Following is the speech by the HKSAR Chief Executive, Mr Tung Chee Hwa, at the Hong Kong Trade Development Council Annual Dinner in London at the Dorchester Hotel yesterday (Tuesday).

Minister Fatchett, Victor, Distinguished Guests, Ladies and Gentlemen :

It is always a pleasure to be back in London. Britain has many happy memories for me, going back to student days in Bournemouth and Liverpool and to the days when I had extensive business dealings in this country.

This is my first visit to Britain since being selected Chief Executive last December and since assuming office on July 1, when the Special Administrative Region was born. I am most touched by the warmth of the welcome I have been given.

I am also very pleased to have this opportunity tonight to meet old and close friends with a deep knowledge, understanding and appreciation of Hong Kong. It is, of course, testimony to the long and special ties between us.

Some of you were in Hong Kong on July 1st to witness an important day in the history of Hong Kong, and indeed of China. Today, nearly four months later, we in Hong Kong are moving forward with pride and confidence. Pride in that we are now reunited with the motherland, and have become masters of our destiny. Confidence in that we can and will make our city an even better place going forward.

Indeed, July 1st has come and gone. We, who live and work in Hong Kong, continue to work hard for an even more successful and prosperous future. Our economy continues to grow, our financial fundamentals remain solid, our society remains pluralistic, and our politicians continue to debate openly on all the topical issues. Recent surveys conducted by the Hong Kong University Social Science Research Centre showed that 85% of our population is confident about the future of Hong Kong.

What makes us so confident in managing our future? The fundamental reason for our confidence is, of course, the solid promises of our Basic Law. This comprehensive document was drafted by people from both Hong Kong and Mainland China after some four years of consultation and discussion. It provides a constitutional framework for the HKSAR. It institutionalises the concept of "One Country, Two Systems". It clearly prescribes the social, economic and political systems in Hong Kong which are different from those in Mainland China. It protects the rights, freedom and lifestyle of Hong Kong people, guarantees the independence of our judiciary, and gives us full responsibilities to manage our own affairs, except in matters relating to foreign and defence affairs. It allows us complete financial autonomy, and independence of our monetary system. It establishes Hong Kong as a separate customs territory, and enables us to work directly with the international community to control trade in strategic commodities, drugs, illegal transhipments, and to protect intellectual property rights.

It should be remembered that the "one country, two systems" concept did not originate in London or Hong Kong. It was developed by China. The reason is simple : It is clearly in the fundamental national interest of China that the "one country, two systems" concept be successfully implemented. By preserving and further enhancing the success of Hong Kong, we can contribute towards continued modernisation of China. Moreover, the success of Hong Kong in preserving different social, economic, and political systems within one country will be a significant step towards the greater and final objective of re-unification of the entire nation.

These are major objectives for China, which has undergone dramatic changes since it opened up to the outside world in 1978. The economy has grown at a remarkable rate, averaging close to 10 per cent per annum. It is a tribute to the vitality and energy of the Chinese people and the vision of China's leaders who have guided these developments. Indeed these leaders have the ability and the acumen to steer China successfully into the 21st century. It is this ability and acumen that, I believe, will ensure the successful implementation of the "one country, two systems" concept as we move forward into the future.

Since July 1, we in Hong Kong have been administering our own affairs. The Basic Law also requires us to develop our democratic institutions: we as a society are fully committed to doing that.

The blueprint for the democratic evolution of our political structure over the first ten years has been laid down in the Basic Law. I was elected Chief Executive last December and my successor will be elected in 2002. The election for our first full legislature will be held in May next year. All the 60 seats will be returned directly or indirectly and the election will be open and fair. Every adult permanent resident in Hong Kong will have the right to vote for the 20 directly elected seats. |There are currently 2.5 million registered voters. All political parties are welcome to contest the seats. Elections will be held in 2000 for the second legislature and in 2004 for the third legislature.

In ten years' time, that is after 2007, according to the Basic Law, Hong Kong people will decide how to take forward the democratic process with the ultimate aim of universal suffrage to elect both the Chief Executive and the Legislature.

Is a period of 10 years too long for this evolutionary process - a process that is critical to Hong Kong's future, a process the success or failure of which we in Hong Kong, and no one else, will bear the full consequence? I appreciate that this is an issue of concern to some. However, let me emphasise this. At the end of the day, we must move forward in what we, in Hong Kong, believe to be in our best long-term interest. And you would expect us to do no less. In any case, I want to assure you that we are not turning the clock back, not standing still, not shutting people out.

