Dr Vincent Lo, Professor Woo, distinguished guests,

Ladies and Gentlemen,

It is my pleasure to take part in the China Business Forum, jointly organised by the Shui On Centre for China Business and Management and the Hong Kong University of Science & Technology. The subject of the Forum, "Investment Strategies", is a most fitting one, because for Hong Kong, investment in the Mainland has really come to a new stage where both the level and scope of investment can be further increased by taking stock of what has been achieved so far. So this is just the right time for holding the Forum.

Our close economic relationship with the Mainland dates back many years ago. Today, Hong Kong is the Mainland's largest external investor, with its investment accounting for 60 per cent of the latter's total external investment. Hong Kong is also the Mainland's third largest trading partner. In 1996, total trade between the two places amounted to over HK$1 trillion, only after the trade between Japan and the US. Reciprocally, the Mainland is the second largest external investor for Hong Kong. The basis of the winning partnership between Hong Kong and the Mainland lies in the excellent match of the respective comparative advantages of the two economies. While the Mainland has much to offer in terms of market and resources, Hong Kong's international connections, financial infrastructure, entrepreneurial skills and services are exceptional. All these are well-known facts to us. The problem we face now is that with the dawning of a new century and the ever-changing economic, trade and financial environments on domestic and international fronts, we have to explore what kind of investment strategies and methods we should adopt in order to integrate the comparative advantages of the two economies to the greatest extent with a view to fostering the economic growth of both places. I believe that this is the key issue of the Forum.

A common saying goes, "Business is as fierce as war". In the first chapter of Sun Zi Warcraft, much is said about the concept of "trend". Indeed, the market trend in the Mainland has never been so good for foreign investors. From the Ninth "Five-Year Plan" for National Economic Growth in China, the Long-Range Development Programme for the Year 2010 as well as the modernization programme with a target date in the middle of the next century put forward at the 15th Party Congress of the Communist Party of China, it is very clear that a new pattern of reform and open-up has emerged, a development which is built on the experiences and tremendous success gained by the country in its implementation of reform and open-up policies in the past 20 years or so. It offers a much larger investment market and many more investment opportunities. The new features of this investment market include:

With the accumulation of materials through 20 years of rapid economic growth, the possession of the largest workforce in he world and a high rate of savings among the people, our country has the prerequisites for sustaining steady and rapid growth for the economic development of the next 15 years. It is estimated that from now till the first decade of the next century, the increase in gross national product will be maintained at a rate of about eight per cent annually. Economists in the Mainland forecast the scale of investment of foreign capital in fixed assets will amount to over 200 billion US dollars. International authoritative organizations estimate that China's investments in infrastructural facilities alone will be over 750 billion US dollars in the next decade, part of which will be met by foreign investment. It means that the need for foreign capital and technology will continue to grow. As for Hong Kong, not only will it play a greater role as an international financial centre, but its status will be consolidated and enhanced as well. As for investors, it will give them big opportunity to import capital, technology and managerial skills to Hong Kong.

As our country sustains rapid economic growth, the imports and exports of the Mainland will definitely increase at a fast pace. Hong Kong's re-export trade can therefore continue to grow, bringing about considerable increases in the demand for sea and air transport between Hong Kong and the rest of the world. As Hong Kong consolidates its position as an international shipping and air transportation centre, there will be more opportunities for Hong Kong investors to give full play to their talents for trade.

Our country is gradually changing its economic system. An open market economy that promotes competition is beginning to take shape. It includes the establishment of an external economic system that responds to the needs of a market economy and conforms with internationally accepted rules; the expansion of external trade and economic and technological co-operation. At the same time, our country continues to lower tariffs, cut down rules, and reduce non-tariff measures, treat foreign businesses as local ones, practices a fair tax system and opens up the market. As the soft investment environment

in the Mainland changes to conform with international standards, foreign investors who are familiar with the operation of a market economy and intend to invest in the Mainland will be thrilled by the development.

The various economic sectors coexisting in the Mainland will be further consolidated and perfected. At present, the Mainland industrial arena is divided among sectors, namely the private economy, foreign investment economy and collective industries, comprising government-owned industries, government-owned shares and individual shares. Based on the development trends over the past decade or so, we can well expect that private sector economy and foreign investment economy will play a more significant role in the national economy in the years to come, particularly in the increase of employment opportunities and development of export-oriented economy. This will enable Hong Kong investors to give full play to their capabilities.

As China's economy develops, different regions in the Mainland will complement and co-ordinate the advantages of their economic developments. In future, in accordance with the law of market economy and intra-economic links, as well as taking advantage of her geographical and physical features, China will break through the boundaries of administrative regions and progressively establish seven inter-provincial economic regions. Doubtlessly, the establishment of these economic regions will vastly expand the scope of investment for overseas investors.

