It's a pleasure to be back in Canada, in beautiful British Columbia, and particularly in Vancouver, one of the cleanest and greenest cities in the world. The gateway province of British Columbia and the gateway city of Hong Kong enjoy deep and long-standing ties, of course.

There are many Hong Kong people who also consider themselves British Columbians. Altogether, about 250,000 Canadian citizens live and work in Hong Kong these days. Some of them even blow off steam by lacing up their skates for a game of hockey on our ice rinks.

But they bring a lot more than their hockey pads. There are now over 150 Canadian companies operating in Hong Kong, and direct investment in our city from this country reached C$2.9 billion last year. These companies range from Canada's big banks and insurance companies to locally incorporated service companies.

When you visit our famous Lan Kwai Fong entertainment district, for example, there's a very high chance that you will be served in a Canadian-owned establishment.

Governor Huang has just given you a vivid description of the amazing developments taking place in Guangdong Province. Now it's my turn to tell you Hong Kong's story.

Faster, safer access to Mainland market

The two tales are becoming increasingly intertwined, and both are equally extraordinary. Just as the opportunities for Canadian companies now arising in Guangdong Province are exciting and unprecedented, so too are the opportunities that are bubbling up in Hong Kong as a result.

As business people and investors, you have a golden chance to make use of Hong Kong - and the strong Canadian presence there - to gain faster and safer access to the Mainland China market.

I'm happy to report that Hong Kong is in fighting form. A long spell of deflation is over, the property market has bounced back, the unemployment rate is slowly but surely coming down to a manageable level, tourists are arriving in record numbers, our exports continue to flourish, and consumer confidence is once again strong. The result - last year we posted GDP growth of 8.2%, which is pretty impressive for a developed economy.

While the global economic recovery has certainly helped Hong Kong's externally oriented economy, we did not sit on our hands and wait for the good times to roll again. During the hard times, we looked at the rapidly growing Mainland economy, we looked at our new circumstances as a Special Administrative Region of China, and we formulated our plan.

That plan, in a nutshell, was to consolidate our global position as the premier international financial and services centre of Asia, in particular China. As a corollary to that plan, and in the light of the Mainland's rapid development, we decided to channel our energy and resources into building much greater economic interactivity with Guangdong's Pearl River Delta.

Energy channeled to build PRD

We wanted greater access to the Mainland market for our businesses and professionals. And we were determined to leverage our international financial and trade expertise to feed into the Mainland's remarkable economic performance, and derive benefits for Hong Kong.

The results have been dramatic. Thanks in no small part to the Individual Visit Scheme, which allows travellers from 30-odd Mainland cities to come solo to Hong Kong, a record 14 million Mainland visitors arrived in Hong Kong in 2004.

Thanks to the Central Government permitting Hong Kong banks to handle personal renminbi transactions, it's easier for these visitors to spend their money in Hong Kong.

Thanks to closer collaboration between Mainland and Hong Kong authorities, we are building new bridges, rail links and other cross-boundary infrastructure projects to further accelerate the flows of goods and people.

Another thing that is flowing ever faster through Hong Kong is capital. We are the world's sixth-largest foreign exchange centre, with a Forex clearance system that is unparalleled. We have Asia's second largest stock market, whose market capitalisation surpassed C$1 trillion last year. Much of this activity is generated by Mainland enterprises, which favour Hong Kong above all other stock exchanges for raising money.

Destination for foreign direct investment

Hong Kong surpassed London and Tokyo last year to become the fourth-largest fund-raising centre in the world and the largest in Asia. Hong Kong was also Asia's second-largest destination for foreign direct investment in 2004, behind the Mainland, and seventh globally. 

Hong Kong has long been famous as the gateway to China. For 30 years up to the 1970s, this meant that Hong Kong was the portal into a Chinese economy that was virtually impermeable to outsiders. For the past 25 years, as the Mainland has opened up its economy, Hong Kong has led the way - as the largest external investor, and as the source of the first pioneering manufacturers to move production into the Pearl River Delta.

Today, there are about 53,000 Hong Kong-invested manufacturers in Guangdong Province, employing over 10 million workers - more than the entire population of Western Canada.

Lately, this process has been accelerating, with globalisation gaining pace and China joining the World Trade Organisation. The world is beating a path to the Mainland market, and China is becoming a global trading juggernaut.

