4 Feb 1999
Hong Kong: Into the New Millennium by Dr. Victor K. Fung Chairman
Distinguished Guests, Ladies and Gentlemen.
It is a great honour and privilege to accept this award. The fact that the three previous recipients are the SAR's three top leaders places me in very exalted company. It is also very humbling.
I feel there is a certain irony in being named leader of the year in Hong Kong. Much of my time is spent outside Hong Kong speaking to international audiences about how Hong Kong leads in so many areas of economic activity in the Asia-Pacific.
I also spend a great deal of time listening to overseas business leaders talk about Hong Kong, which gives me a clearer sense of what to emphasise when promoting Hong Kong. I'll touch on this later. I'll also touch on what the SAR might do to position ourselves more favourably for the new millennium ?V and to realise our full potential as the international business hub of Asia.
But first, I'd like to offer some observations on the present economic situation.
Current Economic Realities
There is no denying that 1998 was difficult. But I'm hopeful 1999 will be less so. Our biggest markets - the Chinese mainland, the United States and Europe - are holding up. Even with currency devaluations in many parts of the region, Hong Kong companies producing in the Chinese mainland still enjoy considerable cost advantages - and reliable sources of supply.
Significantly, our offshore trade remains strong. By that, I mean trade in products made outside Hong Kong by local companies and shipped directly to overseas markets or transhipped through Hong Kong. Because these products never officially touch our shores, they do not appear in Hong Kong's trade statistics. But at the TDC we estimate this "offshore trade" is equivalent to 85 per cent of our re-exports.
The biggest economic challenge for Hong Kong, not just now but over the long term, is competitiveness. It is no longer enough to be a premium product offering premium value. The message ringing out loud and clear from the Chief Executive's international business advisory council and from people I speak to overseas is that Hong Kong is too expensive. Period.
This means we face some very tough choices, especially about salaries, which are a big component of our business costs. Corporate Hong Kong is already grappling with this issue. Some employers have frozen salaries this year. The Trade Development Council is among them. Others are looking at ways to link salary increases to productivity gains.
Most important, in my view, is that such efforts help to preserve jobs. This was exactly how Hong Kong came through the last full-blown recession, in the early 1970s. When manufacturing orders fell, factories cut output and payrolls. But, as much as possible, they kept their workers employed.
Of course, things are more complicated now that Hong Kong's economy is more service-oriented. But, a generation later, the advantages of preserving jobs are just as real and important. The more possible it is for people to keep their jobs and pay their way, the faster - and stronger - will be Hong Kong's recovery.
And recovery is just what is going on now. Although the economic adjustment we are undergoing is not pain free, more than any other city in Asia, we have a tremendous asset in Hong Kong's free market system. Our adjustment mechanism is working well. Prices have come down sharply across the board, as reflected in the consumer price index.
Put another way, people's purchasing power is being enhanced. Real choices now exist - for housing, food, clothes, transport and other daily necessities - to pay less for basically the same standard of living. It means salaries, even frozen salaries, can stretch farther than they did a year ago.
It is important to remember that in a time of very low inflation or deflation, as is the case now, accepting a wage freeze or even a nominal cut in salary, does not have the negative impact it would if prices were growing by 10 %, as they were during the bubble years.
This lowering of both prices and salaries is at the heart of Hong Kong's efforts to recover and become more competitive. And you can see it working now everyday.
I confess I don't get out shopping as often as I would like. But one would have to be totally blind not to see what is going on in Hong Kong. Bargains and special offers are being advertised and promoted by stores of every kind, at every price point and in every district.
People are becoming more price sensitive. They are seeking out acceptable quality and finding it at a fraction of the price of premium brands. I personally believe consumers have never been a more potent or active force in our economy. Bargain-hunting is a powerful stimulus to consumer demand and helps, not only to boost sales volume, but to keep prices low.
So while it is absolutely right to say there are no quick fixes for Hong Kong's economy, legions of canny consumers are finding their own quick fixes every day, at street level.
Tourists, too, stand to benefit from the heavy discounting going on all over Hong Kong. Hotels are offering more attractive packages and restaurants are noticeably placing more emphasis on value.
In the commercial sector, companies looking for new or expanded premises are in a very strong negotiating position. Even in prime rent districts, you see companies seizing opportunities to double the size of their premises by expanding into space vacated next door. Similarly, overseas firms setting up or expanding in Hong Kong are in for pleasant surprises about the cost of doing so.
