CS' speech at the Hong Kong-Guangdong Business Conference in Sydney(with photo)

Hong Kong (HKSAR) - Following is the speech by the Chief Secretary for Administration, Mr Henry Tang, at the Hong Kong-Guangdong Business Conference in Sydney at The Westin Sydney today (October 27): Mr Yuile (Peter Yuile, Deputy CEO of Austrade), the Honourable Mr Carr (Bob Carr, former Premier of New South Wales), the Honourable Mr Iemma (Morris Iemma, former Premier of New South Wales), Ambassador Zhang (Zhang Junsai, Chinese Ambassador to Australia), Consul General Hu (Hu Zhan, Chinese Consul General in Sydney), Governor Huang (Huang Huahua, Governor of Guangdong Province), Distinguished Guests, Ladies and Gentleman, Good Morning - or perhaps I should say "G-day". It is a great pleasure to be here in the spectacular city of Sydney for this Hong Kong-Guangdong Business Conference. Indeed, this event is a great example of globalisation at work...

or at the very least, regionalisation. My thanks to Governor Huang for bringing us all bang up to date with the exciting developments in Guangdong and the Pearl River Delta region or PRD. It is now my job to tell you about Hong Kong's role in making the most of this spirit of cooperation and translating it into business opportunities for companies around the world, including Australian firms.

Let me rewind back to 1978 when the Mainland of China was at the dawn of economic reforms, the scale and the results of which, in my view, are unprecedented in human history.Hong Kong was then seen as the natural partner for the Mainland, in particular for Guangdong given our geographical proximity and the common cultural roots.In short, Guangdong has the land and human resources, and Hong Kong has the capital and the knowhow.It was a perfect match.So in the ensuing 30 years we saw Hong Kong serving as the major source of direct investment into the Mainland, and our manufacturing base moving to our northern neighbour, together with management knowhow and connections to the international market.The rest is history. Today the PRD is undeniably the world's factory.And Hong Kong is proud to be part of this success story: we are Guangdong's largest trading partner; we are Guandong's largest source of foreign direct investment, accounting for over 60 per cent of its total FDI stock; Hong Kong companies employ some 10 million workers in the PRD (this figure I guess is close to the entire working population in Australia).On the other hand, Hong Kong has also benefited tremendously through transforming ourselves into a services-oriented economy, focusing on trading, logistics, financial and professional services.Today the services sector accounts for more than 90% of our GDP. Looking back on these hugely successful 30 years, one cannot help but ask what's next in the coming 30 years.The answer seems rather obvious: for Guangdong it would be upgrading its manufacturing industries and promoting its services industries; for Hong Kong it would be the export of services; and for both it would be closer economic integration.This has to be, and will be, a win-win formula that will bring Hong Kong - Guangdong co-operation to a new level.

So how can we achieve this goal? First and foremost is the need to improve our cross-boundary infrastructure to facilitate the movements of people and goods.We are now pressing ahead with a series of mega infrastructure projects to strengthen our cross-boundary connectivity and make remote areas of the PRD more accessible. These projects include a 29-kilometre bridge that will connect Hong Kong with Macao and Zhuhai in Guangdong across the Pearl River estuary. When completed it will open up the less developed western part of the PRD region.

Another large-scale project is the Guangzhou-Shenzhen-Hong Kong Express Rail Link that will substantially reduce the travelling time between our downtown and the PRD, as well as connect our city to the Mainland's high-speed rail network. We expect work to begin on both these projects by the end of this year. We are also exploring the possibility of a rail link between Hong Kong International Airport and Shenzhen Airport to improve the efficiency of both facilities and benefit the region as a whole.