As many people know, I am conservative. But conservatism - wanting to sustain things that you know and value - does not mean standing still or turning back the clock. Sustaining a wonderfully complex and exciting community like Hong Kong requires constant, judicious movement and sometimes pre-emptive adjustments. I am bound by conviction, and by oath, to uphold the Basic Law. I will assert and support key values and principles. I am fully aware that in moving forward we need the full support and acceptance of the community.

I would like to take the opportunity to share with you some real experiences since July 1st. The Chinese leadership during the handover ceremony and on subsequent numerous occasions has emphasised that Hong Kong would continue to flourish and enjoy a high degree of autonomy under the "one country, two systems" concept as guaranteed by the Joint Declaration and the Basic Law. I can tell you that during the four months since July 1st, there is not a single suggestion that such autonomy has been undermined.

The perpetual pessimists have predicted that the rule of law will no longer prevail after 30 June. They are wrong. The rule of law is the cornerstone of Hong Kong's success. The Basic Law guarantees that Hong Kong will keep the common law system, which is arguably the finest British legacy, and an independent judiciary with the power of final adjudication in Hong Kong. We pride ourselves on the rule of law and will do everything to preserve it.

Immediately after the handover, the legitimacy of the Provisional Legislature was challenged. This is not a sign that our legal system is flawed or crumbling. The contrary is indeed true, as rightly observed by Lord Irvine during his visit to Hong Kong in September. Legal challenges are part and parcel of the Hong Kong system, and indispensable chain in the rule of law itself. The Government has been and will, no doubt, continue to be challenged in court. What is important is that legal challenges are and will continue to be dealt with by courts in Hong Kong. The Government will argue its case in court and abide by the rulings.

The Appeal Court's ruling on 30 July upheld the legitimacy of the Provisional Legislature and put the validity of all laws passed after 30 June firmly beyond doubt. This brings me to another dire prediction of the school of pessimists that freedoms, democracy and civil liberties in the HKSAR will be severely curtailed. Again, they are utterly wrong.

The Basic Law also ensures that the people of Hong Kong will continue to enjoy the freedoms of speech, assembly, association, the press, as well as other freedoms guaranteed by the International Covenant on Civil and Political Rights. Since the establishment of the HKSAR, Hong Kong people have been exercising these rights of free speech, of demonstration, and of scrutinising government policies and decisions. We have some 20 demonstrations a week. People talked about self-censorship by the press before the handover. Let me tell you this: it would be an extremely unusual day if I were not to read some criticism, complaint or comment about myself or other senior officials in the media. Believe me, the Hong Kong media is as active and demanding now as it ever has been.

So much for the unfulfilled myths. The reality is that business continues as it has done before. The economy is growing at a healthy rate, with GDP forecast to grow at 5.4%. We remain committed to our linked exchange rate regime, which has not been affected by recent turbulence in the region. It is the anchor of our monetary and financial stability, and we certainly do not intend to make any change to this arrangement. Today we have over US$85 billion in foreign exchange reserves, of which about US$50 billion constitutes fiscal reserves, with no external debt. Our fiscal surplus this year will exceed 2% of GDP, our savings rate continues to exceed 30%. Hong Kong peoples' confidence in the HKSAR Administration and the future is running high.

We have had a good beginning. Laying a solid foundation for our future is very important. We have good reasons to be proud of our achievements in the past thirty years. But we have to be alert to the challenges which lie ahead. We face keen competition in trade and services, and our competitiveness is threatened by high operating costs. People are our greatest asset, and we have to make sure that the next generation is equipped with the necessary skills. We have to face challenges arising from a growing and ageing population, meet the pressing demand for more and better housing, and deal with employment dislocation due to the restructuring of the economy. Only then can Hong Kong remain at the forefront of the new age with vigour and vibrancy.

My Government's foremost task is to help to enhance Hong Kong's economic vitality and sustain economic growth. We aim to continue to create a good business environment, plan for and train the necessary manpower, and uphold the principles of free trade, fair competition and non-interference in the market-led economy. We are committed to small government, with the share of public expenditure currently representing only 18% of our GDP. We will strive to affirm Hong Kong's position as an international financial centre and a cosmopolitan city. We will promote the services sector and facilitate the development of value-added and high technology industries. As we enter the information generation, we will adopt positive measures to encourage investment in the information industry and infrastructure, and nurture expertise in this area. We are determined to stabilise the property market by increasing overall housing supply, with a view to achieving a home ownership rate of 70% in ten years' time.

