Good morning, Mr. Wolfensohn, Honourable Ministers and Governors, Distinguished Guests, Ladies and Gentlemen,

In 1995, The World Bank Group and the International Monetary Fund started a program of seminars for the Annual Meetings. These seminars provided more opportunities for exchange of views and reinforced the Bank and the Fund's efforts to increase dialogue with the private sector. Two years later, the Seminar program has grown to become a most important and fruitful part of the Annual Meeting.

On behalf of the people of Hong Kong, I extend our warmest welcome to you all. We are delighted that China is host to the 1997 Annual Meetings of the World Bank Group and the International Monetary Fund. We here in Hong Kong are also honoured to act as host to you. We believe that this event, held two months after the handover, is a vivid testimony to China's commitment to the stability and prosperity of Hong Kong. It also demonstrates China's readiness to show to the international financial community how Hong Kong will carry on business as usual, if not better.

Ladies and gentlemen, many have billed the 21st Century to be the "Asian Century". Undoubtedly, Asia today has grown to become more successful and confident than many of us can remember in recent history. We cannot, however, take this success for granted. After more than a decade of uninterrupted growth, we should rethink and re-examine our competitive edge. We should ask ourselves: Can Asia as a region maintain its pace of development as we move into the 21st Century? Can we further enhance our competitiveness? To answer these questions, it is perhaps appropriate for us to look to the past for the ingredients of Asia's recent success, and thereafter, look into the future in search for appropriate solutions.

Indeed, Asia has achieved remarkable success in economic growth and development over the past few decades. GDP per Capita in East Asia has more than tripled from 1965. Average real per capita income in developing Asia rose by 3 percent in the 1970's and 5 percent in the 1980's. As recently as a decade ago, the developing economies in Asia accounted for only one-sixth of world output. Today, they account for a quarter. By year 2005, Asia is projected to account for one third.

Indeed, despite the recent turmoil in the financial market which has caused temporarily setback in some of the countries. I am sure, having learned the lesson and after making necessary policy adjustment, these countries will return to the path of growth and Asian economy as a whole will continue to march forward.

How were we able to achieve such remarkable growth and development over the past decades? I would like to emphasize three important ingredients: namely, trade, human and capital investment.

Economic growth around the world has undoubtedly been fueled by the increasingly open global trading system. This could not have been achieved without the relative peace and stability that has prevailed since the Second World War. The open trading practices of the west allowed the free flow of capital, goods and information. Borderless trade, coupled with global financial integration, has created an efficient world market. It has enabled each economy to seize its own competitive advantage and capitalize such advantage into growth for the local economy. Asia has benefited tremendously from the process, especially when the region's growth has been largely export led. Over the past ten years, thanks to this increasingly open trading system, the emerging economies of Asia have nearly doubled their share of world exports.

Human capital was also an integral part of Asia's success. Our labour force, whether due to cultural or historic reasons, have proved to be dedicated, diligent, and efficient. This cost efficient and highly skilled labour force has played a crucial role in the success of our export driven economies. Together with our cultural emphasis on education, our traditional spirit of self-reliance and entrepreneurialship, the people of Asia has become an invaluable asset to the region at large. Today, the human element remains a cornerstone of our success.

Capital investment has also played an enormous role in Asia's development. Thanks to Asia's stable political and macroeconomics environment, private savings and investment in most of Asia have been twice as high as the rest of the world. Gross national savings as a percent of GNP in East Asia averaged more than 30% from 1981 to 1990. This trend has continued, if not further improved in the 1990's. East Asia, Southeast Asia, and South Asia together enjoyed some US$65 billion of Foreign Direct Investment in 1995. This accounted for over 65% of total developing country FDI flows. This high capital accumulation has allowed us to expand and improve our production base, and lay a foundation for future growth.

It is true that Asia, leveraging off global trade growth and its human and investment capital, has achieved a spectacular level of growth and development over the past decades. But we cannot afford to sit idly by and expect future success. With the ever increasing globalization in trade flow, funds flow and information flow, competition across countries and regions will intensify. We must not underestimate the challenges which lie ahead. In order to remain competitive in the world, I see four major tasks facing Asia today.

The first is upgrading our infrastructure. Infrastructure is the very foundation of our economy. Basic infrastructure in many Asian economies remains inadequate. Poor infrastructure threatens export performance and in turn prevent full realisation of our growth potential. We must continue to invest and upgrade the communication and transportation networks in the region, covering both physical assets and the quality of service. This itself is an enormous task. In East Asia, an astounding US$1.5 trillion will be needed for investment in infrastructure in the decade up to year 2004. To accomplish this solely within public means is neither cost efficient nor management efficient. Private sector participation is essential.