The rail link would enhance the synergy between the two airports with Hong Kong concentrating on international connections and Shenzhen specialising in domestic routes throughout the Mainland.Furthermore, there will be a mid-way stop in Qianhai, which Shenzhen wants to develop into a services centre.We are all excited with the joint development and opportunities. But we know it takes more than just hard infrastructure to sustain and grow our relationship.The two sides also need to improve on the soft infrastructure to facilitate the flows of people, goods, capital, and information.Our joint ambition is to establish the PRD as one of the most competitive regions in the world by 2020. This goal was highlighted in January when the Central Government released a Framework document for the development and reform of the PRD.For the first time the economic integration between Hong Kong and the PRD is clearly and comprehensively laid down on the Central Government's policy agenda.I emphasise economic integration because both Beijing and Hong Kong remain firmly committed to the constitutional principle of "One Country, Two Systems" that preserves the high degree of autonomy enjoyed by Hong Kong after our reunification with the motherland.

The Framework reaffirms Hong Kong's status as a global financial, trading and logistics centre and supports expanded co-operation between Guangdong, Macao and Hong Kong. It also seeks to capitalise on Hong Kong's competitive edge as a high value-added services centre in the region. And because we want the PRD to be a green and vibrant example for the rest of our nation, the Framework also covers co-operation in a wide range of areas including environmental protection, education, healthcare, social security, culture, and intellectual property protection.

One of the most important building blocks for our closer co-operation with the Mainland is CEPA, or Closer Economic Partnership Arrangement in full.CEPA is our unique free trade pact with the Central Government to break down barriers in trade, services and investment with the Mainland. Under this WTO+ arrangement, goods manufactured in Hong Kong are exempted from tariffs when entering the Mainland market, and Hong Kong companies enjoy enhanced access to the vast services markets throughout the Mainland. CEPA currently covers 42 services areas including key areas such as tourism, IT, legal services, banking, insurance, conventions and exhibitions and logistics.Quite a number of these liberalisation measures apply to the Guangdong Province in the form of pilot schemes.It demonstrates clearly the close relationship between Hong Kong and the PRD.And we expect more pilot schemes in the services sector to be introduced in Guangdong.

The great thing about CEPA for Australian firms is that the arrangement is nationality-neutral. In other words, overseas firms incorporated in Hong Kong, including Australian firms, can enjoy the full benefits of CEPA. And because CEPA is an ongoing commitment to smooth the flow of cross-boundary trade and investment, its breadth and depth has been expanded each year since its launch in 2004.

The latest additions to CEPA took effect this month. The most important thing about CEPA is that it works.According to our inward investment agency, Invest Hong Kong, around 25% of the companies they assist say that CEPA is either the main reason or one of the factors in their decision to invest or expand in Hong Kong. Perhaps that is not so surprising when you imagine what preferential access to a potential market of 1.3 billion people could do for your business.

I would now like to talk about why Hong Kong is the perfect place for Australian companies to tap the enormous China market. Figures speak for themselves.Today, some 50,000 Australians live and work in Hong Kong and contribute to our society's cultural diversity. It is one of our largest expatriate communities.

And around 600 Australian companies have a presence in our city. About 70 of these firms have their Regional Headquarters or Regional Offices in Hong Kong.Many of them are increasingly engaged in business across the boundary in the Mainland of China, the PRD in particular. Allow me to tell you about one Australian firm called Messages On Hold which saw the potential of having a base in Hong Kong and opened an office in our city earlier this year.The company was founded over 20 years ago by Perth entrepreneur Kym Illman.

He spotted a gap in the market - using the time customers are "on hold" as a new marketing communication channel.The company has since grown to become the fourth largest "on hold" provider in the world and largest in the Asia Pacific. The company opened an office in Hong Kong in February to capitalise on the great market opportunities. Similar to many SMEs, Messages On Hold sees the Mainland as a big potential market for its services and Hong Kong as the most effective gateway to reach its target market.

Other well-known Australian brands that have invested in our city include: Dymocks, Telstra, Penfolds, Qantas, Macquarie, Australia and New Zealand Banking Group, National Australia Bank, United Group Rail and Australian Postal Corporation, to name but a few. Apart from being right on the Mainland's doorstep, Hong Kong is a stable and dynamic global financial centre in the Asian time zone. We also share many of the characteristics that are cherished by entrepreneurs here in Australia.

