Following is the speech by the Hong Kong SAR Chief Executive, Mr Tung Chee Hwa, at the inaugural Hong Kong Dinner in Europe, hosted by the Hong Kong Trade Development Council, Brussels, October 20, 1997(Brussels time).

Sir Leon, Victor, Distinguished Guests, Ladies and Gentlemen:

It is my great pleasure to be in Brussels and to take part in the first Hong Kong Dinner in Europe. I believe this annual event will become very important for strengthening the friendship between Hong Kong and Europe and for fostering new relationships. Even at this inaugural dinner, I already feel I am among friends.

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, three and a half 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 strive hard for an even more successful and prosperous future. Our economy continues to grow, our financial foundation remains solid, our society remains pluralistic, and our politicians continue to debate openly on all the topical issues. Indeed, recent surveys conducted by the Hong Kong University Social Research Centre concluded that 85% of our population are confident about the future of Hong Kong. This is a historic high for Hong Kong under any administration.

It is not surprising that many individuals who come to Hong Kong after the Handover share our confidence and enthusiasm. Barely one month ago, we hosted the annual World Bank/IMF meetings, and the G7 meetings. Many of the attendees have gone away feeling reassured and positive about the future of Hong Kong. I quote Mr James Wolfensohn, President of the World Bank, who said in his concluding remarks: "Seeing this region and seeing Hong Kong, the 'One Country, Two Systems', is certainly something that we can now believe and I think it served as a very reassuring message to all of us that Hong Kong will continue as it has before."

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. It is a comprehensive document that was drafted by people from both Hong Kong and the mainland China after some four years of consultation and discussion. The Basic Law provides a constitutional framework for the Hong Kong Special Administrative Region. It institutionalises the concept of "One Country, Two Systems". It clearly prescribes that the social, economic and political systems in Hong Kong will be different from those in the mainland of China. It protects the rights, freedoms and lifestyle of Hong Kong people. The Basic Law guarantees the independence of our judiciary and, apart from foreign affairs and defence, it gives us full responsibilities to manage our own 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 transhipment, and to protect intellectual property rights.

It should be remembered that the "one country, two systems" concept was not a concept that originated from London or Hong Kong. It was a concept developed by China. The reason is simple: it is clearly in the fundamental national interest of China as a nation 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. In addition, the feasibility of different social, economic, and political systems within one country is being tested. Success in Hong Kong can serve as a significant step towards the greater and final objective of re-unification of the entire nation. These are major objectives for China.

What else makes me so confident in Hong Kong's future? China has undergone dramatic changes since she opened up to the outside world in 1978. The economy has grown at a remarkable rate, averaging close to 10 per cent per annum. This 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. We are also carrying on with the development of democracy in Hong Kong. Our constitution, the Basic Law, requires us to develop democratic institutions: our commitment as a society is to do the same.

The Basic Law has set out a 10-year timetable for elections both for the Chief Executive and for the Legislature. In May next year, the elections for the first full Legislative Council will be held. Members of all political parties and independent individuals are welcome to take part. Every adult permanent resident is eligible to vote and there are currently some 2.5 million registered voters. This first full legislature will have 60 members -- 20 will be directly elected, 30 indirectly elected through functional constituencies and the remaining 10 indirectly elected through an Election Committee. The second legislature will be elected for a four-year term in the year 2000, when the number of directly elected seats will increase to 24, and the third legislature in the year 2004 when 30, or 50% of the seats will be directly elected. In seven years' time, we will have more democracy in the legislature than we ever have in 156 years of colonial rule.

As you all know, Hong Kong never had a single voice in the selection of the Governor during colonial rule. Under the Basic Law, Hong Kong people will have an increasingly larger voice in the selection of the Chief Executive. I myself was selected in December last year by a committee of 400 people, all of whom reside in Hong Kong. This committee represents the many walks of life in Hong Kong, including businessmen; professionals such as doctors, lawyers and architects; labour unionists, social workers, politicians; and religious leaders representing Protestants, Catholics, Buddhists and Muslims. The second Chief Executive, serving from 2002 to 2007, will be selected by a similar committee, except that the committee will be enlarged to 800.

In fact, the process we will achieve in 10 years from 1997 in terms of democratic process will be far more comprehensive and far-reaching than what we had achieved under 156 years of colonialism. What will happen after 2007? The Basic Law provides that further democratic evolution will depend on the wish of Hong Kong people and the overall environment at that time with universal suffrage being the ultimate objective.

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 in Europe. However, let me emphasise this point. At the end of the day, we must move forward in what we, the people of Hong Kong, think is in the best long-term interest of the territory. And you would expect me to do no less.

But let me also make a point of history about democratic development. In the United States, it took 182 years to achieve full, universal suffrage for everyone aged 18 and over. Here in Belgium, it took 150 years. In France, it took 126 years. In Hong Kong, our Basic Law lays out a gradual system of political development over the next 10 years. After 2007, it is up to us, the people of Hong Kong to decide for ourselves the further development of the democratic processes, with the ultimate aim of universal suffrage.

I would now like to take this opportunity to share with you some real experiences since 1st July. The Chinese leadership during the handover ceremony on July 1st , and on numerous occasions since then, has emphasised that Hong Kong will 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 this is a solid commitment. Four months after the establishment of the Hong Kong SAR, there is not a single suggestion that autonomy has been undermined. It has been a total disappointment to the doom and gloom merchants.