Second, we must maintain a liberal world trading system. Without question, trade is essential to our growth. At the same time, free trade exposes industries to competition. There will emerge some industries with reduced competitiveness. These sunset industries may need to reconfigure their businesses or alternatively relocate to more cost competitive areas. This is inevitable as we move up the technology ladder, and our production base shifts to higher value-added goods. To remain competitive, we must constantly improve productivity and efficiency. Trade barriers itself is only delaying tactic rather than a real solution.

An increasingly prominent issue in world trade has to do with regional arrangements. We need to ensure that regional trade initiatives are compatible with global trade liberalisation. Regional trade blocs have emerged in the past decade. If this regionalism gives rise to a "fortress mentality", it may lead to increased trade friction, and thus reduce the welfare of all.

Another dimension of free trade is the mobility of capital and investment. Capital inflows have been and will continue to be a crucial element of development. Especially within the region, the financial sector serves as the crucial intermediary for funding of infrastructure developments. But we must remain vigilant in managing the risks that are associated with them. Volatility of capital flows can unsettle an otherwise perfectly sound system, as we are vividly reminded by the recent turmoil in the Asian currency markets. This brings out the third point--financial stability.

Maintaining financial stability is more of a challenge than many of us had thought. But it can be done. Our financial policies and institutions must operate in a prudent manner to maintain public confidence. Transparent and predictable policies and a reliable legal system are essential for a stable investment climate. In addition, our banking and financial systems must be sound and healthy if we are to withstand external shocks or policy adjustments.

Fourth, we must shift our traditional concentration away from physical assets and instead enhance our focus and investments in "intangible" asset items such as human capital and capital for innovation and creativity. Physical investments undoubtedly fuel economic growth. As a economy progress, however, the relative contribution of physical investments will begin to decline. At a more advanced stage of economic growth, competitiveness can be enhanced not by injection of cash into physical assets, but by technical innovation creativity, management restructuring and organizational improvements.

What does this mean for us in a concrete manner? It means that we must increase our emphasis on research and development activities. Imitation will put the local economy at a disadvantage. We must go beyond imitation and promote innovation. Only then can we truly reap the benefits of a "high tech" sector. Equally important, we must expand our horizon and realize that "high tech" does not only apply to the industrial sector, but should and must include the financial sector and other service sectors as well.

It means that we must increase our emphasis on human resources. This includes providing a solid foundation for our youth in terms of education. Education creates opportunity; Opportunity creates drive; And drive will help us to harness the full potential of the community. It includes the encouragement of post graduate and professional research that puts a community at the forefront. Last but not least, it includes the enhancement of the quality of life for our citizens. Our life style, our leisurely pursuits, and the environment in which we live must be consistent with the wealth of society. These are not merely economic issues but can have wider impact on the overall stability and productivity of the community as a whole.

Like our neighbours around the region, Hong Kong too is faced with similar challenges. Can we sustain our growth and development going forward? How can Hong Kong ensure that it will continue to play a central role in facilitating the region's growth and prosperity?

To maintain our pre-eminent position, we must uphold the rule of law, and ensure the independence and the transparency of our judiciary. We must maintain our prudent and conservative financial management, and consistently offer the best infrastructure and workforce. We must ensure a high quality and forward looking civil service. We must recognize and continue to encourage the contribution of the foreign community here in Hong Kong.

As predominantly a service centre, our competitiveness is a function of both the quality of our infrastructure and the cost at which these services can be provided vis-a-vis our neighbouring competitors. The challenge for my colleagues and I is to contain our cost, without damaging the soundness and the vitality of the economy.

We must enhance our economic vitality by providing an educated and well-trained workforce that will promote the service sector, the development of high value-added industries, and the development of information-technology industries and infrastructure. We will aim to give each person in Hong Kong a modern, and well-balanced education. We will enable more citizens to realize the dream of home ownership for the sake of personal security, dignity and social stability in as short a time as possible. We will develop a comprehensive policy for our ageing population, and provide our elderly with a sense of security, belonging and worthiness.

Ladies and gentlemen, today's theme, "Capital, Competitiveness, and Community", lies at the heart of Asia's economic success, past, present and future. With the combination of these elements, I am sure that Asia will continue to prosper. There is much work to be done. But we in Hong Kong look forward to the challenges. We are excited by the prospect of Asia in the coming Century, and we look forward to playing a meaningful part in Asia's continued growth and development.