Mr Tay, Excellencies, Distinguished guests, Ladies and Gentlemen,

It is a great honour to stand here today, before the Chinese Chamber of Commerce of Singapore, as the first Chief Executive of Hong Kong.

July 1 1997 was a day to which we in Hong Kong had looked forward with pride and confidence. Pride to at last be reunited with China, and to become masters of our own destiny. Confidence that we can and will make our city an even better place for our children and grandchildren.

July 1 is a day which Chinese people around the world can remember with a sense of pride. It is a feeling that most people in Singapore and this region can share and understand. Fifty years ago, most of the countries in Asia were colonies. With the return of Hong Kong to China in 1997 and Macau in 1999, 400 years of colonial history in Asia are finally at an end.

Most of the countries in this region, having gained independence, have achieved a level of prosperity, liberty and human dignity for their people that few would dare to have dreamed a generation before: successes achieved by the vision and dedication of the leaders, the hard work and sacrifices of the people.

Progress was also made possible by the open trading practices of the West, that allowed the free flow of capital, goods and information, and by the relative peace and stability that has prevailed since the end of the Second World War.

Fifty years later, Asia is a different place. After our shared colonial history and our outstanding achievements in the recent past, we are ready to take a more constructive role on the world stage, and together with all other nations, shape our common destiny in the 21st century. Already the GDP of the Asian economies is nearly on a par with Europe's and NAFTA's.

Asia's voices need to be heard. Our history, our culture and our priorities are different from those of America or Europe, but our unique experiences and societies have much contribute to the development of the global community in the next century. In this respect, I am glad leaders in this region has been speaking out loudly and clearly on this issue.

The recent turmoil in Southeast Asian financial and stock markets has come as a blow to many hopes in the region. This is a deep frustration felt by all. And Hong Kong has not escaped the speculative pressures. We can burn the currency speculator, but the investor in need of cash to cover positions elsewhere has turned to our highly-liquid market to find it. And all our markets have suffered as overseas fund managers precipitately change their weightings in this region without taking time to weigh up the fundamentals. I trust that the right lessons will be learned.

We should not lose sight of the fact that the opening up of our economies and markets has brought great benefits, but it is important to remember that the process does mean becoming open, as well, to pressures from outside, pressures that can expose internal weaknesses.

Hong Kong learned its lesson the hard way a decade ago when we saw our stock market collapse. Some 50% of our market capitalisation disappeared almost overnight. We learned, as a leading financial centre in Asia, that the proper response to these pressures is to regulate properly. Our experience is that the risks of the open market can be managed by making the market operate as transparently and efficiently as possible, by maintaining financial discipline in the public sector, and by ensuring that financial institutions manage their investments and risks properly.

The fundamentals of the Asian economies are good. Therefore we should not lose heart. I am sure that we will soon be back on the path to prosperity.

But for now, I'd like to focus on Hong Kong. Today, as an Asian leader of a community that, like Singapore, has its heart in Asia but embraces the world, I would like to talk to you about the grounds we have for confidence in our future; about the vision that we have for our city; and about the relationships we seek to build with our Asian partners.

The first ground for our confidence is in China herself: in our understanding of what China is trying to achieve, of her ability to do so, and of her commitment to Hong Kong.

First, we must remember that the concept of "one country, two systems" was not the brainchild of Hong Kong or London, but of China. It was devised by men who had in mind the fundamental interests of China as a nation and of the Chinese as a people. Today's Chinese leaders are fully committed to making "one country, two systems" work. They have complete faith in the ability of Hong Kong people in administering Hong Kong; and have pledged their full support for us. I can testify to this commitment from my experience over the past eight months. The Central Government has given us a free hand in dealing with our own affairs and has demonstrated flexibility, understanding, co-operation and accommodation.

Second, Hong Kong and the Mainland have the same long-term interest. Time and again, Chinese leaders have emphasised the importance of maintaining the stability and prosperity of Hong Kong and the contribution which we can make to the modernisation of the whole country. There is every reason for China to want Hong Kong to succeed. The economic interests of Hong Kong and China are intertwined. I firmly believe that if Hong Kong succeeds, China will benefit. And if China is prosperous, Hong Kong will benefit even more. This complementary relationship provides a solid foundation on which "one country, two systems" will work.

Third, the promise of high degree of autonomy under "one country, two systems" is firmly embedded in the Basic Law, which is the constitutional framework for the Hong Kong Special Administrative Region. The Basic Law guarantees the continuity of our existing legal, social, and economic systems; preserves the existing freedoms and lifestyle of our people; protects the right of private ownership; maintains a separate currency and customs territory; and it reaffirms the policies of prudent financial management and low taxation. These guarantees are firm and legally binding.