For example, our country, through policy initiatives, facilitates and expedites the flow of capital and technology into the central-western economic region. In the past, our country placed much emphasis on developing the central-western region. Thus, a strong industrial and technological base has been formed there. However, industries in this region are still in need of capital and technological improvements. Problems of developing and opening up potential markets remain. As Hong Kong has the advantages of capital flow, managerial experience, access to information of overseas markets, good market network and a unique complementary relationship with this region, its investors should pay greater attention to this area as a field for investment. In fact, Hong Kong can cooperate with those developed economic regions in the Mainland to explore this area of investment.

In addition, we have to note that the future economic development of our country demands a shift from the quantitative approach to a qualitative one. Efforts should be made to employ advanced management skills, conduct thorough market research and develop high technology. Hong Kong and its investors are well-positioned to seize the opportunity afforded by our unique geographical situation, our distinct economic system as separate from the Mainland, our highly-developed communication system and access to energy resources and raw materials By tapping the vast market in the Mainland, co-ordinating Mainland's expertise and resources in science and technology, and making use of Mainland's solid industrial foundation , Hong Kong can effectively develop its capital-intensive investment, highly technological and high value-added industries, as well as speeding up technical renovation and transformation and improving international relations. In particular, the nearby Pearl River Delta area has the advantage to start up first. Hong Kong investors can seize this opportunity by putting innovative ideas into practice, in order to open a new prospect for investment.

The development and opening up of our country have brought new and greater investment opportunities to the Hong Kong investors. However, with the demands springing up from our country's economic development, there is a need for us to keep a sober mind, to be alert about the changing circumstances, as well as the new challenges posed by the investment market in the Mainland today:

First of all, our country demands a higher technological content from the inflow of capitals. Moreover, international consortia and large enterprises equipped with high technology are entering into the China market in a steady flow, to join in the competition. This poses a great challenge to the Hong Kong investors, and may greatly intensify the competition between Hong Kong and overseas investors; On the other hand, Hong Kong investors may co-operate with foreign enterprises to gain access to the Mainland market and many have been successful in this aspect.

Investment projects undertaken by Hong Kong entrepreneurs in the Mainland cover mainly real estate, hotels, light industries and minor activities. Labour-intensive production and regional conglomeration have become their investment tactics. Indeed local investment in the Mainland has contributed much to the development of Hong Kong, and of China as a whole. Yet, China is now undergoing structural adjustment in its industrial sector and regulating and co-ordinating its regional economic development. The entire concept is to change the industrial sector from primary production to secondary or even tertiary production, as well as from labour-intensive structure to one of capital-led and technologically advanced format. Therefore, agriculture, irrigation, transportation, energy resources, telecommunications, construction, machinery, electronics, petrochemical industry, car assembly, new materials, aviation and shipping are sectors that the national policy aims to sustain investment. To the Hong Kong entrepreneurs, however, these parameters call for fresh adaptation and adjustment, both in terms of the scale of capital investment and the technological know-how required. Thus, it is no doubt a great challenge to them.

To juggle with the taxation expenses is a general means used by Hong Kong investors to get higher returns. They have particularly benefited from the concessionary policies implemented in some coastal areas, which bring them good profits. However, with China's increasing openness, overseas investors will be gradually treated on a par with their counterparts in the Mainland, with their tax concessions revoked. Therefore, local investors will also face new challenges arising from a new investment policy.

The history of Hong Kong's economic development is a history of Hong Kong people's continuous adaptation to the changing environment and their success in coping with new challenges. The local people are strongly and swiftly adaptable to changes in their environment. Hence, I firmly believe that we can find a solution in spite of the changes of investment environment in China.

What I have just described above are some of the views and issues seen from a rather macroscopic perspective. Modest opinions though they are, I hope they will provide you with food for thought so that during the course of your discussion on the issue of investing in the Mainland, you will take account of the new circumstances and come up with investment strategies which are more in line with the current situation. The SAR Government is fully aware of the fact that closer economic co-operation between Hong Kong and the Mainland will be of paramount importance towards the development of Hong Kong's economy. Hence, it is prepared to give every encouragement and support to activities which are conducive to the strengthening of our economic partnership as well as attracting local investors to invest in the Mainland. It is for the very reason of increasing Hong Kong's competitiveness that the SAR Government has just announced its plans of raising the quality of education, encouraging local enterprises to develop higher value-added activities and providing incentives for the development of the information industry. I am sure that by charting out a correct course and moving forward together hand in hand, we should be able to carry our economic partnership to a new realm and attain mutual prosperity.

Thank you.