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Following is the full text of the 2001 Policy Address - Building on our Strengths, Investing in our Future - by the Chief Executive, Mr Tung Chee Hwa, at the Legislative Council today (October 10):

Madam President,

A. Introduction

1. This is my fifth Policy Address and also my last Policy Address as the first Chief Executive of the Hong Kong Special Administrative Region (SAR) Government. I will maintain the steadfast course I first set on 1 July 1997 - implementing people-oriented policies, embracing change and rising to meet the challenges with our community. My aim is to build a more civil, affluent, stable, democratic Hong Kong that is full of vitality.

2. On 1 July 1997, Hong Kong was reunited with the Motherland. The colonial chapter drew to a close and the Hong Kong SAR was born, ushering in a new era of 'One Country, Two Systems' and 'Hong Kong people administering Hong Kong' with a high degree of autonomy.

3. The historic mission of the Hong Kong SAR is to successfully implement 'One Country, Two Systems' - a great challenge that has never before been encountered.

4. Over the past four years, the Government and the community have worked together to effectively uphold the rule of law and maintain Hong Kong's liberal and open systems. In this, we have the full trust of the Central Government. The people of Hong Kong now have a better understanding of the Motherland and have affirmed their new identity with the reunification. We have successfully implemented 'One Country, Two Systems'.

5. At the establishment of the Hong Kong SAR, I specifically mentioned that while we could be proud of our economic achievements, we had to be alert to latent problems as some of these would undermine our long-term competitiveness. Just as we were about to tackle these problems, Hong Kong was severely affected by the Asian financial turmoil. This led to the bursting of our 'bubble economy' and to a sharp economic downturn. Although we acted boldly and decisively and successfully weathered the Asian financial crisis, we still needed time to solve the structural problems inherent in our economy.

6. Hong Kong has won international acclaim for realising a smooth political transition and stabilising the local financial markets during the Asian financial crisis. Indeed, our success in rising to such tough challenges did not come easily.

7. Recently we have seen dramatic changes in the world around us and there are even tougher challenges ahead. We are facing the most acute economic problems for many years. The whole community is very concerned about our economic and employment prospects - let me address these issues first.

B. Preparing for Economic Restructuring

8. Hong Kong's externally-oriented economy is greatly affected by global
developments. The hardships we currently face stem from both cyclical
and structural factors.

Difficulties will Persist

9. In the past 12 months there has been an obvious slowdown in our major
export markets, which indicates a cyclical adjustment. The cyclical
adjustment of an economy usually means that it bottoms out and rebounds
after a short period. However, the serious terrorist attacks in the United
States on September 11 not only caused major losses and deep grief, they
also depressed consumer sentiment in overseas markets and created
greater uncertainty in the global economy. The gloomy outlook for world
economic growth has adversely affected Hong Kong. As a result, Hong
Kong faces an accelerated economic downturn, a rise in unemployment, an
increase in the fiscal deficit and a delayed recovery. The sharp downturn of
the external economy at a time when Hong Kong is undergoing structural
adjustment has put us in a particularly difficult position. We have to
prepare for drawn out economic hardship.

10. The globalised economy is continuously developing. Advances in
information technology have ushered in a new knowledge-based era. The
rapid rise and development of our country has brought new business
opportunities as well as new challenges. All these major trends make it
imperative for our economy to be restructured.

11. In the past few decades, Hong Kong has undergone several
transformations: from an ordinary entrepot, to a base for light
manufacturing, and into our present position as a renowned financial,
trading and services centre. Today's circumstances make it essential for us
to yet again reinvent ourselves. This is a new challenge for all of us.

12. This time, the transformation will be more complicated because the
restructuring is the result of several different but inter-related factors. First,
the world is rapidly transforming from an industrial economy to a
knowledge-based economy. Previously, wealth was in the hands of those
with natural resources or capital. Now, knowledge is the new currency. An
important competitive edge in the knowledge-based economy is the
possession of creative ideas, and the speed at which these ideas can be
transformed into products or services. World economic development is
changing from a quest for resources to a quest for human talents.

13. Second, globalisation has brought about tremendous challenges and
opportunities. Advances in information technology and better transport
links have globalised world markets. Popular products and services are
now marketed worldwide; geographical boundaries no longer limit the
potential of a product. That means we no longer vie for business just with
local competitors, but competitors from around the world. Manufacturing
industries have been able to relocate from high-cost to low-cost locations.
A similar trend has been seen with white collar workers. In addition,
businesses now require substantially fewer staff because of developments
in information technology. The emphasis in the past was on a fine division
of labour, whereas today it is on multi-skilling. The number of people
employed by large corporations has dramatically decreased. As a result,
more and more people have become self-employed and started their own
small and medium enterprises. This will become a more prevalent trend.

14. Lastly, the bubble economy which surfaced during Hong Kong's
transition period created a serious problem. The Asian financial crisis
deflated the bubble, and this has changed the way people spend and invest
their money. Because of the sheer speed of change, it is a tougher
transformation this time. Nevertheless, if we are to preserve our economic
vitality, create greater prosperity, and maintain living standards, economic
restructuring is the only way. Hong Kong's operating costs are very high,
so we need to move to high value-added activities. Our people, our
businesses and the SAR Government must have the foresight to see
changes coming, to adjust to those changes and to manage them. We must
all do our best to move up to higher value-added activities.

Hong Kong's Advantages

15. Economic restructuring is never easy. The challenges we face are all
the more daunting because abrupt changes in the global arena have been
aggravated by difficulties in our own economic cycle. Despite this, we
should remain confident about our economic prospects because Hong
Kong boasts many advantages. I will briefly highlight some of them - our
unique position, our favourable business environment and our pool of
entrepreneurial talents and enterprises.

Unique Position

16. Hong Kong's unique position, with the Mainland as our hinterland and
extensive links to all corners of the globe, is a major and enviable
advantage. Although the global economy is generally slowing, China
distinguishes itself with continuous economic growth. This creates new
business opportunities for us and provides the impetus for Hong Kong's
continued development.

17. China's imminent accession to the World Trade Organisation, and
Beijing's successful bid for the 2008 Olympics, signify a rise in the status of
our country as a stable society that will continue to develop economically.
The 'One Country, Two Systems' principle ensures us of our country's
support while also giving full play to our unique characteristics. Compared
with other places, Hong Kong is indeed fortunate. At a time when foreign
investors are vying to enter the China market, we are already well
positioned to seize the opportunities they seek.