We have a free flow of information and ideas. We have a fully convertible currency and there are no restrictions on the flow of capital. Our common law legal system is based on the English system and underpinned by an independent judiciary.

In other words, Hong Kong is a familiar place for Australian entrepreneurs. We speak the same language, have a similar legal system, and share common values. Perhaps the greatest incentive for companies in Hong Kong is our low and simple tax system.

Salaries tax is capped at 15% and companies pay no more than 16.5%profits tax. There is no inheritance tax, no VAT, no GST and no capital gains tax. Of course, there is plenty of room for more Australian companies to come to Hong Kong and take advantage of our close ties with the Mainland.

We also welcome Australian firms to list on our stock market, which is the third largest in Asia and seventh largest in the world by market capitalisation. Despite the onset of the global financial crisis last year, our foreign direct investment increased more than 16 per cent to AUS$68 billion [US$63 billion] in 2008. That ranks second highest in the Asia Pacific region and seventh in the world, according to the UN Conference on Trade and Development's annual World Investment Report.

This underscores Hong Kong's strong appeal to a growing number of international companies as a platform to reach Guangdong and the rest of the Mainland, as well as the Asia-Pacific region. The people at Invest Hong Kong have been busy assisting new companies to set up in Hong Kong or existing firms to expand their operations at a rate of one completed project every working day. Invest Hong Kong provides a full range of services to help new companies get off on the right foot, from finding the best location to assisting with the paperwork, which in most cases is quite minimal.

Invest Hong Kong representatives here today will be happy to answer any questions you may have about setting up an office in Hong Kong or expanding your business. To open the door to opportunities in the Mainland a little wider, we also have the Hong Kong TradeDevelopment Council, or TDC. The TDC has an extensive contacts list and a great deal of experience in matching overseas companies with the most appropriate partners in Hong Kong, which can help them expand their business activities into the Mainland.The TDC also organises more than 30 international trade fairs each year that help connect the international business community to suppliers in Hong Kong and throughout the Mainland.

These are some of the ways we stimulate business activity in our neck of the woods, and I can tell you that the global economic turmoil has only encouraged us to work harder. Although each of our economies has been battered by the financial crisis, the good news is that many economists agree that Asia will spearhead the global recovery, with China leading the way. In Hong Kong, we have allocated some AUS$12.3 billion [HK$87.6 billion] to combat the financial crisis since last year.

We have also taken various measures to stabilise the financial system and cushion our community from the full impact of the crisis. After four quarters of negative economic growth, our economy emerged from recession in the second quarter of this year recording quarter-on-quarter growth of 3.3%. Throughout the economic downturn, Hong Kong has maintained all the fundamental strengths that I mentioned earlier including low taxes, robust financial system and stable society.

This year - for the 15th year in a row - the US-based Heritage Foundation ranked Hong Kong and the freest economy in the world. So where do we go from here? Our Chief Executive, in his annual Policy Address earlier this month, highlighted strategies for achieving a sustainable economic recovery. Among other things, he highlighted six industries where Hong Kong has a clear competitive advantage and strong potential for growth.

These industries are: education services, medical services, innovation and technology, testing and certification, environmental industries and, creative and cultural industries. The Hong Kong Government is well known for its "hand's off" approach towards business. We remain firmly committed to the notion of "big market, small government".However, we also realise that in a fast-changing world we have a role to play in removing obstacles to economic development and enhancing Hong Kong's competitiveness.

In respect of the six industries I have just mentioned, this may include ensuring adequate land resources, encouraging businesses to embrace a culture of research and development, or promoting arts and culture in the community. At the same time, our closer co-operation with Guangdong and the PRD will directly benefit each of these knowledge-based industries.Let me just give one example how this works.Hong Kong and Shenzhen have been joining hands to attract overseas companies to set up R&D facilities in this part of the world.Our efforts are bearing fruit.In March this year DuPont set up a global thin film photovoltaic R&D Centre in Hong Kong, and in parallel its large manufacturing plant in Shenzhen will be completed later this year.This model makes best use of the advantages offered by Hong Kong and Shenzhen.We welcome Australian companies and R&D institutes to explore this model to suit your needs. So our aim is to expand and broaden our economic base and avoid over-reliance on our well-established pillar industries of financial services, trade and logistics, tourism and professional services.

