The Basic Law is the constitutional law of the Hong Kong Special Administrative Region enacted in accordance with the Constitution of the People's Republic of China.

The Basic Law resolves the Hong Kong issue left over by history. It stipulates in legal, concrete and institutional terms important principles, such as 'One country, two systems', 'Hong Kong people ruling Hong Kong' and a high degree of autonomy, thereby laying down a solid foundation for Hong Kong's development in various areas including, for example, economic and social systems as well as people's livelihood.

The Basic Law has been implemented for 10 years. That also means the Central Authority has resumed the exercise of sovereignty over Hong Kong for 10 years and Hong Kong has enjoyed a high degree of autonomy for 10 years.

Since reunification, Hong Kong has maintained its unique international characteristics, the rule of law as well as freedom of all kinds as safeguarded under the Basic Law. Blessed with the care and support of our Motherland, we have capitalised on our unique strengths and accomplished significant achievements, which are well recognised by the international community.

HK's status as metropolis grows

In accordance with the authorisation provided for under the Basic Law, Hong Kong may conduct external affairs on its own. The Central Authority has always rendered strong support to Hong Kong in developing its external links. This is essential to strengthening Hong Kong's position as an international metropolis. For example:

* First, using the name "Hong Kong, China", we have participated in over 190 international organisations whose membership is not limited to states, including the Asia-Pacific Economic Cooperation and the World Trade Organisation. We have also participated as part of the delegation of the People's Republic of China, or in such other capacity as may be permitted by the Central People's Government and the international organisation concerned, in more than 20 international organisations whose membership is limited to states, including the World Health Organisation and the International Labour Organisation.

* Secondly, since reunification, we have, using the name "Hong Kong, China", concluded on our own over 160 bilateral agreements with foreign states and regions as well as relevant organisations in areas such as information technology co-operation, custom co-operation, avoidance of double taxation and preventive healthcare. With specific authorisation and assistance of the Central People's Government, we have also concluded over 90 bilateral agreements on mutual legal assistance, air services, mutual visa abolition, and so on.

* Thirdly, we played host to the 6th Ministerial Meeting of the World Trade Organisation in 2005. Last year, we hosted the International Telecommunication Union Telecom World. This is the first meeting that the ITU has ever held outside Geneva. These two events demonstrate beyond doubt Hong Kong's capability to host major international conferences. Even more encouraging is that, with the full support of our nation, Margaret Chan, the former Director of Health of the HKSAR Government, was elected as the Director-General of the World Health Organisation. This is the pride of Hong Kong, and indeed, the pride of our nation.

Under the Basic Law, the HKSAR Government may issue HKSAR passports. As of today, 134 countries/regions, including the European Union and Japan, have granted visa-free access, or provided visa-on-arrival arrangements, for HKSAR passport-holders.

A total of 118 countries and international organisations have set up consular and official missions in the HKSAR to promote their trade and economic relationship with us. All these reflect that, since reunification, Hong Kong has not only strengthened our relationship with the Mainland, but has also enhanced our cosmopolitan character.

The Basic Law has fully safeguarded the rights and freedoms of the Hong Kong people. With the rule of law maintained, people can continue to express their views in an open society.

Every now and then, Hong Kong people organise gatherings and peaceful demonstrations in respect of issues such as labour, welfare, preservation of historical relics and monuments, constitutional development and education reforms, and so on. The HKSAR Government attaches great importance to the views of the community and the protection of people's rights and freedom under the Basic Law, since these are the vital to our success.

In the economic field, the Asian financial crisis in 1997-98 brought enormous shock waves to the whole region. Fortunately, with an adequate level of reserves accumulated in the Land Fund, Hong Kong was able to weather the crisis. In accordance with the Basic Law, the HKSAR Government set appropriate monetary and financial policies to help facilitate economic restructuring in a timely manner.

The co-operation between the Mainland and Hong Kong has become closer over time - "Mainland/Hong Kong Closer Economic Partnership Arrangement", "Individual Visit Scheme", liberalisation of renminbi business, custom clearance facilitation and co-operation within the Pan-Pearl River Delta region are but some of the important measures that have facilitated economic recovery and restructuring. Hong Kong has not only regained its strength, but has developed even further.

Facilitated by these developments, the percentage share of services industry in Hong Kong's gross domestic product has increased from 75% in 1990 to over 90% now. The wholesale, retail, import/export trades, restaurant and hotel sectors account for the highest percentage of the total, at around 27%.