Education is the key to the future of Hong Kong. My Government will ensure that our education system will cater for Hong Kong's long-term needs. We will adopt an international outlook to combine the very strengths of the East and the West. We are drawing up a comprehensive plan to improve the quality of education, and will inject sufficient resources to achieve this goal. Enhanced language training, in both Chinese and English, as well as teaching in information technology will be indispensable elements.

The recent 15th Party Congress has again reaffirmed the path of the nation's development. Indeed, we are confident that China will be more open and more prosperous as it enters into the 21st Century. In a recently released study by the World Bank, China 2020, it is projected that by early next century, China could become the second largest trading nation in the world. Hong Kong will undoubtedly be one of the chief beneficiaries of China's growth and prosperity.

The 15th Party Congress also set out policies on economic reform on an epic scale - that is, the reform of state enterprises. In this respect, Hong Kong is primed to make a unique and mutually beneficial contribution in areas such as raising capital, new technologies, professional expertise and contacts in overseas markets, especially through our capital markets. But it is a huge challenge and one in which we would welcome the British partners.

Southeast Asia, despite recent financial turmoil, I believe will continue to march forward strongly into the 21st Century. Indeed, it is estimated that the East Asian region, consisting of Japan, Korea, China, Hong Kong, Taiwan and ASEAN will have a GDP as large as NAFTA and the European Union by the turn of the century. East Asia will by then emerge as the world's largest producer, capital lender, and capital borrower, as well as largest consumer market.

Imagine the depth of economic opportunities in the coming decades in China and Asia. And where can the UK business community best capitalise on such opportunities? Where else but Hong Kong, the natural gateway to China and the Asia Pacific Region.

I am pleased that Britain maintains a very strong presence in the SAR. There are about 1,000 British, or British-controlled and managed, companies in Hong Kong. Britain is one of the largest investors in Hong Kong.

British retailers have been particularly successful in winning over Hong Kong's consumers. And many British companies use Hong Kong as a springboard to the Chinese Mainland and the region's new consumer markets.

British firms are involved in major Hong Kong infrastructure projects, including our new airport, which will open next year. Close to 27,000 British citizens live in Hong Kong. Similarly, many Hong Kong people have close family in Britain and take a particular interest in its affairs.

All these ties are reflected in the growth of trade between us, which rose by more than 14 per cent per year in the past decade. We are Britain's second-largest trading partner in Asia, after Japan. And we handle approximately half of China's trade with Britain.

With the indomitable spirit of the Hong Kong people, and a strong commitment from the leadership of the Central People's Government to the full implementation of the 'one country, two systems' concept, Hong Kong's future is assured, I feel it is time to rethink the scope of the UK-Hong Kong partnership. To think bigger.

If there has been any change at all in Hong Kong since the handover, it is in the mindset of our people. Hong Kong is no longer an enclave economy with an artificial and psychological barrier created by the date of June 30, 1997 and the border between Hong Kong and the mainland of China. Tens of thousands of Hong Kong people who have previously migrated overseas are returning home each year. They feel the pride, they sense the opportunity and they want to participate in building a better tomorrow. Yes, our people are thinking longer term. They are looking at how to develop their businesses over time, how to broaden into higher value added activities - and at forming strategic partnerships to make this happen.

New opportunities for UK companies abound not only in Hong Kong's changing economy but also in the Mainland, in partnership with Hong Kong, as the nation's economic reform deepens and broadens. It is a natural evolution which will draw our business communities closer together, and one I warmly welcome.

Hong Kong has been enriched over many decades by different ideas and cultures, blending the best of East and West. Britain has contributed greatly to this process. People from all over the world feel at home in Hong Kong. It is more than the prospect of making money. The deeper attraction is Hong Kong, itself.

Hong Kong is in the midst of where many of the most important events of the 21st century will happen.

This is when Hong Kong's unique strengths as a "supercity" for international business will be most in demand, intermediating not just between the Chinese Mainland economy and the world, but between Asia and the world.

In short, the Hong Kong SAR is poised to reach even greater heights as the new century unfolds. I am proud and privileged to lead it. And I invite even greater participation from UK business in our continued success.

Thank you.