Here's another typical example of how we have been able to give an industry a shot in the arm, while at the same time letting market forces determine whether an enterprise will succeed or fall flat. I'm talking about the wine industry. And in the interests of full disclosure I should tell you that I appreciate fine wine, including of course Australian wine.

However, our initiatives regarding the wine industry are not about picking winners or making wine a little more affordable. Instead they are about grasping opportunities when we see them, and we saw an opportunity to establish Hong Kong as a wine trading and distribution hub in Asia. In the Government Budget last year, we eliminated duties on wine.

Overnight, wine duties went from 40% to zero. That made Hong Kong the first duty free wine port among major economies. Since scrapping wine duties, many of the major auction houses have staged lucrative sales in Hong Kong.

New storage facilities for wine have opened up; jobs have been created for sommeliers and wine imports and logistics have soared. Wine producing countries have joined forces with us to promote wine trading, wine appreciation and wine exhibitions. In April this year, Hong Kong and Australia signed a Memorandum of Understanding that represented our first MOU with a New World wine country.The MOU covers a wide range of areas, including co-operation on promoting wine trading, investment, wine-related tourism, wine education and appreciation, and the fight against counterfeits and smuggling.

Australia is already our second largest supplier of wine, accounting for some 19% of our total wine imports by volume.In the first 12 months since scrapping wine duties the total value of our wine imports jumped about 80% to almost AUS$450 million.Auction value has surpassed London, and catching New York. With increasing prosperity and changing lifestyles on the Mainland, the wine industry predicts that China will lead global demand for wine in the next decade and beyond. Although it is still early days, we aim to build on the success of this formula of low taxes and high efficiency to open up new opportunities for other sectors if deemed appropriate.

We know that, in today's competitive environment it takes more than excellent business opportunities to attract the brightest talent. Indeed, Sydney is a good example what it takes to become a great city in the 21st Century. You have the business opportunities, a modern cosmopolitan community, plenty of leisure activities and a deep appreciation of arts and culture.

And that brings me to my final topic today. In Hong Kong, we are embarking on arguably the most exciting cultural development project in the world at this time. Our goal is to build a series of iconic arts facilities on a prime waterfront site.

The West Kowloon Cultural District, or WKCD, is a 40-hectare site along Victoria Harbour. The area will be transformed into 15 arts facilities including a Grand Theatre, Modern Art Museum, concert hall and piazzas with the first phase scheduled to open in 2014/15. An upfront endowment of AUS$3 billion has been approved to get the ball rolling.With all these arts facilities and 20 hectares of open space, this is probably the most audacious and exciting project in the arts and culture world.

Our vision is for the WKCD to have a similar global impact for Hong Kong as the Sydney Opera House has had for this city. Or perhaps similar to Federation Square in Melbourne. I'm looking forward to visiting Fed Square tomorrow.We are confident that the WKCD will draw audiences not only from Hong Kong but from around the region and indeed the world.

We have just embarked on a public consultation to gauge Hong Kong people's aspirations for the WKCD.Three world-renowned architects are helping us to produce a master layout plan that will firmly put WKCD in the top league of arts and culture clusters.When the first phase of the project opens in about five years time I hope we can have the best Australian artists performing or showing their works in WKCD.I also hope you will all come and enjoy the atmosphere. Ladies and gentlemen, these are exciting times for our city and our region. I hope I have given you a clear picture of the opportunities in Hong Kong and how our strong connectivity with our friends in Guangdong is helping to set the pace for economic recovery and sustainable growth.

Thank you for your hospitality and I look forward to welcoming you to Hong Kong soon.

Published on: 2009-10-27

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