Fourth, China has undergone dramatic changes since she opened up to the outside world in 1978. The economy has grown at a remarkable rate, averaging near to 10% per annum. The vitality and energy in China today is there for all to see. Furthermore, today's leaders in China have a global outlook. They have a clear vision of the future and has the ability and the acumen to steer China forward into the 21st Century. It is this ability and acumen that will ensure the implementation of "one country, two systems" and that assures us about their commitment to the continuity of our existing systems and of a high degree of autonomy for Hong Kong.

To me and to my administration falls the responsibility of leading Hong Kong to scale new heights. Apart from our trust in China, we have much else to base our confidence on.

First of all, there is the solid foundation we have in our fiscal management, our civil service and, fundamentally, in the rule of law.

The strength of our fiscal management has been shown in the last few weeks. The Asian Wall Street Journal has identified the key thing. It isn't just a matter of having large reserves, although that is important. What matters for us, as for Singapore, is a dependable record of prudent financial management and the quality of our regulation. On top of that, the economic development in Hong Kong remain extremely strong. We expect GDP growth this year of around 5.5%. Inflation continues to decline, even though labour market conditions remain tight. Next year, our new airport opens, greatly improving our quality as an aviation and service hub, and we are following it up with a massive programme of rail and other infrastructure development to further improve our efficiency and productivity.

Providing consistent financial management, high quality regulation and forward looking infrastructure planning is only part of what Hong Kong's civil service provides. Overall, it is a model for open, accountable, forward looking public administration, headed by people of the very highest calibre. Anywhere would count themselves fortunate to have them: I can assure you that I am keeping them. Maintaining the quality of the civil service is vital to the confidence that we in Hong Kong and our partners overseas have in our prospects.

The rule of law underpins our free market, the work of our civil service and the quality of our community. We will maintain our legal system, grounded, like Singapore's, in the common law. The rule of law has kept our society open, fair and law abiding. A good police force and vigorous anti-corruption body have cracked down hard on anyone breaking the law. We will maintain that effective enforcement and will maintain the principle that no one, Chief Executive included, is above the law.

Alongside all specific reasons, my confidence in Hong Kong's future is grounded in the indomitable spirit of the people of Hong Kong. What they have achieved within my lifetime is staggering. What we still hope to achieve together is no less ambitious. In our experienced entrepreneurs and investors, and in the children from our squatter homes and public housing estates who go on to technical colleges or universities, we have the talent and the drive to keep on succeeding in whatever the world holds for us.

Hong Kong's prosperity is built on the firm foundation of a free market, free enterprise and free trade, maximum competition and a level playing field. None of these will change under my administration.

We will continue to provide a stable economic environment, playing a supporting and facilitating role, in which the private sector can maximise its contribution and make best use of the opportunities available. Like Singapore, we will remain resolutely international in outlook, welcoming foreign investment and the operation of multi-national firms, and working in the WTO and in APEC to promote greater integration in the global economy.

Adding to our own strengths and China's support and backing there is tremendous international interest and goodwill towards Hong Kong. We find that in Singapore. Our two cities are often seen as rivals. We compete in many areas. But think how much we gain from each other. You are our fifth largest trading partner - we are your fourth. 70% of your trade with China passes through our port or airport. We are your second most important destination for investment, with over US$7 billion worth placed in our economy. Around 100 Singaporean companies have bases in Hong Kong, while about 140 Hong Kong companies have registered offices here in Singapore.

The exchanges are not just in trade and investment. About 304,000 of our citizens visited Singapore last year, while 350,000 of yours came to see us. Around 10,000 Singaporeans are resident in Hong Kong, about the same number of Hong Kong persons living in Singapore. We even have a Singapore International School contributing to the quality and diversity of our education system.

One of my reasons for coming to Singapore so soon is to have a look at what you are doing in response to common challenges that we face. I am particularly interested in education and in housing. I hope this visit will help me to reflect further on our approach on these two subjects in Hong Kong.

I know that you keep a similar eye on what is going on in Hong Kong, and I'd like to share with you my thoughts about where Hong Kong is heading, and what our priorities are for the next few years.

There is no doubt that Hong Kong has reason to be proud of our achievement over the past thirty years, but we have to be alert to challenges which lie ahead. We face keen competition in trade and services, and our competitiveness is threatened by persistent high inflation. We have to meet the challenges arising from a growing and ageing population, satisfy the pressing demand for more and better housing, and deal with employment dislocation due to restructuring of the economy. Maintaining prosperity demands constant, carefully prepared change to respond to new conditions.