Favourable Business Environment

18. Hong Kong is recognised internationally as one of the world's freest
economies. We have a robust legal system, a level playing field, a stringent
market regulatory system, a liberal foreign exchange regime, the free flow
of information, a clean government, a sound financial position and a simple
taxation system. Hong Kong's vibrant lifestyle and socio-cultural mix make
it a home away from home for entrepreneurs and executives from around
the globe.

19. Hong Kong's infrastructure is world-class. Hong Kong International
Airport has received widespread acclaim. We lead the world in
international air cargo throughput while our container port has consistently
ranked number one in the past decade. Our state-of-the-art
telecommunications provide close links to every corner of the earth. The
combination of this soft and hard infrastructure provides a favourable
environment welcomed by all businesses.

Pool of Talents and Enterprises

20. We not only have an enterprising population, but also a pool of talents
and professionals with management experience. We also have many
world-class enterprises. These people and business firms excel in a wide
spectrum of interlinked areas including finance, trade, law, accounting and
insurance. Together, they form a highly efficient operational network adept
at assimilating new knowledge and eager to innovate.

21. These are genuine strengths well recognised by the public. We are in
the right place at the right time to benefit most from the economic
development of our Motherland. Our robust systems and a large reservoir
of talents, the result of years of hard work, cannot easily be replicated. We
have every reason to be confident in our future.

Positioning and the Way Forward

22. Hong Kong enjoys many advantages conducive to continued
development. Following comparative studies, the Commission on Strategic
Development has clearly set out Hong Kong's positioning as a window on
the world for the Mainland, a major city in China and Asia's world city
excelling in high value-added services. To continue moving forward, Hong
Kong must build on its existing strengths as well as foster further economic
growth by applying new knowledge and utilising the latest technology.

23. Many Hong Kong enterprises started off in the processing trade. They
later moved into designing, establishing their own brand names, and
entering the international market. This is one example of adding value. By
applying computer animation to movie production and businesses such as
entertainment and advertising, our outstanding software programmers are
also adding value. The creativity of Hong Kong people provides the scope
to add value in various trades.

Upgrading Businesses and Industries to Accelerate Growth

24. After years of effort, Hong Kong has established a competitive edge in
a wide range of sectors. Examples include financial and related services,
tourism, transportation and logistics, and ancillary business and
professional services for multinational corporations. Hong Kong is a major
international financial centre. Hundreds of banks, insurance companies and
financial institutions from all over the world have a presence here. In the
past year, the Hong Kong stock market raised US$44 billion for Mainland
enterprises. Our tourism sector stands at the forefront of Asian cities, with
more than 13 million visitors last year. For the first eight months of this
year, the figure was more than 7% higher than the same period last year.
As for the freight and logistics sector, Hong Kong is among the world
leaders in the handling of cargo. These sectors have the potential for
upgrading and development to spur Hong Kong's economic growth.

25. We provide services to multinational enterprises. Some 3 000
overseas companies have established their regional headquarters or offices
in Hong Kong. Two years ago we attracted the second highest amount of
external direct investment in Asia, just behind the Mainland and far
exceeding other places in Asia. That figure increased more than 1.5 times
last year. China's accession to the World Trade Organisation is expected
to add impetus to this momentum. Both overseas and local enterprises will
look upon Hong Kong as a strategic base to expand their business
networks.

Complementing Our Strengths with Those of the Mainland

26. In addition to the continuing development of those sectors with a
competitive edge, Hong Kong's future development hinges on the
economic growth momentum in the Mainland. According to the World
Bank, the economy of China will become the world's second largest by
2020. It is envisaged that Hong Kong will benefit from such strong growth
over the next 20 years.

27. Enhancing co-operation with the Pearl River Delta (PRD) is of
particular importance. Over the past two decades, Hong Kong and the
PRD have complemented each other, and together developed into a highly
productive economic region. With a population of 40 million and many
affluent consumers in a number of cities, the PRD is an enormously
attractive market. Following China's accession to the World Trade
Organisation, co-operation between Hong Kong and Guangdong will rise
to new heights. The Government is determined to actively promote
economic co-operation between Hong Kong and the PRD region with a
view to achieving a 'win-win' situation. This is a key element in our efforts
to consolidate and enhance Hong Kong's position as an international centre
for finance, trade, transport and logistics, as well as a premier tourist
destination.

28. My colleagues and I have established effective communication
channels with the leadership of the Guangdong Provincial Government to
facilitate co-operation and co-ordinate our long-term development. In
addition, next year we will establish an Economic and Trade Office in
Guangzhou to strengthen business liaison between Hong Kong and
Guangdong, and to provide better support services for Hong Kong
businesses in the PRD.

29. I have highlighted some specific areas in which we have a unique edge.
I want to point out that our direction is clear: using our existing solid
foundations, we must move up the value-added ladder. With community
consensus, we can spur economic growth by making the best use of our
competitive edge and encouraging creativity.

30. Together, the Government and the people must face the dual
challenges of economic restructuring coupled with the cyclical economic
downturn. Recently, Members of this Council, various organisations and
community groups, have suggested a wide range of responses to our
economic problems. My colleagues and I have seriously considered each
one of them.

31. Taking into account community views, in tandem with our economic
philosophy, the Government needs to carry out many tasks during this
current period of economic hardship. Bearing this in mind, as well as our
positioning for the future, we have five priority tasks. First, we must
expand our investment in education. Second, we should enhance soft and
hard infrastructure and improve the business environment. Third, we should
enhance the quality of our living environment. Fourth, we should help
relieve the hardships of the socially disadvantaged. And fifth, we should
carry out the necessary structural adjustments and reforms within the
Government to improve the quality of our administration. Accomplishing all
of these tasks is needed to maintain Hong Kong's long-term prosperity and
stability, as well as serve the fundamental interests of the community.

32. I will now speak about some of these tasks.

I. Investing in Education

33. In the course of our economic restructuring, one of the Government's
most fundamental tasks is to make significant investments in education to
prepare each one of us for the advent of the knowledge-based economy.
We understand that people care deeply about the development of the
younger generation, and hope that their children can receive an education
of the best quality.

34. Over the past few years, despite tight government finances caused by
the financial crisis, we have continuously increased our investment in
education. Funding has surged from $37.9 billion in 1996-1997 to $55.3
billion in 2001-2002, a 46% increase over five years.