High value-added sectors, including finance, insurance, real estate, commercial services and professional services take up over 21%. Of the working population in Hong Kong, about 85% work in the services industry. The latest unemployment rate is 4.3%, the lowest in the past nine years.

Under the framework of the Basic Law, Hong Kong has further strengthened its role as an international financial, trade and shipping centre. The 11th five-year plan, adopted by the nation last year, has fully taken into account Hong Kong's development needs and functional positioning, as well as its roles in supporting the nation's long-term development.

The plan specifically states that the nation supports Hong Kong's development in financial services, logistics, tourism and information, and so on, as well as the maintenance of our status as an international financial, trade and shipping centre.

In September last year, the HKSAR Government organised an Economic Summit on "China's 11th five-year plan and the development of Hong Kong". Four focus groups - Trade and Business; Financial Services; Maritime, Logistics and Infrastructure; and Professional Services, Information & Technology and Tourism - were set up after the Summit.

These focus groups submitted reports and an action agenda to me on January 15 this year. They put forth 50 strategic proposals and 207 action items on how to enhance Hong Kong's strengths and support the nation's development.

We believe that the financial sector is of pivotal importance to Hong Kong's economy. Since reunification, in tandem with the growth of the nation's economic strength, Hong Kong has also registered significant development as an international financial centre.

A growing number of leading Mainland enterprises, such as the Industrial & Commercial Bank of China and China Life Insurance Company Limited, are listed in Hong Kong. As at the end of April 2007, capitalisation of the Hong Kong stock market, at $14 trillion, ranked 8th in the world and 2nd in Asia. Last year, over $300 billion was raised through initial public offerings, well exceeding that of New York and second only to London.

The number of companies listed on the Hong Kong Stock Exchange has increased from about 600 in 1997 to over 1,000 in 2006. More than 30% of them are Mainland enterprises. Their market capitalisation amounts to $6.7 trillion, accounting for about half of the total. This demonstrates the fundraising potential the Hong Kong stock market has for Mainland enterprises.

Drawing on our international experience, quite a number of Mainland enterprises have used Hong Kong as the bridgehead to "go international". More than 3 ,00 overseas, Mainland and Taiwan companies have set up regional headquarters and offices in Hong Kong. Among them, about 270 are Mainland enterprises.

These figures show that both multinational and Mainland enterprises consider Hong Kong an ideal base to conduct business in the region. This in turn underlines Hong Kong's competitive edge, which includes a simple tax regime, low tax rates, free flow of information and clean government.

The Financial Services Focus Group set up pursuant to the Economic Summit on China's 11th five-year plan has proposed a five-pronged financial development strategy on how the HKSAR can effectively contribute to the nation's economic development and financial system reforms.

The strategy is as follows:

* to enhance the participation of Hong Kong's financial intermediaries in the Mainland market with a view to providing more comprehensive financial services to the Mainland;

* to facilitate Mainland investors, fund-raisers and financial intermediaries to invest globally;

* to seek to secure access to the Mainland market of financial instruments issued in Hong Kong;

* to strengthen the capabilities of Hong Kong's financial system to process renminbi-denominated transactions; and

* to strengthen the interface between Hong Kong's and the Mainland's financial infrastructure.

We will pro-actively pursue and implement these proposals.

With the concerted efforts of the Central Authority, the HKSAR Government as well as the people of Hong Kong, the concept of "One country, two systems" has translated into an internationally recognised reality in the 10 years since the reunification. Looking ahead, there are opportunities as well as challenges for Hong Kong.

Our country is developing rapidly. Yet it also faces keen competition brought about by globalisation. To seize the opportunities and to better support our nation's development, we should expand our network with Mainland provinces/municipalities and to work hand-in-hand with Mainland cities to enhance co-operation and avoid cut-throat competition.

To this end, the HKSAR Government established economic and trade offices in Shanghai and Chengdu in 2006 to help facilitate our economic and trade co-operation with different provinces and regions, as well as to provide more support services to Hong Kong residents in the Mainland.

Hong Kong is best positioned to become the international financial centre of our nation and the Asian time-zone, as is New York for the Americas and London for Europe. To consolidate our position, we should not only reinforce our strengths, more importantly, we should secure the support and co-operation of all authorities, provinces and cities of our nation.

This helps ensure that the financial systems of both the Mainland and Hong Kong develop interactively and in a complementary manner. This will enhance synergy and reduce internal attrition. Otherwise, cities in other Asian countries will overtake Hong Kong as the leading financial centre in the region.