Our foremost task is to enhance Hong Kong's economic vitality and to sustain economic growth. The creation of wealth gives the hope and the means to improve the livelihood of the people of Hong Kong. My Government will create a business environment and provide an educated and well-trained workforce that will promote the services sector and the development of value-added and high technology industries. As the world moves rapidly into the information era, we will encourage our information industry and infrastructure, and nurture expertise in this area, so that Hong Kong will remain at the forefront of the new age.

Education is the key to the future of Hong Kong. It gives opportunities to each individual, and gives to the community the abilities required for further economic development. We aim to give every child in Hong Kong a modern, well-balanced education of the highest quality, to extend opportunities for lifetime learning and retraining, and we trust that Hong Kong may become a centre of excellence in education in Asia.

Owning one's own home is an aspiration for many in Hong Kong. Ownership is crucial for personal security and social stability. Housing costs also have a strong bearing on the economic vitality of Hong Kong. The crux of our present problem is inadequate supply of land, causing prices to soar and creating opportunities for speculators.

We will be speeding up reclamation and land formation over the next 10 years; extending our mass transit system and other infrastructure to support greater development; and increasing substantially the production of housing units. We will increase overall housing supply at a target rate of not less than 85,000 flats a year, and aim to achieve a home ownership rate of 70% in ten years.

We are paying particular attention to the rising proportion of our population who are elderly. Today's senior citizens have built the Hong Kong we enjoy. They deserve respect and care. My Administration has set up a "Commission for the Elderly" and is developing a comprehensive policy to provide them with a sense of security, a sense of belonging and a sense of worthiness.

I have been chosen as the first Chinese Chief Executive of Hong Kong for a five-year term by an Election Committee composed wholly of Hong Kong people, drawn from every walk of life. In 2002, my successor will be chosen by a similar committee of Hong Kong people.

In May next year, elections for first full Legislative Council will be held. Members of every political party will be welcome to take part; every adult permanent resident will be eligible to vote. Those elected will serve for two years.

In the year 2000, the second Legislative Council will be elected for a four-year term, and in 2004, for the third election, half the seats will be returned by direct elections.

The framework for electing the Chief Executive and the Legislature that I have described has been firmly fixed in the Basic Law. After ten years, the Basic Law again makes clear that it is for Hong Kong people to decide for themselves how to develop the Executive and Legislative elections, with the ultimate aim of universal suffrage. It is a document drawn up for Hong Kong's condition, providing stability in the organisation of our government while maintaining the steady evolution of democratic institutions.

We have a solid foundation and a clear programme upon which we can build our future. We have the commitment and support of our sovereign to make "one country, two systems" a success. All of us in Hong Kong are confident as we move into the 21st Century. This year, after netting off emigration, we expect more than 80,000 people to come back from overseas to live and work in Hong Kong, higher than the balance of more than 60,000 last year. They are coming back because they feel the pride and sense the opportunities. They want to take part in the making of history. What better testimony to our level of confidence.

Singapore, too, is a city with much to take pride, much to look forward to. From the uncertainties of the independence years, thanks to the vision and determination of your leaders, the strength of co-operation among your peoples and your hard work you have built a flourishing community. Your GDP per capita is among the highest in the world; the beauty of your city is justly admired, you are a catalyst for growth in our region.

This is an extraordinary achievement in which all who have contributed can take great pride, for which all of you deserve much credit.

I've come to Singapore to see for myself what you have achieved. I am particularly interested in the fields of education and of housing, which, as I have said, are key concerns for my administration. Seeing what others are doing helps us to look critically at our own policies. In many ways our cities are complementary and we face many similar challenges. We give each other a much better yardstick for comparison than any of our neighbours.

Both Hong Kong and Singapore have achieved a great deal over the past fifty years. We have done that despite being very different places with different approaches. But our differences are a stimulus to thought: indeed, we may often learn from each other. In many ways we are and will remain competitors but how much duller and more difficult it would be for both of us if there were only one point like us in Asia.

We don't have to worry about competition: there is plenty of room in the region for both of us. The benefits of a competitive, open approach in business and commerce have been realised all around us, and our two cities now stand at the centre of the most rapidly growing economic region on earth. Despite the recent setbacks, the bottom line is this: ten years ago, the total GDP of the ten leading regional economies was US$3,265 billion, today it is over US$7,000 billion. China and ASEAN countries will continue to develop, and there is every prospect that we will see a substantial rise in the quality of life for our citizens in the decades ahead, combined with a substantial increases in the opportunities for business and commerce that we can both enjoy.

I know, for both Hong Kong and Singapore, the focus will be on building our cities into centres of excellence. I am confident both of us will scale new heights in achievement in the 21st Century.