35. Education issues are complex and inter-related. In brief, we want to
achieve three targets in the education sector: (1) raise the general standards
of primary and secondary students through current education reforms to
enable every student to enjoy learning, be good communicaters, be
courageous in accepting responsibilities, and be creative and innovative;
(2) increase the number of post-secondary places, so that 60% of our
senior secondary school leavers can attain post-secondary education. We
also need to improve the transition from secondary school to
post-secondary education and to push ahead with reforms to our university
system to nurture more outstanding post-secondary graduates; (3) continue
promoting life-long learning, develop it into a trend for others to follow,
and encourage Hong Kong people to actively enhance their own
knowledge and skills, and participate in the development of the
knowledge-based economy. We must meet these three targets if our
education system is to truly and effectively lend support to successful
economic restructuring.

36. I will ask the Secretary for Education and Manpower to present the
details of our work on education to the public. Today, I will concentrate on
only a few areas.

Upgrading the Quality of Teachers

37. Much work needs to be done in several areas to complement current
education reforms and ensure that childhood, primary and secondary
education is of good quality. To start with, we need to upgrade the quality
of teachers. Many teachers in Hong Kong have a strong sense of mission.
For years they have set admirable personal examples for their students. In
so doing they have cultivated a promising younger generation for Hong
Kong. Efforts should be made in two aspects to create the necessary
conditions that will enable teachers at all levels to perform their best.

38. First, teachers must be given ample room to balance work, rest,
learning and family life. From the last school year, an annual provision of
$500 million has been shared among all public schools to create a better
environment for teachers. Many schools have spent their allocation on
increasing staff and purchasing services that reduce teacher workload. In
the coming year, this allocation for secondary schools will increase by
50%. For instance, a secondary school with 18 classes will have its share
of funding increased from $300,000 to $450,000. In primary schools, we
will strengthen student counselling services by allowing schools to employ a
counselling teacher or to provide social work service to help student
development. To complement curriculum reform, Curriculum Officer posts
will be created in stages to lead internal curriculum development.

39. Second, resources will be provided to encourage teachers to further
their studies. With a view to upgrading the professional standard of all
teachers, we will explore ways to enhance the professional development of
serving teachers, provide extra support for new teachers, and strengthen
co-operation and communication among teachers.

40. The qualifications of primary school teachers have improved
considerably in recent years. The ratio of graduate posts has surged from
4.8% in 1997-1998 to 35% this year. From 2005 onwards, all graduates
of the Hong Kong Institute of Education will be degree holders. For early
childhood education, all newly-appointed kindergarten teachers will need
five passes in the Hong Kong Certificate of Education Examination,
including Chinese and English, starting from this school year. From the
2003-2004 school year, all newly-appointed kindergarten teachers will be
required to hold a pre-service kindergarten teachers qualification. To
encourage kindergartens to recruit more qualified teachers, we will again
raise subsidy levels for kindergartens in the coming year. For example, a
group of 30 kindergarten students currently attracts a maximum subsidy of
$41,000. If the kindergarten employed only qualified teachers, the subsidy
would increase to $62,600.

41. Hong Kong lags behind developed countries in terms of average
educational level. At present, only 18% of the population aged 15 and
above has at least post-secondary education, while 48% have an
education level of Secondary Three or below. To catch the train of the
New Economy, we must hurry to increase the number of places above
junior secondary level. In last year's Policy Address, I outlined our
objective to double the number of senior secondary school leavers
receiving tertiary education from 30% to 60% within ten years. In other
words, we need to increase the number of tertiary education places by
about 30 000 within the next decade. This has been met with an
encouraging response from local tertiary institutions, which have provided a
total of 6 500 self-financing places this academic year, including higher
diploma and sub-degree courses. This is a good start.

42. I also pledged last year that from 2002 onwards, all willing and
capable Secondary Three students who want to continue studying will be
provided with subsidised Secondary Four and Five places. If we change
the structure of senior secondary schools to a three-year one, in the long
run all students will be able to receive six years of secondary education. In
recent years, we have also launched the Youth Pre-employment Training
Programme and Project Springboard to alleviate the problem of a shortfall
in school places and to provide young people with an alternative path to
seek employment or pursue further studies.

Whole-day Primary Schooling

43. A good learning environment and ample time for learning can facilitate
effective teaching. In my 1997 Policy Address, I announced that we would
expedite the implementation of whole-day primary schooling. At that time,
only 21% of primary students attended whole-day schools while today the
figure is 48%. Our target is to extend this to almost all primary students by
the 2007-2008 school year.

School Improvement Works

44. Under the School Improvement Programme, upgrading works have
been completed at 360 of around 800 target schools, while works are
progressing at more than 150 other schools. We will step up the pace with
a view to completing all approved projects by the 2004-2005 school year.

45. The five-year strategy on information technology in education
announced in late-1998 has been implemented progressively to cope with
the development of the knowledge-based economy. All schools now have
computers and Internet access. A one-stop online teaching and learning
platform has been provided. Students are better equipped to step into the
knowledge-based economy.

Promoting Bi-literacy and Tri-lingualism

46. It is our policy to promote bi-literacy and tri-lingualism. Hong Kong is
a cosmopolitan city, and it needs to promote the wider use of basic
English. As part of China, Hong Kong people should also learn to speak
fluent Putonghua. This will facilitate effective communication and business
exchanges with the Mainland. We are now conducting a comprehensive
review of the current curriculum, the quality of teachers, teaching methods
and the social environment in our efforts to upgrade the language ability of
our students. We expect to develop concrete proposals by the middle of
next year.

47. Since the 1998-1999 school year, the Native-speaking English
Teacher Scheme has been operating in secondary schools. Although the
scheme encountered some teething problems, it has gradually brought
about a new culture of English language teaching in our schools that is
widely supported.

48. For effective language learning, it should start as early as possible.
From the start of the next school year, we will strengthen English language
teaching in primary schools with various initiatives. Our targets include
providing native English-speaking teachers or teaching assistants in every
primary school and the organisation of more extra-curricular activities using
English.

Nurturing Talented Students

49. Our education system attaches great importance to raising education
standards as well as helping students develop to their full potential. We
want to train a large pool of talents for tomorrow's Hong Kong. Since
1999, the Government has approved the establishment of seven quality
private schools and 24 Direct Subsidy Scheme schools. Subsidised
schools with distinct characteristics or an outstanding performance record
have been encouraged to join the Direct Subsidy Scheme.

