We are going through some very interesting times, but the broad economic agenda for us is clear: we have to come through in our economic restructuring; we have to return to a sustainable level of economic growth; we have to add value to current economic activities; and we have to find new impetus for further economic development.

These are challenges that would be daunting for any community, but with the concerted effort of all concerned, we are ready to take them head on.

Let me set out from the start the role of the Government in the realisation of our economic agenda. I do not have any earth-shattering panacea that you will find novel. It is, in fact, nothing new.

They are just basic principles that have guided us so successfully in the past, but I have every confidence that these principles will continue to be effective in guiding our way forward.

In a nutshell, the Government has the responsibility to maintain macro-economic stability in our society, to provide the best possible business environment for our enterprises and to ensure that our infrastructure, hard and soft, does not lag behind opportunities.

The Government plays the supporting role of facilitator, and we are firm believers in the philosophy of "small government, big market" through maximum support to our businesses, with as little intervention as possible in the operation of the market.

HK 10th largest trading entity in goods

Hong Kong is an externally-oriented economy. We have benefited and prospered through trade and investment historically. We are currently the 10th largest trading entity in goods and the 13th largest in services in the world. We are also the second largest recipient of external direct investment in Asia, after the Mainland.

We need to reinforce this position. We need to ensure that we are able to leverage on our ties with the Mainland in general and the Pearl River Delta in particular in making Hong Kong the principal platform for trade and investment between the Mainland and the rest of the world.

Trade and services are the lifeblood of Hong Kong. I know I am preaching to the converted to say that we need to maintain a robust multilateral trading system that is rule-based and transparent.

Our belief in free trade, free market and free enterprise, as well as the need for an international order for the free flow of trade and investment, has made Hong Kong a staunch supporter for the principles on which the WTO is built. We will continue to contribute to the well-being of the multilateral system and maintain an active and constructive profile in the WTO. This is our commitment.

I shall be flying out to Cancun, Mexico to join the other 150 trade ministers at the fifth WTO Ministerial Conference to drive forward the current round of multilateral trade negotiations, or what is commonly referred to as the Doha Development Agenda. And just a few days ago, we announced Hong Kong's offer to host the sixth Ministerial Conference. We wish to play a big role in bringing the Doha Development Agenda to a successful conclusion.

APEC - a forum to drive trade liberalisation

At the regional level, the Asia Pacific Economic Cooperation forum, remains a useful forum for us to exchange views, seek co-operation, share good practices and build linkages with our trading partners in the region.

The achievements of APEC are not trivial and we are one of the key players in this process. The trade-facilitation initiatives and the establishment of mutual recognition arrangements for telecommunications, electrical and electronic equipment, for example, have brought us significant benefits.

APEC is an important forum to drive further trade liberalisation, setting an example for the world to follow. It is imperative for us to keep up the momentum in liberalising trade at both regional and global levels.

On the bilateral level, we have established solid relationships with a number of major trading partners and export markets, including the US, the EU, Japan, Canada and others. They will continue to be important markets for us in future, but there is no relationship that is more crucial to the well being of Hong Kong than that with the Mainland. And CEPA has brought this relationship even closer.

CEPA most important issue at this moment

CEPA is probably the single most important issue for us at this time and will continue to occupy a principal position on our agenda in the foreseeable future. It is an important instrument in furthering mutual economic benefits for both the Mainland and Hong Kong.

The seminar this morning has set out before you the business opportunities arising from the market opening undertakings of the Mainland under CEPA. CEPA is a continuous process. Adopting a building block approach, CEPA provides a mechanism for further liberalisation measures to be included as and when both parties agree to them. The Government will make full use of the standing mechanism under CEPA to seek further liberalisation opportunities for Hong Kong.

In formulating our wish list for the current and subsequent phases of CEPA, we have and will, as always, stay in close and constant dialogue with stakeholders to understand their needs and strive to deliver their aspirations.

At the same time, we will follow up with our Mainland counterparts on the many practical questions that our business community has raised in relation to doing business or investing on the Mainland. We will disseminate the information, once available, to all concerned in a business-friendly manner.

Hong Kong's economic integration with the Pearl River Delta has been gaining prominence and urgency recently. This is a natural continuation of how the region has evolved and developed since the late 70s.

Hong Kong entrepreneurs have led the way since day one. Market forces have driven the integration process since the beginning and will remain the principal driver that will help sustain the momentum of integration and co-operation, as well as business creation and infrastructural development. The implementation of CEPA and the continued improvement of the business environment within the PRD will strengthen further our position.

So far, I have talked about the external environment. To strengthen the overall competitiveness of Hong Kong, we need also to enhance our internal business environment. I would like to share with you how we intend to do that on eight fronts.

Keep HK a business-friendly city

First of all, we intend to continue to strive to keep Hong Kong a business-friendly city. We shall keep up our efforts in cutting red tape, in eliminating unnecessary regulations, in reducing compliance costs, in improving government services and in launching initiatives to facilitate business.