The Trade Development Council is constantly projecting this message overseas. We try to balance the somewhat alarming picture of Hong Kong painted by global surveys comparing the costs of doing business in major international business centres.
Tackling Overseas Impressions of Hong Kong
Talking to overseas audiences, I am often reminded of the period before the handover, when people were more focused on what might happen than what was actually going on. Nowadays, I find attention more fixed on the problems we have encountered since 1997, than on what we are actually doing to overcome them.
But it is important to keep moving the story forward. To let overseas audiences know, for example, that our new airport is now recognised as one of the best and most efficient in the world. And that the SAR Government's actions, last August, to restore order and stability to our financial markets are now viewed as a turning point in global efforts to overhaul the world's "financial architecture."
It is also important to keep alive the fact that Hong Kong remains international and cosmopolitan; that we are an open, and pluralistic society where expatriates continue to play a vital role, that we have a legal system which pays more respect to individual rights and human dignity than any other in Asia and is independent, something that was underlined by the recent Court of Final Appeal ruling on mainland children's right of abode in Hong Kong; and finally that we are working hard to improve standards of English.
Of course, overseas audiences are interested to talk about "Singapore vs. Hong Kong". I tell them what I genuinely believe. Singapore is doing a lot right to haul itself out of Asia's economic crisis. Its Government is pulling out all stops to accelerate the globalisation of their economy, which is why we find Singapore competing more with Hong Kong, especially in financial services. In Singapore's shoes, I would do much the same.
But we are different. We walk different paths through fundamentally different circumstances and we play different roles. To prosper, our vast and diverse region needs us both, with our differences even more so than our similarities.
Hong Kong thrives on this competition - indeed we already compete not just regionally, but globally. The important thing for Hong Kong is not to be tempted into moving away from that which makes us different and unique. Hong Kong needs to be more like Hong Kong. Not less.
In fact, I believe we can do more to capitalise on these unique advantages that make Hong Kong different. Advantages such as having the Chinese mainland for an economic hinterland, low taxes, the freest information flows in Asia and an economy driven by some 300,000 entrepreneurial companies, most of whom are experienced in transnational business.
Yet, as I always remind overseas audiences, we are not complacent. The economic downturn has propelled our community into a vigorous, healthy and important debate about how to build our future; how to be more competitive.
Into the Future
In my view, we have gone about as far as we can with the old paradigm that emphasised economic growth and divorced economic issues from wider societal ones. I think the time has come to develop a new paradigm for the future.
The Chief Executive has spoken of the need to develop a longer term vision for Hong Kong. I think it is not only desirable but imperative that we do so. Developing a long-term vision is crucial to sharpening our competitiveness and positioning ourselves in the best possible way for the years ahead.
This long-term vision needs to do three things.
First it must lay out clearly the basis on which Hong Kong will compete and offer a blueprint for future economic development. In this regard, I believe Hong Kong is already well on track. I believe a viable long-term direction has already emerged. Hong Kong is a metropolitan economy, serving a vast hinterland. It plays the role in Asia which a city like New York plays in North America.
Secondly, a long-term vision helps to explain how we are different from other economies in the region and emphasise our uniqueness. It helps us "position" Hong Kong as a business location and tourist destination. It gives us a brand image to market ourselves.
Developing this image will be increasingly important as competition heats up in the next century. For a sophisticated economy such as Hong Kong's, developing a reputation - a niche in the market - will be crucial to securing business.
Here again, Hong Kong already has a tremendous head start. We are known the world over as the premier gateway to China. We are also thought of as the city that works. The place where the deal is done.
Finally, developing a long-term vision forces us to make choices. To articulate what it is we are striving to become. I believe Hong Kong's future lies in becoming Asia's first truly global city. An international, cosmopolitan centre that plays a unique role in world affairs. In a business sense, Hong Kong is already firmly tied into the global financial network.
But to truly achieve world status we need to pay more attention to the wider societal issues that until now have not been a big enough part of the equation. I believe, for example, we must nurture more creativity in our children, provide more affordable housing, and start cleaning up the environment, beginning with air quality.
The gap between the two worlds of Hong Kong - the economic and the social - is in real danger of holding us back; keeping us from becoming a world city. Increasingly global business is measuring the total portfolio we have to offer. And on the so-called "softer" issues, we need to do more.
This is where the real challenge to Hong Kong's leadership position comes from. Not from the Asian economic crisis. Not from competition outside. But from achieving real consensus from within. The time has come to re-dedicate ourselves. To commit to building Hong Kong for the 21st century.