50. It is expected that within three to five years our education system will
become more flexible, with a more diversified curriculum offering a wider
choice to students. We need to better nurture the various talents or
exceptional abilities of students. This we can do by implementing
curriculum reforms that accord better with a student's abilities and thus
provide a more equitable learning environment.

Reforming the Academic Structure of Our Universities

51. I have spoken about important areas of education reform and of the
progress being made in the provision of secondary and primary education.
In the long run, another major reform issue that needs to be addressed is
the academic structure of our universities.

52. The University Grants Committee is conducting a comprehensive
review of the future development of tertiary education. The Education
Commission is also looking closely at the broad direction of changing the
present three-year university degree structure to a four-year one, and the
present '5+2' secondary school structure to a '3+3' system. The Education
and Manpower Bureau is examining the preparatory work for such
changes, which involves complex issues such as determining the demand
for senior secondary school places, assessing the demand and supply of
teachers, identifying sites for new schools and redesigning the curricula of
senior secondary school and first-year university programmes to enable a
better bridging of academic courses.

53. Four-year university degrees are an international norm. Extending the
duration of university programmes requires significant additional resources.
However, we believe that the community and the Government together are
capable of bearing the cost. We hope that a consensus can be reached
soon on all important issues relating to this matter. If it is decided to make
a change, we expect that reforms to the senior secondary and university
structure can be made within ten years.

Promoting Continuing Education

54. From what I have just said, you will appreciate that the Government is
mobilising considerable resources to improve the levels of basic and
tertiary education, in terms of quality and quantity. At the same time, the
Government will set aside $5 billion to subsidise those with learning
aspirations to pursue continuing education and training programmes. The
aim is to help people to pursue continuous learning, thereby preparing us
for the knowledge-based economy. Details of the plan, such as eligibility
criteria and the maximum subsidy, will be announced after further public
consultations. At present, many people have already enrolled in various
courses in their spare time. This new subsidy will encourage this trend and
help many more people to upgrade themselves.

Summing Up

55. Madam President, reform of secondary and primary education, like
other social reforms, is a complex undertaking with many interlocking
components. Tremendous efforts will be required to see through these
important and vital reforms. They are bound to evoke different responses
from the community in the early stages of implementation. There is still
room to improve the implementation of these reforms. My colleagues and I
will listen closely to positive and negative public feedback and take
appropriate follow-up action. Because of our joint efforts, we are already
seeing the initial results of education reform. The Government is determined
to work closely with different educational groups and front-line educators
to build a partnership that will ensure the success of our reforms and
improve the quality of education.

56. Despite the pressure of economic downturn on public finances, our
resolve to invest in education is unshaken. Regardless of Hong Kong's
economic situation, you can rest assured that in the next five to ten years
spending on education will continue to increase year after year. Our
tertiary, secondary and primary education will become better and better,
and the trend for lifelong learning will become even stronger through
Government encouragement and the active support and participation of the
people. All these efforts in the education sector will no doubt enable us to
meet the needs of our social and economic development in the 21st
Century.

57. In developing our knowledge skills, we must not overlook the need to
upgrade our hard and soft infrastructrure, pushing ahead with large-scale
projects and improving our business environment to take account of the
changing economic landscape.

Hard Infrastructure

58. The Government is already investing over $400 billion in more than 1
600 projects, most of which are due to be completed within the next nine
years.

59. The main focus of our public works programmes will be on transport,
land formation, port, housing, tourism-related developments, education,
hospitals and improvements to the environment. Major works in progress
include Castle Peak Road improvements, work on Container Terminal 9
back up facilities, Phase I of Hong Kong Disneyland, and the Science Park
in Pak Shek Kok. We also plan to launch shortly projects such as Route 9
Tsing Yi to Sha Tin section, Route 10 linking North Lantau and Yuen Long
Highway, the South East Kowloon Development and Central Reclamation
Phase III.

60. Railways are one of the most environmentally-friendly and
cost-effective modes of transport. The two railway corporations are
currently working on six projects - West Rail, the MTR Tseung Kwan O
Extension, the Ma On Shan Line, the KCR Extension to Tsim Sha Tsui,
the Penny's Bay Rail Link and the Sheung Shui to Lok Ma Chau Spur
Line. These projects are due to be completed in stages between 2002 and
2007 at a total cost of about $100 billion. We are also planning other new
projects, such as the Sha Tin to Central Link, the Island Line Extensions,
the Kowloon Southern Link, the Regional Express Line, the Port Rail Line
and the Northern Link which will involve expenditure of around $100
billion. Work is expected to be completed in stages from 2008 to 2016.

61. In all, the Government and the two railway corporations will be
investing $600 billion in infrastructure reflecting our confidence in Hong
Kong's long-term prospects. Not only will this investment help Hong Kong
maintain its status as a regional transportation and business hub, it will
generate many jobs.

62. In parallel with this programme, we are embarking on major
infrastructure links with neighbouring Guangdong Province as part of our
strategy to strengthen economic co-operation with the PRD. We have
mutually agreed the target for completing the Shenzhen-Hong Kong
Western Corridor is 2005. We are working to speed up the flow of
people across the boundary at the Lo Wu control point by improving soft
infrastructure and facilities, and are extending the facilities at the Lok Ma
Chau crossing. Construction of the Hong Kong side of the Deep Bay Link
will begin in 2003. The Sheung Shui to Lok Ma Chau Spur Line is due to
be finished by 2007.

63. We also hope an express rail service will be built to link Hong Kong,
Shenzhen and Guangzhou. The Mainland section of the link has already
been planned. For our part, early stage design of the express railway from
Hung Hom to Shenzhen is now being prepared. This will connect to the
proposed Shenzhen-Guangzhou express line. When completed, the trip
between Hong Kong and Guangzhou via Shenzhen will take just 60
minutes.

Business Environment

64. During the past few years we have been encouraging enterprises to
improve management and to promote market competition as a way of
improving Hong Kong's competitiveness in the face of economic change.
Now we are exploring ways to further streamline licensing and reporting
procedures. We will also ensure that prior to formulating new policies and
legislation, the impact on the business environment will be fully assessed.

65. In Hong Kong, a number of industries such as clothing, toys and
watch-making have long enjoyed a competitive edge. They are among
world market leaders and have great potential for further development.
They are facing an urgent need to further enhance their capabilities. I will
cite two examples to illustrate this. Our fashion designers are known
worldwide and their products sell well in the international market place.
However, under WTO rules, the planned abolition of the quota system in
2005 will usher in a completely new set of conditions. To help meet this
challenge, we will strengthen training in fashion design at our tertiary
institutions and boost promotion overseas so that our local fashion industry
can carve its own niche in the world market and set international trends.
Another example is our film industry, which has been competing in the
international market for many years. We are doing much to provide a
favourable environment for the industry to grow - promoting the
establishment of an advanced film production centre, funding relevant
manpower training, carrying out overseas promotions and facilitating
location shooting in Hong Kong. The measures are to help this creative
industry to realise its full potential.