Second, we intend to sharpen our competitive edge in the context of the information age. We have mapped out our strategy to make Hong Kong a leading digital city through our Digital 21 Strategy.

By the end of this year, through our e-government initiative, more than 90 per cent of the public services, which are amenable to an electronic form of service provision, will be provided with an e-option. We are taking stock of our achievements and reviewing our direction in the use of information technology in the next few years. We will issue an update to the strategy in early 2004.

Third, we intend to nurture opportunities for the private sector through a regulatory regime that encourages competition, investment and innovation. The communications sector is a good case in point. Our deregulation and liberalisation efforts in past years have borne fruit. We have now in place a state-of-the-art infrastructure which is helping to drive our economic growth.

We are also reviewing our broadcasting regime to ensure that it is capable of accommodating and facilitating technological convergence between broadcasting, telecommunications and the internet. Similarly we are reviewing the current broadband interconnection policy to ensure its continued relevance to the industry.

Fourth, we intend to sharpen our ability to make the best use of technology. We will seek to establish a constructive relationship with relevant Mainland agencies in a way that would maximise our respective comparative advantages as well as the complementarity that exists between our economies.

While the strength of the Mainland lies in the "upper stream" with basic scientific research, we in Hong Kong concentrate largely on "down-stream" activities of commercialising technological innovations.

In Hong Kong, technology has manifested itself in high-value-added products, services, infrastructure and processes for productivity enhancement. We will continue to strengthen our capability through a number of government initiatives in promoting applied R&D, technological entrepreneurship and industry-university collaboration. Technology is our tomorrow, and these are initiatives that will point the way to our future prosperity.

Intellectual property protection continues

Fifth, we intend to continue our efforts to protect intellectual property in order to provide a conducive environment to innovation. Our intellectual property laws comply fully with the WTO Agreement on Trade Related Aspects of Intellectual Property Rights.

Our enforcement efforts in the protection of IPR are well recognised both locally and internationally. We will continue to improve our IPR legislation, combat piracy and strengthen the public's recognition of the importance of IPR in the development of our economy.

Sixth, we intend to help nurture our creative industries, such as filmmaking and design, including, in particular, fashion design for which Hong Kong has already built up a strong competitive position in the region.

We have been assisting in revitalising the filmmaking industry through the Film Development Fund to provide guarantees to bank loans for film production. I am also chairing two groups tasked respectively to spearhead the application of product design and fashion design.

We shall be examining the full range of relevant issues including manpower, training, capability development, product upgrading, local and international marketing, product branding and infrastructure support. These efforts will help us map out an overall strategy in the direction of developing Hong Kong into a design hub in the Asia-Pacific region.

Seventh, we are committed to supporting the development of the 300,000 or so SMEs in Hong Kong, which form the backbone of our economy. We will provide them with the necessary support to raise their competitiveness.

Consistent with our belief in maximum support and minimum intervention, the Government has established four SME funding schemes, which I am sure you are all well aware of, with a total commitment of $7.5 billion to help SMEs obtain credit from financial institutions, improve human capital, enhance productivity, expand export markets and raise overall competitiveness.

Funding schemes to help SMEs

Following the advice of the SME Committee, we have introduced improvements to the schemes twice this year, and we are pleased to note that the revised funding schemes have been well received by SMEs. We will keep the operation of the funding schemes under review to ensure that they meet the ever changing needs of our SMEs in future.

Eighth, external direct investment helps to broaden the base of our economy, brings in new technology and management culture, creates employment and enriches Hong Kong as a cosmopolitan city. We will continue to spearhead our efforts to attract and retain in Hong Kong external direct investments which bring benefits to our economy.

We will also continue to highlight the combined strength of Hong Kong and the Pearl River Delta as a core message in our promotional initiatives and enhance our investment promotion efforts by organising more joint promotional events with the Guangdong authorities.

You will have seen many competitiveness reports prepared by different international organisations. Of these reports, I am attracted particularly to the one published by the World Economic Forum, which followed Prof Michael Porter and other Harvard scholars' three-staged classification of economic development.

Like Singapore and Ireland, for example, Hong Kong has long passed the resource-driven phase, which is dependent on factors of production, such as land and labour. We have not so long ago also passed the investment-led phase of development. The challenge for Hong Kong now is to become an innovation-driven economy.

We have the necessary ingredients to move to this higher level given the strength of our free market practices, intellectual property protection, competitive business environment and entrepreneurial spirit. We will build on the basis of these fundamentals bringing together enterprise and creativity of the private sector and support of the government. This is our winning formula.

So let us work together, hand in hand, in bringing the economy of Hong Kong to a new chapter of prosperity.

Secretary for Commerce, Industry & Technology John Tsang gave this address,  An Update on Mainland and Hong Kong Closer Economic Partnership Arrangement, at a luncheon at the HK Convention & Exhibition Centre.