The fastest-growing part of China is just across our boundary with Guangdong. Every day in the PRD, tens of thousands of factories produce well over US$300 million worth of goods. About 7,500 multinationals are active in the Delta, including investors from Canada, of course.

As I said, Hong Kong companies were the first to venture into the PRD. The private sector led the way. But the next step was for our Government to find a way to make it easier for more Hong Kong businesses and professionals to crack the Mainland market.

CEPA increases economic flows

The Central Government demonstrated its staunch support for Hong Kong by agreeing to the Closer Economic Partnership Arrangement, or CEPA, which came into effect last year. This landmark free-trade arrangement increases trade and economic flows across the boundary by removing tariffs from all Hong Kong products and by giving preferential access to the Mainland market to a number of Hong Kong service industries and professions.

How were we able to conclude a free-trade pact within our own country? Under the Basic Law and "One Country, Two Systems", Hong Kong enjoys a high degree of autonomy, including the right to individual membership in international bodies such as the WTO. We also remain a separate customs, immigration and legal jurisdiction. CEPA provides Hong Kong businesses with access to the Mainland market not only ahead of China's WTO schedule, but in some cases with concessions that go beyond China's WTO commitments.

Overseas companies can also gain a fast track into that burgeoning market, by drawing on Hong Kong businesses' vast experience in the Mainland. CEPA offers tremendous opportunities for Canadian and other overseas companies to enter the Mainland market by setting up in Hong Kong, partnering with Hong Kong companies, or acquiring a company there.

That's where we stand today, but it's only the beginning. The next chapter of Hong Kong's story will be even more exciting. It's called the Pan-Pearl River Delta Regional Co-operation & Development Forum. In shorthand, we call it "Pan-PRD" or simply "9+2". It's an initiative that brings together nine provinces and regions of southern China, including Guangdong, along with the two Special Administrative Regions of Hong Kong and Macau.

Pan-PRD a budding market

"9+2" has been described as "a budding European Community" - a common market, if you will, within China's borders. I use the word "budding" not in the sense of something small, because it's certainly not. The Pan-PRD encompasses 460 million people, one-third of China's entire population. The region's combined GDP last year was US$730 billion, and its total trade volume reached US$970 billion.

To put that into perspective, that's about the same population as the European Union and greater than NAFTA. It's roughly the same GDP as the 10 countries of the Association of Southeast Asian Nations combined. And it has a higher trade volume than the corresponding totals for France or the UK. 

No, I mean "budding" in the sense of just getting started. Again, if it seems strange to talk about a free-trade area within a single country, the explanation lies in a unique set of historical circumstances. Since 1949, the Mainland economy has developed along the lines of self-sufficient local markets at the municipal and provincial levels.

Move to break down trade barriers

"9+2" is the first attempt to break down the barriers between these local economies and to forge a multi-provincial, regional free-trade area, which is expected to grow into one of the world's largest and most efficient regional economies.

This regional economy will require a strong financial infrastructure to sustain it - international banks, global standards, corporate governance rules, security, liquidity and a convertible currency. Hong Kong provides these things. Nowhere else in our nation can do the same.

We are already the services and financial hub of a manufacturing powerhouse, the PRD, which radiates about 200 kilometres inland and includes the provincial capital, Guangzhou. With "9+2", that catchment area has expanded more than five-fold, to cities like Fuzhou in Fujian Province, Changsha in Hunan and Chengdu in Sichuan.

These cities will become increasingly important manufacturing and consumer centres as Guangzhou, Shenzhen and Dongguan move up the value chain; as land supply tightens and wages rise in the heart of the PRD; as manufacturers look for sites to build new and larger factories; and as the national highway network comes together.

HK provides world-class support

An essential component of this vast and rapidly developing region is Hong Kong - providing world-class trade and logistics support, capital, legal and business services, international contacts, expertise and leadership.

The potential is awe-inspiring. If Hong Kong has one of the world's busiest container ports with a cargo catchment area of 200 kilometres, imagine how busy it could be with a catchment area of 1,000 kilometres.

If Hong Kong is the world's busiest international air cargo hub now, imagine how much cargo we could handle when we are to serve this vast area of southern China. And if Hong Kong is the biggest investor, the fundraiser of choice and the business service centre for a Greater PRD population of 50 million, imagine the deals that could be done for a Pan-PRD population that is nine times larger.