66. Government departments should always be conscious of the need to
enhance our institutional framework so that these and other industries can
operate in an environment that is conducive to their further development.

67. Over the past few years, the Government has been vigorously
promoting the application of technology and encouraging innovation. We
have placed special emphasis on the wider use of information technology
to improve overall productivity and help create new jobs opportunities. As
a result, there has been a remarkable change in the community's attitude.
Innovation and technology have been recognised as an important part of
our restructuring. We have also set up the Council of Advisers on
Innovation and Technology and established a $5 billion Innovation and
Technology Fund. The Hong Kong Science Park, Applied Science and
Technology Research Institute and the Cyberport will lead to greater
synergies between teaching, research and business. We are encouraging
traditional industries to use technology and innovation to improve
competitiveness, and provide the right conditions for the 'incubation' of
emerging industries.

68. The importance of electronic commerce is increasingly being
recognised. In May this year, we announced our revised 'Digital 21' IT
strategy to promote the development of e-commerce under the theme
'connecting the world'.

Supporting Small and Medium Enterprises

69. Small and medium enterprises played an important role in the process
of economic restructuring. We need to think of new ways to support Hong
Kong's many small and medium enterprises. In a report I received in June
this year, the Small and Medium Enterprises Committee proposed a series
of measures to assist SMEs. The thrust of their proposal is to set up four
funds amounting to $1.3 billion to help boost training, open up markets,
implement projects and programmes to lift competitiveness, and to
purchase business equipment and appliances with credit guarantees from
the Government.

70. In view of the present difficulties faced by SMEs, I have decided to
inject an additional $500 million into the Business Installations and
Equipment Loan Guarantee Scheme which the Committee proposes to
establish. This will raise from $1 million to $2 million the maximum loan
amount for each enterprise. In addition, I will inject a further $100 million
into the SME Export Marketing Fund to provide support to more
enterprises. With this injection, the total amount in the Fund will be $300
million.

71. It will bring the Government's total commitment to the four funds to
$1.9 billion, benefiting more than 100 000 enterprises. We will also
implement about 30 new proposals put forward by the Committee to
actively support SMEs to raise their competitiveness.

72. Hong Kong is a top exhibition and conference centre in the
Asia-Pacific region. Our world-class facilities drive a thriving exhibition
industry. To maintain our competitiveness in the longer term, the
Government will invest a maximum of $2 billion into the construction of a
new exhibition centre at Chek Lap Kok in conjunction with the Airport
Authority.

Promoting Hong Kong as a Logistics Centre

73. With Hong Kong's excellent transportation facilities and the PRD's high
productivity, together we can develop into a logistics hub to link the
Mainland with the world. We can promote the development of an
inter-modal system and consider other supporting facilities to speed up the
flow of goods and information. The provision of integrated services will
also strengthen Hong Kong's competitive advantage as a supply-chain
base.

74. I have asked the Financial Secretary to chair a new Steering
Committee on Logistics Development. The committee will give direction on
accelerating the development of a logistics industry with Hong Kong
characteristics. We will also set up a Logistics Development Council to
provide a forum for the public and private sectors to discuss and
co-ordinate matters concerning the industry and to carry out joint projects.

Supporting the Development of Professional Services

75. The service sector accounts for over 80% of our Gross Domestic
Product and professional services are a value-added component. At
present, no sector can escape the challenges brought by economic
restructuring. And we are doing what we can to promote the development
of professional services not only in Hong Kong, but to open up markets in
other places.

76. For example, the Government has assisted the legal profession in
arranging visits to Beijing for local professional bodies in a bid to extend
the market for their services. The Secretary for Justice has also proposed
developing litigation and arbitration business in Hong Kong to enable
Mainland enterprises to negotiate and sign contracts with foreign
enterprises here. If necessary, they could approach our courts and
arbitration bodies to settle contractual disputes. Not only will Mainland and
foreign investors benefit, but new opportunities will be opened up for our
legal profession. This will enhance Hong Kong's role as an international
financial and services centre. After much discussion, the proposal has
received a positive initial response from the relevant Central Government
authorities.

77. Locally, the Architectural Services Department and the Housing
Department will minimise the use of standard design to enable greater
participation of architects from the private sector and to encourage
creativity. Departments concerned will also review the current tendering
and approval procedures for Government projects and services. The aim is
to create more opportunities for local professionals and to retain the
relevant expertise and experience in Hong Kong, while upholding the
principles of equality and fairness, and adhering to the rules of the WTO
and safeguarding public interests.

78. To support the comprehensive development of professional services, I
have asked the Business and Services Promotion Unit under the
Commerce and Industry Bureau to co-ordinate the efforts of relevant
departments so that they can offer active support in this regard. We will
also set aside $100 million to establish a fund to support, on an equal
matching basis, useful projects that can enhance the standard of
professional services in Hong Kong. We will continue with an in-depth
study on the demand for continuous learning in Hong Kong's professional
sector and their needs in respect of their various practices. We will join
hands with the professions in promoting their services to open up new
markets in the Mainland and overseas.

Attracting More Mainland Visitors

79. Tourism is one of the major pillars of our economy. It will contribute to
our successful economic restructuring. Currently we are developing new
tourist attractions. In addition to Disneyland, we will implement as quickly
as possible five medium to long-term tourism initiatives on Lantau Island, in
Sai Kung, Central, West Kowloon and Aberdeen. Coupled with hotels
and other facilities, these projects will create many new jobs and
investment opportunities.

80. The large number of increasingly affluent Mainland residents constitutes
an important source of visitors yet to be fully tapped by our tourism
industry. Mainland travellers now account for about 30% of the total
number of inbound visitors. Today, I would like to announce that the
Government has reached an agreement with the National Tourism
Administration for the abolition of the quota system for the Hong Kong
Group Tour Scheme with effect from January 2002. Initiatives will be
taken to increase the number of Mainland travel agencies organising tours
to Hong Kong. Our target is to allow all Mainland agencies organising
outbound tours for Mainland residents to arrange Hong Kong Group
Tours.