After nearly 30 years of reform and opening up, the momentum for the peaceful development of China is enormous. The major industrial powers are all eager to strengthen their economic ties with China. We need to feel the pulse of our nation's development, capitalise fully on our advantage of "being backed up by the Motherland's development while staying engaged globally" and enhance our cosmopolitan character.

Not only should we maintain close economic and trade ties with the international community, we should keep up our command of the English language. In addition, we need to enhance our status as the confluence of talents, information, capital, goods and cultures. This is easier said than done. We need to challenge ourselves constantly and go beyond conventional mindsets and approaches.

In areas such as economic and trade, education, social and culture, we need to adopt an open and proactive attitude to broaden our international perspective and connections so that Hong Kong will maintain its cosmopolitan character.

Talents are the most precious resource of Hong Kong. Insufficient talents would definitely be the biggest hindrance to our attempts to scale new heights. The problem of an ageing population is dawning upon us. Our birth rate is among the lowest in the world, with less than one child born to a woman aged 15 to 49. This has exerted pressure on our social and economic development.

To maintain Hong Kong's competitiveness, we must improve our demographic structure and enhance the quality of our population. Apart from encouraging birth and grooming local talents, we will also attract talents from the Mainland and overseas to stay and work in Hong Kong. Accordingly, we introduced the "Quality Migrant Admission Scheme" last year to attract accomplished talents and professionals who still possess the potential to advance further.

The Basic Law gives Hong Kong people unprecedented democratic rights. Since reunification, the Chief Executive has been elected by the Election Committee. The result of the third Chief Executive Election echoes that of the polls conducted by various universities. This demonstrates that the Election Committee is indeed broadly representative and can fully reflect community preference. In respect of the legislature, the number of directly elected seats has increased from one-third in the first term to half in the third term.

According to the design laid down in the Basic Law, the political system in Hong Kong is executive-led and headed by the Chief Executive. The Executive Authorities and the Legislature are constituted through different means. There are no concomitant and necessary correlation between the political background of the Chief Executive, the Principal Officials and members of the Legislative Council. Therefore, it cannot be taken for granted that we would gain support from the Legislative Council on government policies, legislation and the budget.

Unlike Governors before the reunification, the Chief Executive cannot appoint any members to the Legislative Council. This is a fundamental change to the political and constitutional arrangements.

Overall, since reunification, the Executive Authorities have had the support of the Legislative Council. Most of the bills and appropriation bills proposed by the Executive Authorities were passed by the Legislative Council. However, we do face challenges. In promoting democratic development in Hong Kong, we have to bridge political differences in the community to facilitate the emergence of a political mainstream.

To further the development of Hong Kong's political system while ensuring full implementation of 'One country, two systems' and an 'executive-led' system, we must, under the Basic Law framework, unite the political forces of the Executive Authorities and the Legislature so that they will become the political mainstream.

As we take forward Hong Kong's constitutional development towards the ultimate aim of universal suffrage, we have to create favourable conditions for the sustained development and progressive consolidation of this political mainstream. This requires much wisdom, courage and forbearance.

We have to exert our utmost to help foster a community consensus on constitutional development and change the confrontational political ecology that polarises the people of Hong Kong. This is a monumental task requiring an attitudinal change on the part of both the Administration and the political parties.

In the coming five years, the HKSAR Government will pursue the following in respect of economic and constitutional development:

* Economic development: The experience in discussing our nation's 11th five-year plan has provided a good foundation for Hong Kong to get prepared for the nation's 12th five-year plan. We will offer our views on Hong Kong's positioning, so as to better complement the future development of the nation, as well as to strengthen Hong Kong's status as an international financial, trade and shipping centre.

* Constitutional development: the HKSAR Government will, in accordance with the Basic Law, steadfastly and progressively achieve the ultimate aim of universal suffrage. Since the expansion of the Commission on Strategic Development in November 2005, we have been discussing options for achieving universal suffrage. Following the official formation of the third-term HKSAR Government this July, we will issue a green paper on constitutional development and use it as the basis for public consultation, with a view to identifying a set of answers for the universal suffrage issue under the Basic Law.

With the care and support of the Motherland, a vast and rapidly developing hinterland, rich international experience and connections, as well as the rule of law, human rights and freedoms fully safeguarded, we are confident that in the days to come, we will make Hong Kong an even better place, enhance the well-being of the residents and make even greater contributions to the modernisation and development of our Motherland.

Chief Executive Donald Tsang gave this address at the seminar in commemoration of the 10th anniversary of the implementation of the Basic Law held in Beijing. The Committee for the Basic Law of the Hong Kong Special Administrative Region of the Standing Committee of the National People's Congress organised the event.