The less-developed provinces within Pan-PRD have high hopes too. They are looking forward to an influx of investment, new manufacturing and employment opportunities, technology transfer, increased tourism, greater markets for their natural resources, and exposure to world-class management expertise. Much of this influx will be funnelled through Hong Kong. All of it will increase their consumer power - and, I reiterate, we're talking about close to half a billion people.

Will Hong Kong capture all of this future business? Of course not. As cities like Guangzhou and Shenzhen move up the value chain, their share of the logistics pie and the business services pie will naturally increase. But these pies themselves will grow even faster. That's the beauty of 9+2: an exponentially growing production base and consumer market that will throw up opportunities all along the supply chain.

HK not just another Chinese city

Guangdong and Hong Kong will complement as much as compete. The same applies to Shanghai, which has its own important role to play in China's development. It's not a zero-sum game - far from it.

Nevertheless, Hong Kong will never be just another Chinese city. No other city in China can provide what we can. We will be a big part of the success of the Pan-PRD. Indeed, you cannot discuss Pan-PRD without talking about Hong Kong. To do that would be like talking about Moby Dick without mentioning the whale.

How do I see Hong Kong's future? We aspire to be Asia's world city, and in many ways we already are. Certainly, a defining characteristic of Hong Kong is our international outlook and engagement with the world. The consulates and foreign missions, the Canadian Chamber of Commerce and others, the international schools, the international cuisine and the large expatriate community all attest to that.

As New York does for North America and London does for Europe, Hong Kong provides leadership in the fields of finance, trade, legal and business services, education, health care, research, culture and entertainment. Like other world cities, Hong Kong enjoys strong links with its hinterland, supported by the free flow of goods, services, capital, people and information. And it provides an interface with the rest of the world for its hinterland.

Hong Kong will continue to make the most of its strengths: the rule of law, supported by an independent judiciary; the free flow of information; a clean and efficient civil service; a world-class communication network; a level playing field for all businesses; a low and simple tax regime; no foreign exchange controls or trade barriers; and - according to Vancouver's own Fraser Institute, among others - the world's freest economy.

Centre of attention

Currently, nearly 3,800 overseas companies have regional headquarters or regional offices in Hong Kong. That's a record number and, as I mentioned, it includes many Canadian firms. In essence, more and more international businesses are recognising Hong Kong's value as a base for doing business, not only in the Mainland, but in the Asia-Pacific region as a whole.

In addition to being a leading international financial and logistics centre, Hong Kong is within a five-hour flight of half of the world's population. I'm confident that in the decades to come, Hong Kong will continue to be the most popular place in the Asia-Pacific for regional headquarters, as it is today.

As for the near-term future, there will be a lot going on in the next couple of years to keep Hong Kong at the centre of attention. Hong Kong Disneyland has just opened to great fanfare, and other fantastic new tourist attractions will make their debuts in the coming months.

In December, we will host the Sixth WTO Ministerial Conference, a responsibility that underlines Hong Kong's status as a WTO member in its own right. It also demonstrates our strong belief in global fair trade and our commitment to the multi-lateral trading system. 

Next year, Hong Kong will welcome 100,000 delegates to ITU Telecom World 2006. This is the world's premier telecommunications event, to be staged at AsiaWorld-Expo, a sprawling new exhibition centre that will open in December next to our award-winning international airport. And, in 2008, we will have the honour of hosting the equestrian events of the Beijing Olympics. Like British Columbia, we're catching Olympic fever, too.

There are many reasons to visit Hong Kong in the foreseeable future. But the greatest excitement of all will be watching "9+2" unfold, witnessing its growth into a powerful, integrated regional economy, and being at the centre of it.

Tripartite interplay

The leading actors in this drama are represented here today. Guangdong Province supplies land, infrastructure, manpower, entrepreneurial drive, ambition and spirit. Hong Kong supplies capital; accounting, insurance, legal and trade services; expertise, connections and international experience. Canadian companies bring their investments, innovations and marketing skills.

We welcome overseas companies large and small. The Mainland is opening quickly, but making money in China is no piece of cake. Even multinationals have encountered unexpected problems when entering the Mainland market.

Small and medium-sized enterprises that are looking for support will find what they need in Hong Kong. We invite you to join us as we enter a new era of opportunity in southern China.

Chief Executive Donald Tsang gave this address at the Hong Kong-Guangdong Business Forum in Vancouver on October 24.