81. As the Mainland and Hong Kong develop closer economic ties, more
businessmen are travelling between the two places. To further facilitate
visits to Hong Kong, the Mainland's public security authorities have agreed
to extend the validity period for multi-entry business visas from the present
six months to a maximum of three years, with each duration of stay
extended to 14 days. This measure not only meets the needs of our
economic development, but also helps promote our tourism and retail
industries.

Facilitating Foreign and Mainland Enterprises

82. In helping to attract more multinational companies and Mainland
enterprises to Hong Kong, we have established Invest Hong Kong to
provide 'one-stop' services. We are also more actively promoting the
wider use of English and Putonghua to facilitate communication within the
community. In addition, to cater for the children of those people coming to
work here, we will need to ensure the provision of enough places at
appropriate schools.

83. Hong Kong permanent residents who are foreign nationals have asked
for greater convenience when travelling to and from the Mainland. The
Government has conveyed their wishes to the relevant authorities and has
received a positive response. Agreement has now been reached in
principle that three-year multiple visas will be granted to this category of
Hong Kong resident and we are now working on the details.

Attracting Talents and Investment from Outside Hong Kong

84. With the development of a knowledge-based economy, the
competition for talents has become worldwide. Hong Kong needs not to
only invest in local human resources, but also attract talents from other
parts of the world. This will be of significant value to our economic
restructuring and future development. Over the past few years, the
Government has, on a progressive basis, reduced the time it takes to
process the admission of professionals from abroad to work in Hong
Kong, and we have launched new schemes to admit skilled people and
talents from the Mainland. Depending on demand, we will look at
accelerating the admission of qualified people from the Mainland to work
in Hong Kong, and encourage more foreign talents as well.

85. Our immigration policy recognises that overseas workers can greatly
benefit our economy, including investors who set up businesses. They are
welcome to work and stay in Hong Kong. The drawback of the existing
system is that it prevents people who only invest capital and do not
participate in the operation of any business from living in Hong Kong. As
globalisation gains momentum, various countries are adjusting their policies
to facilitate the free movement of both talents and capital. The Government
is actively reviewing its immigration policy with a view to relaxing
restrictions on the entry of overseas investors to Hong Kong and eliminate
all unnecessary restrictions and barriers.

86. Hong Kong is a cosmopolitan city. Our community is made up of many
ethnic groups who have lived here in peace and harmony over many years.
With more people here from the Mainland and other countries, Hong
Kong people must continue to embrace a high degree of social tolerance,
be courteous to our visitors and treat them as equals. There is no room
here for racial or regional discrimination. I have asked the Home Affairs
Bureau, the Education and Manpower Bureau and other organisations
such as the Committee on the Promotion of Civic Education to examine
how we can reinforce the ideals of harmony and equality through publicity
and education.

Support from the Central Government

87. There are now more and more economic exchanges between Hong
Kong and the Mainland. And policies implemented in the Mainland will
have impact on Hong Kong's business environment. The more successful
the economic development in the Mainland, the larger the number of
opportunities for Hong Kong. While firmly maintaining the 'One Country,
Two Systems' principle, the Central Government has been very positive
and supportive of Hong Kong's needs, whether in the development of
tourism and professional legal services, or in linking infrastructure
developments and the movement of people. The Central Government's
firm support for Hong Kong will help our economic restructuring and
further development.

III. Quality Living Environment

88. The Government's third task is to enhance the quality of our living
environment. As a world-class city, Hong Kong must provide its people
with a clean and comfortable living environment. Together, we will build a
civil society in which everyone can take pride, as well as enjoy a healthy
and positive lifestyle in a rich cultural environment. A quality living
environment will also attract more business investment, more talents and
more tourists coming here to enjoy their vacation. In the past, we have not
paid enough attention to this, but in more recent years we have put in place
a series of initiatives to improve the environment.

More Emphasis on Environmental Protection

89. In my 1999 Policy Address, I set the objectives for improving our air
quality. At present, about 70% of our taxis have switched to liquefied
petroleum gas (LPG) and the second batch of large dedicated LPG filling
stations will come on stream by the end of this year. All franchised buses
have already switched to ultra-low sulphur diesel. We can see that highly
polluting vehicle emissions in the urban area have been greatly reduced.
The air quality monitoring stations show that the number of instances where
our air quality objectives have been exceeded has fallen by 60% between
1999 and 2000. However, we cannot be complacent. We must keep up
our efforts.

90. Since September 1999, a joint study has been carried out by the SAR
Government and the Guangdong Provincial People's Government to
examine the problem of air pollution in the PRD. It has involved a detailed
analysis of the causes of the pollution and feasible measures to improve the
quality of air in the region. The study will be completed soon. Both the
Governor of Guangdong, Mr Lu Ruihua, and myself attach great
importance to tackling this problem. Indeed, we have agreed to reach a
consensus by April next year on a plan to implement long-term measures
to improve the air quality of the region.

91. Marked progress has already been made on improvements to the
quality of water in our harbour and the treatment of solid waste, despite
our rather late start. The Secretary for Environment and Food earlier
reported on the details of her plans and she will continue to work jointly
with other departments to implement these programmes.

92. As a bustling metropolis, Hong Kong also boasts a natural landscape
with large green areas of countryside. However, the greening of the urban
areas is far from extensive. It is irritating to see litter on some of our streets
and beaches. Our public hygiene facilities leave room for improvement. In
the coming year, we will deploy more resources and manpower to improve
environmental hygiene and to increase our greening efforts.

Urban Redevelopment

93. Our modern skyscrapers also hide some old urban areas still dotted
with dilapidated buildings and deteriorating living conditions. People living
in these areas long for improvements. The Urban Renewal Authority was
set up in May this year to speed up the redevelopment of these old urban
areas. But in achieving this, we plan to preserve their characteristics and
cultural heritage. This will make our city look better and will increase
employment opportunities.

Culture and Sports

94. Urban development and long-term planning for Hong Kong must take
into account our cultural heritage. Culture and art are the soul of a
community. We have established the Culture and Heritage Commission to
vigorously support and promote our efforts to develop Hong Kong as a
centre for the arts in all its forms. Plans are also in hand to begin
constructing quality sports facilities. We are examining ways to make
sports activities more popular, as well as further improve the standard of
our fine sportsmen and sportswomen.

IV. Relief Measures

95. Our efforts to invest in education, push ahead with infrastructure and
optimise the business and living environment all aim at laying a solid
foundation for our long-term development, thus ensuring a smooth
economic restructuring. However, at this time of economic downturn, it is
our responsibility to help relieve the hardships faced by the community.

