyst of change. We have a very good platform. We have very good infrastructure. How can we somehow use this infrastructure? To think about using e-commerce as one of the driving forces of supply chain management and a logistics centre is something that we will work on, and I think the Government will probably have to take the lead in somehow making ourselves an e-government rather than a government full of papers, and hopefully with that as the driver, re-engineering the process in the government, working together with you to see how we can re-engineer the entire process of supply chain management is something that we have to work on. So it is a very large topic and again I would like to work with all of you on this particular aspect.

Question: Mr Leung, can you share with us your views on the property market - I mean the residential market in Hong Kong? I ask this question because I fully endorse your view and your vision and the strength of Hong Kong. But from the conversations I have had with my friends - private friends or business friends - the most asked question is: How is the property market, whether prices are going to go up or down? So while I endorse your vision and the direction that Hong Kong is going towards, I would like to know your comments on the existing housing policy.

Mr Leung: I think life in Hong Kong would not be complete without a comment on the property sector, and the question coming from Sun Hun Kai Property is obviously no surprise.

I believe the Government's policy on housing has been very clear and that is we would like to see a stable property price going forward, and that, I believe, is a sensible policy. However, unlike before 1997, several things have changed. One is that there is no longer a legal limitation on the supply of land sales in Hong Kong, the so-called 50 hectares, later on changed to 60 and 70 hectares. So now the supply side can be more flexible.

Number two, there is the integration with the Mainland and the border is getting more and more permeable. And it is not just the physical border but people's attitudes. Before 1997, if we kind of cast our memories back to 1996, what people were talking about then were essentially two issues. One is, how can we ensure that Hong Kong is, so called, very separate from the Mainland, and there were quite a bit of concern on the political side. That has changed. People are very comfortable with the Mainland. As I said, more than 30 million tourists from Hong Kong visited China last year.

Secondly, people are much more thinking about the knowledge economy. They are not just thinking about how do I earn a quick buck from speculation in the property or the stock market, and that mindset has also changed.

So with the border getting more and more permeable people will be asking, if indeed we are an Asia's world city and indeed we are like Manhattan or London, would my living and commuting habits change? Shenzhen is only 45 minutes away. Even if I am not living there I can buy a holiday home somehow in the Mainland. So the accommodation habit or the demand side has also changed. So with both the supply side and the demand side changing, obviously it will create all kinds of interesting, kind of changes.

As I said, the Government's policy has been very clear. We would like to see a stable real estate price in Hong Kong. And that policy will not change because that is, I believe, in the long-term interests of Hong Kong. But on the other hand, we cannot dictate where people live, we cannot dictate what people should do or should not do. We will try our best to maintain a stable property price and hopefully, with Hong Kong people recognizing that that is the policy, they will adjust automatically. I am not going to predict whether property prices are going to go up or down, whether it is the right time to buy or sell property, because as I have seen in recent history, anybody attempting to answer that is doomed to fail.

Question: You made one very famous statement recently, I think a lot of people still remember that. You said, the money someone makes is not really your money; the money that you really want to spend or are willing to spend, that's your money. Now related to that statement I just wonder, now you have a big reserve for Hong Kong and you have the control on that, would you consider to make use of the huge reserves to cut the tax in order to stimulate the sluggish economy in Hong Kong?

Mr Leung: I can see that Denise is kind of a little bit uneasy sitting down there. Well firstly, the money that we have as fiscal reserves is not mine, it is yours. It is yours, it belongs to the Hong Kong people. While you have been kind in remembering what I said that money that you earn is not yours it's only money you spend that is yours, I also said another thing. I said, money, if you somehow sort of spend it or use it comes in two categories: one is investment, the other is expense. Broadly speaking, investments will have returns, expense may not. Now clearly, just think about how we as individuals spend money. We do spend some money as expense - food and that kind of thing, you know, we have to keep ourselves at least alive, so we have to spend a bit of money. But on the other hand, my own philosophy is, money is best used for investments because it would capture returns. As a community you have to think about how your money should be used and my preference is to think about projects, think about items that we can invest so that we can reap economic and other long-term benefits for Hong Kong. And since I have just started the consultation on the Budget, yesterday, I would like to ask you for a favour, and that is, do give me your advice as to how you want your money to be used - how you want it to be invested and how you want it to be spent. And that, I think, is a very topical issue and I really would like to listen to your views because after all, it is your money, it is not mine.

End/Wednesday, June 6, 2001
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