The perpetual pessimists predicted that the rule of law will no longer prevail after June 30. They were very wrong. The rule of law is the cornerstone of Hong Kong's success and the Common Law, arguably the finest British legacy. The Basic Law guarantees that Hong Kong will keep the Common Law system 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 and 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, an 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 July 30 upheld the legitimacy of the Provisional Legislature and put the validity of all laws passed after June 30 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 were wrong.

The Basic Law 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: 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 before. The economy is growing at a healthy rate, underpinned by sustained growth in consumer and investment spending with the GDP forecast for 1997 at 5.4%. Compared with a year ago, sales of motor vehicles jumped by 43%. Restaurant receipts have rebounded. Gross new mortgage loans soared. Inflation is expected to remain benign at 6.5% for 1997 as a whole. The Hong Kong Dollar, backed by our sizeable foreign reserves and our sound economic and financial fundamentals, maintains its strength amidst the turmoil of other Asian currencies. Hong Kong people's 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 30 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 the soaring operation costs. Hong Kong's people are its greatest asset. We have to make sure that the next generation is equipped with all the necessary skills to help Hong Kong move forward in the value-added direction in both the services and industrial sectors, strengthening our role as an international city. We have to face challenges arising from a growing and aging 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 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 per cent of our GDP. We will strive to affirm Hong Kong's position as an international financial centre and a cosmopolitan city. As we enter the information era, we will adopt positive measures to encourage investment, and nurture expertise, in information industry and infrastructure.

High property values have had a strong negative bearing on social stability and our economic vitality. The crux of the problem is supply. We have drawn up a 10-year housing plan to speed up reclamation, land formation and urban redevelopment; to extend the mass transit system and infrastructure development; and to increase the efficiency of housing production through a comprehensive review of the existing organisation and working procedures. We will increase overall housing supply with a view to achieving a home ownership rate of 70% in 10 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 and will inject sufficient resources to achieve this goal. We will adopt an international outlook to combine the very strengths of the East and the West. Enhanced language training, in both Chinese and English, and teaching in information technology will be an indispensable element.

Our senior citizens have contributed to Hong Kong's success. The government will develop a comprehensive policy to take care of the various needs of the elderly, particularly in the areas of social security, housing and health care. We have been preparing actively for the implementation of the Mandatory Provident Fund Scheme which will be up and running next year.

Recent financial turmoil as caught some Asian countries off guard. For our part, we will continue to pursue sound and sustainable economic policies which support the stability of the financial system. This means the continued pursuit of prudent fiscal discipline and a stable exchange rate for the Hong Kong dollar, through maintaining its linkage with the US dollar. Despite one or two short-lived speculative attacks during the recent currency upheaval, the Hong Kong dollar has remained rock solid. We aim to keep it that way. It also means continuing with transparent and predictable government policies, a low and predictable tax structure, and adhering to our present legal system to ensure that Hong Kong continues to provide a secure and corruption free business environment.

I would like now to speak briefly about China. Let me first say that I have not come here as spokesman for China. My task is to speak for Hong Kong. But the fact is that China is our sovereign. Your perceptions of China, and Europe's relations with China, have a great impact on us.

Many in the West today tend to define China through specific human rights issues. Others feel a sense of threat in China's rising prosperity. We in Hong Kong feel differently. What is happening in China is not a change to a monolithic giant, but a transformation of the lives of millions of men and women. They are being lifted out of poverty, and given opportunities that they never had before. China's life expectancy rate, child mortality rate as well as adult literacy rate have improved significantly. The percentage of people living at or below subsistence level in China has decreased from 33 per cent in 1979 to single-digit levels today. The scale of transformation exceeds anything that has ever happened to men and women like ourselves. It is a process that warms the heart of everyone concerned for basic human condition. I know there are those in Europe who are concerned about human rights in China. I urge you to go and see for yourselves how much China has done in this respect. You will come away like many others, surprised and impressed.

From a practical point of view, with a population of 1.2 billion people and a commitment to vastly improving the standard of living of people through a market economy, China needs social stability. China also needs stability and peace in Asia and around the world. Like many other developing nations, the strengthening of the military is not a tool for expansion but a declaration of independence and a political statement to the international audience, especially for China after 156 years of humiliation.

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 the 21st Century. In a recently released World Bank study, 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. With our expertise and access to the world for capital and knowledge, Hong Kong will continue to play an important role in the development of the Mainland. Indeed, as China prospers, Hong Kong will also prosper.

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 European 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 Asia region consisting of Japan, Korea, China, Taiwan, Hong Kong 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 European 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 the member states of the European Union maintain such a strong - and growing - presence in the SAR.

At last count, more than 660 European companies had their regional headquarters or offices in Hong Kong. They are active in every sector, from manufacturing to services. More than 50,000 citizens of Europe live in Hong Kong.

Business travel and tourism between Hong Kong and Europe is strong and increasing by more than 10% per year. Last year more than 300,000 Hong Kong people visited the EU and 1.6 million EU citizens visited Hong Kong. These figures help to explain the steady growth of business, trade, investment, tourism and cultural exchanges between us. All citizens of EU member states can enter Hong Kong visa free. But I'm afraid the same is not yet true for Hong Kong people travelling to continental Europe on the new SAR Passport.

Something further needs to be done. We are grateful to United Kingdom and Ireland for joining the others in Asia Pacific to give visa free access to SAR passports. I hope other members of EU will soon follow suit.

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 Europe-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. They also bring new skills and experiences to enrich our economy. Yes, our people are thinking longer term. They are looking more at prospects and investments which may take years to bear fruit. 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 European 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. Europe 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 European business in our continued success.

Thank you.