Hong Kong has long been the Mainland's biggest investor and its gateway to the world market. Over the last decade, Hong Kong has further developed into an ideal base of capital formation, trade and producer services for both Chinese and overseas enterprises, establishing ever closer economic ties with the Mainland. 

The recent signing of CEPA between the Central and the Hong Kong Governments will greatly enhance the flow of people, goods and capital between the Mainland and the SAR, fostering wider economic, social and cultural exchanges that will advance our partnership to a new stage of development.

Policies, resources and infrastructure under review

To cater for the needs of this development, we are reviewing our policies, legislation, human resources and infrastructure. At the same time as we help Hong Kong products penetrate the huge Mainland market and encourage our financial services sector and our professionals to explore opportunities and expand their business in the Mainland, we warmly welcome people from the Mainland to travel to Hong Kong to visit friends and relatives and to invest and set up businesses there. 

I believe our economic partnership will be further enhanced, and enormous, wonderful opportunities for investment and business development will emerge in the process.

The first area where these opportunities will present themselves is capital formation and asset management. You all know that Hong Kong is the most open and free financial centre in the world. Our financial institutions, well managed by experts who are esteemed for their innovative thinking and entrepreneurial spirit, have long helped clients in the Asia-Pacific region, particularly Mainland enterprises, to raise capital and to manage assets.

Our banks have attracted deposits worth over US$ 400 billion and the total value of our capital market exceeds US$ 450 billion, making Hong Kong the premier financing and asset-management centre in the region.

To meet the ever-growing demand for capital formation and asset management, Hong Kong will upgrade its financial infrastructure to ensure that it remains a pioneer in developing new financial products, providing investment vehicles and services from which enterprises and individuals can profit.

The second main opportunity is in business operations. Hong Kong has always been the world's freest economy. It has built up sound market mechanisms and its goodwill is recognised internationally. We have robust legal institutions, legislation to protect intellectual property, an efficient and transparent government, and a business community with a well-earned reputation for fulfilling its contractual obligations. 

Over the years, our market mechanisms, acknowledged by international and Mainland investors alike, have contributed greatly to keeping Hong Kong near the top position of the international competitiveness rankings. Hong Kong is globally recognised as the best place to start up a business and a preferred base for business operations. 

At present, 3,200 multinational corporations had set up offices and regional headquarters in Hong Kong, making us the most important operational base for multinationals in the region.

Improving investment environment high on agenda

Improving the investment environment is always high on our agenda. We welcome enterprises from the Mainland, no matter how large or how small, to set up operational bases in Hong Kong for all varieties of trade, and to use Hong Kong as a launching pad into global markets where they can establish business links with investors from all over the world.

Thirdly, I would like to talk about the development opportunities in the manufacturing sector. As you all know, Hong Kong has transformed itself into a financial services, logistics, business and services centre in the past two decades. Currently, the proportion of output value in our GDP represented by manufacturing dropped to 5.2%, while that of services rose to more than 86%. Hong Kong's main advantages lie in finance, logistics, tourism, conference and exhibition, legal and accounting services, and in the depth of its talent pool.

In recent years, we have often heard investors praise our strengths in design, quality management, branding and goodwill. So there is considerable demand for brand-name products manufactured in Hong Kong. Support at the policy level should create a better environment for the development of specific high value-added industries.

One of the key points in CEPA is that starting from January 1, 2004, 273 categories of Hong Kong products will be exempted from import tariffs in the Mainland market, and more will be included soon. This concession will make us more attractive as a manufacturing base and create a favourable environment for both Mainland and international investment in our manufacturing industries.

We will actively support and promote investment in and development of high value-added manufacturing industries in Hong Kong.

In this respect, what I want to point out is that because of the disparities in production costs, labour force composition and market structures between Hong Kong and its neighbouring economies, investors will be drawn mainly to our higher value-added industries, or assign us certain production processes which are considered more appropriate to Hong Kong. 

Our rising generation of manufacturers will not be engaged in industries that have  already been well developed by our neighbours. Instead, it will develop its own special characteristics and markets, complementing the manufacturing sectors of our neighbours or working in partnership with them.

Cooperation with Pearl River Delta enters a new stage

Lastly, a word about regional development. Following the implementation of CEPA, economic co-operation between Hong Kong and the Pearl River Delta will enter a new stage, creating countless opportunities for development.

Several major cross-boundary infrastructure projects between Hong Kong and the PRD are well under way. These projects have far-reaching strategic implications when it comes to expediting economic integration and collaborative development. 

Hong Kong will give full play to the strengths represented by its world-class institutions and its deep talent pool to help the PRD develop the international standards and market mechanisms that will enhance its global competitiveness. 

Hong Kong and the PRD complement each other, and our integration can create a strong and competitive economic region that will support development across Southern China, at the same time playing a unique role in promoting growth and modernisation throughout the Mainland, in particular the Central and Western regions.    

Over the past six years, with the advent of globalisation and the bursting of the bubble economy, Hong Kong has undergone a painful process of economic restructuring marked by sluggish growth, rising unemployment and declining salaries. Global economic trends have demanded that we reposition ourselves for future development. 

Strategies begin to bear fruit

Backed by the Mainland and engaged globally, Hong Kong must consolidate and enhance its position as an international financial and logistics centre, a preferred tourist destination and a trade and business services hub, moving up the value-added chain. Economic figures in the third quarter of 2002 show that our repositioning and development strategies are beginning to bear fruit.

The initiatives introduced by the Central Government recently are a great encouragement to us. I am pleased to tell you that our economy is showing signs of promise and that market sentiment is improving as a result.

The successful development of Hong Kong as an international financial, logistics and business services centre in the Asia-Pacific region owes much to the rapid economic development of the Mainland and the concern, care and support of the Central Government and our Mainland compatriots over the years.  

Hong Kong is not only the home of Hong Kong people, but a place that belongs to all Chinese people. We believe that after the restructuring, Hong Kong will emerge as a more glittering "Pearl of the Orient" and find new roles to play in the economic development of the Mainland and its alignment with the world market.

Chief Executive Tung Chee Hwa gave this speech, Forging Economic Cooperation, Creating a Bright Future, at the International Investment Forum of the 7th China International Fair for Investment & Trade in Xiamen.