Creating over 30 000 Jobs

96. Unemployment is the foremost concern of our community. The
creation of job opportunities should rest mainly with the private sector so
the Government is making great efforts to improve the Hong Kong
business environment. In the meantime, the Government understands the
employment problems facing our people. With due regard for our
long-term development needs, the Government will seek to create more
short-term jobs. After much deliberation within Government, we are able
to create over 30 000 job opportunities. I will explain here.

97. I have mentioned that Government efforts in the areas of education,
environmental protection, public sanitation and greening, together with the
demand for health care and welfare services, will create new job
opportunities. In these areas, we will create 8 000 more jobs.

98. The Housing Department will improve security services in public
housing estates. Together with the additional manpower required for
newly-occupied housing estates, some 4 000 new jobs will be created.

99. The Government will carry out improvement and remedial works on
various public facilities. Projects will include slope safety works, eliminating
flooding problems, starting many of the projects endorsed by the two
former municipal councils to improve recreational and cultural facilities and
amenities, and school improvement works. More than 20 000 new jobs
will be created as a result of all these initiatives.

100. To enhance our efficiency and effectiveness, we have decided to
expedite work on projects without sacrificing quality. It is, in fact, our
obligation to enhance the efficiency of our work and speed up assessment
processes. With projects coming on line more quickly, about 2 000 jobs
will be created each year from 2003.

101. While creating job opportunities, we also emphasise the need to
maintain a stable and orderly labour market under the present economic
circumstances. To maximise employment opportunities for local workers,
the Government will take strong action against illegal employment. Apart
from moves to intercept illegal immigrants, the Immigration Department and
the Police will step up efforts in joint raids and operations to eliminate
illegal employment black spots. We will ensure strict compliance with the
laws and regulations on importation of labour and foreign domestic helpers.
People who employ illegal immigrants and those who work illegally will be
prosecuted. Consistent and vigorous efforts will be made to stamp out
illegal employment activities.

102. In the course of economic transformation, it is the responsibility of the
Government to improve vocational training and retraining. The Government
provides approximately $2.2 billion a year to the Vocational Training
Council. From this financial year, an annual provision of $400 million has
been earmarked for the Employees' Retraining Board. We are currently
reviewing the entire training and retraining framework to ensure resources
are used most effectively. We will discuss these issues with the related
organisations in the coming months. Given the present economic situation,
we will particularly keep a close watch on the unemployment situation. We
will provide additional resources to retrain unemployed workers based on
actual needs.

Reducing Rates Payments

103. In response to the economic downturn, the Government has decided
to reduce rates payment for all ratepayers for the coming year to ease their
burden. The maximum amount to be waived for each rateable tenement is
$2,000. Public housing tenants, occupiers of private domestic property,
shops, and small and medium enterprises will all benefit. We estimate that
840 000 ratepayers will not pay any rates in 2002, while the remainder will
enjoy a full reduction of $2,000. This concession will cost about $5 billion
in lost revenue.

Relief for Mortgage Holders

104. The property market has a vital bearing on our economy and people's
livelihood. Recently we introduced a moratorium on the sale of Home
Ownership Scheme flats. The Chief Secretary for Administration is now
conducting a comprehensive review of our public housing framework. The
objective is to improve efficiency and provide better services to the public.
To ease the burden of home owners, we will propose to the Legislative
Council to raise the tax-deduction ceiling for housing loan interest to
$150,000 per year for this and the next year of assessment.

The Path is Rough but Our Direction is Clear

105. The present serious economic situation will lead to a larger budget
deficit. Despite this, our investment in upgrading our infrastructure will total
$600 billion; we will also invest heavily in education, so as to ensure the
success of our economic transformation. To maintain Hong Kong's
competitiveness and attract more investment, we will strive to provide a
more friendly business environment and lay a solid foundation for our
long-term development. We will also implement measures to alleviate the
difficulties faced by our people, create employment opportunities and
lower their burden. This is the responsibility of the Government.

106. I have talked about the Government's economic measures as well as
some short-term relief initiatives. Now, I will turn to our social policies.
Our objective is to create an environment where everyone has the
opportunity to fully develop their potential. Necessary support should be
provided to those hardest hit by the rapid changes in circumstances, as
well as to disadvantaged groups. Our aim is to help our people to enhance
their ability to help themselves and to boost their will-power to do so.

Firm Commitments

107. Under this social contract, the Government is firmly committed to
providing a reliable safety net as a basic guarantee for our citizens. Through
various services, the Government allows people of different circumstances
to demonstrate their potential and to strive for a better future.

108. We are concerned about the hardships facing the population and
have made firm commitments in all major social services areas. Spending
on public housing, health care and social welfare will amount to $103.3
billion this financial year. Today, more than 3.3 million people, about half
the population, live in public housing or subsidised home ownership flats. In
the area of social welfare, there are 377 000 Comprehensive Social
Security Assistance recipients and a further 529 000 recipients of Social
Security Allowance benefits. Spending on public health services this
financial year is expected to be $33.9 billion, allowing wide access to
high-quality health care services. We also spend $2.6 billion annually on
comprehensive support and rehabilitation services for people with
disabilities. These services include basic life skills training, home care, day
and residential services, and transportation services.

Enhancing Value for Money and Improving Services

109. To fulfil our social obligation and to face the challenges of economic
restructuring, we have to respond to new demands on social services. The
Government continues to improve its work in these areas to ensure that
resources effectively meet today's pressing needs. We are now
reorganising the Social Welfare Department to strengthen the provision of
services at the district level, to better serve local needs and to enhance the
interface between the services provided by other sectors. We will
strengthen community networks and outreach services, and provide
one-stop services to ensure that assistance is provided to those in need. I
will talk about a few major areas.

Supporting the Family

110. First of all, family services. Our society has always recognised the
importance of the family. Harmonious families are a source of comfort and
care for individuals; nothing can fully replace this relationship. However, in
a rapidly changing society, families are coming under greater pressure.
Nowadays, many young people at risk come from families experiencing
problems. The Government spends $1.7 billion annually to provide family
welfare services, which include family casework, family education and
various support services. We are also actively working in a number of
areas, the most important of which is to reorganise our existing Family
Service Centres into Integrated Family Service Centres. These new
centres will strive to provide services for different needs. Each reorganised
centre will include a resource unit providing general services, a support unit
to serve families at risk, and a counselling unit to counsel and support
families in crisis. The new structure will not only enhance service quality,
but will also facilitate early identification of problems so that timely
assistance can be provided.

Concern for Our Young People

111. I will now talk about youth services. Recently, I attended the Youth
Summit, where I was moved and encouraged by the commitment of our
young people to become responsible and contributing members of our
society. Young people have always been the major driving force in our
community's development. The Youth Summit elicited two clear messages:
first, both the Government and the community agreed that more needs to
be done in the area of youth services and that the holistic development of
youth should become an important area of the Government's work plan.
Second, to fulfil our commitments to the younger generation, we have to
strengthen our work in three areas. These are to provide good education
to enhance the quality of our human resources; to provide support and
assistance to help young people at risk overcome the difficulties they face
in their development; to provide room for our young people to reach their
full potential and to play an active role in building our community. We will
continue to work hard in these areas.

112. As young people grow up and develop, they face many risks and
difficulties. In this period of economic restructuring, they face even more
problems, and are most in need of our care and understanding. Services
for youth cover various areas including education, arts and recreation,
employment, training, counselling and rehabilitation. The delivery of these
services must fit in well with the family and community environment.
Therefore, we need to promote co-operation between different
departments and sectors. In particular, active parent participation and
school health services are important elements that complement our work.
With these joint efforts, we are able to provide a healthy environment for
the growth of our young people. In addition, they are encouraged to play a
more active role and become committed to building our future.

113. We need to adopt a different approach and provide additional
support to those young people at risk. The Government spends about $1.2
billion a year on youth welfare services. These include a full range of
developmental, preventive, supportive and remedial services. We will
create more integrated teams and promote 'peer counselling and peer
support'. To do this well, we must better understand the mindset, habits
and needs of our young people. The Commission on Youth plays an
important role in furthering work in all these areas.

Safeguarding the Rights of Women

114. We are very concerned about women's rights. Despite a rapid rise in
social status in recent years, Hong Kong women still face many obstacles
in their development. The Women's Commission was established to
safeguard the rights and interests of women, as well as provide support to
help women realise their full potential.

Care and Respect for the Elderly

115. Over the past few years, we have bolstered our efforts to improve
the quality of life for the elderly. We have achieved significant results in our
drive to ensure they enjoy a sense of security, a sense of belonging and a
feeling of health and worthiness.

116. We adopt an holistic, integrated and client-oriented approach in
providing quality, long-term care services to those elderly in need. This
year we will spend $3.2 billion on direct elderly services, a $1.5 billion
increase over the $1.7 billion spent in 1997-1998. Apart from increasing
resources for elderly services, we will also use our existing resources more
efficiently to improve those services.

117. About 70% of elderly people live with their own families. It is a
time-honoured tradition for children to support their parents when they are
old, and we continue to encourage this. To allow our elderly citizens to
better enjoy their golden years at home, we provide a range of home help
and community support services that are proving very popular. By March
next year, about 29 000 elderly people will have benefited from these
services. If needed, we will continue to expand them.

118. Subsidised residential care places are provided for those who cannot
be adequately taken care of at home. By March next year, 26 000 places
will be available, a 70% increase over the 15 000 places in 1997. In
addition, since March this year all private care homes have met licensing
standards, an enormous improvement compared to the less than 1% of
facilities that met these standards in 1997. Comparatively speaking,
services provided by private care homes are now much better than before.

119. We endeavour to help the community to better understand the special
needs of old age, and to promote healthy aging. This will help ensure the
well-being of our senior citizens and the future elderly population. The
Elderly Commission has recently launched a three-year 'Healthy Aging
Campaign' to educate the public on the importance of a healthy and active
lifestyle amongst the elderly. The Commission is also studying ways to
enhance the image of elderly people, including helping them to pursue
lifelong learning and to participate in social activities.

Helping and Caring for One Another

120. Current economic restructuring will result in some profound
adjustments in our society. Inevitably, this will bring about various social
problems and exacerbate some existing problems. More than ever, we
need a caring society with a spirit of participation and dedication.

121. We have the ability to fulfil this commitment. Most importantly, since
reunification the feeling of living in a borrowed place no longer exists. It is
only natural then that people want to help one another and contribute to the
good of Hong Kong.

122. There have always been numerous voluntary and charitable
organisations and caring people in Hong Kong devoted to helping the poor
and needy. Over many years, the spirit of charity, benevolence,
contribution and participation has prevailed.

123. The business community has strong long-term commitments to Hong
Kong. Despite unfavourable economic conditions, their contributions to the
community have not diminished. Apart from making donations, many
corporations actively encourage their staff to participate in voluntary work.
We highly commend these commitments.

124. The Government resolutely assumes responsibility for welfare
services. We also ecourage the community to come together, and pool the
wisdom and strength of individuals, non-profit-making organisations and
businesses. Only by doing this can we develop the most effective approach
to solving social problems.

125. I have met with social workers on many recent occasions. They
considered that social work must rely on society itself to work. The
Government should encourage the grassroots to develop their own
initiatives, and to support our people to develop their spirit of self-help and
mutual aid.

Community Investment and Inclusion Fund

126. To support and promote this concept of social service development,
the Government plans to provide an initial $300 million grant to establish a
'Community Investment and Inclusion Fund'. We would also welcome
public donations to the Fund.

127. The objective of the Fund is to encourage mutual concern and aid
among people, and to promote community participation in district and
cross-sector programmes. This will enhance the function of different
communities and foster their development. We do not believe that money
alone can solve our problems. We also rely on the community's motivation
and dedication to help each other. These efforts enhance social cohesion,
strengthen community networks, support families more effectively and
provide services to improve the health and well-being of youth and
women. We emphasise the importance of self-initiative by individual
members of the community.

128. The Fund should not be seen as a kind of social welfare. Rather, it is
a social investment. The Fund will support projects proposed by members
of the community. We will ensure that resources are channeled directly to
the grassroots level, which in turn will strengthen the motivation of our
people and improve their quality of life. My colleagues from the relevant
bureaux will later provide details about the operation of the Fund.

Serving the People

129. I have spoken about the Government's thinking in regard to social
policies during a period of economic restructuring. The emphasis is on the
Government serving the people. We will not ignore the hardships faced by
our people and we will support the disadvantaged. We want to work
closely with the community and voluntary agencies in keeping with the
people's positive spirit of participation and service. Together, we will build
a more harmonious and caring society.

130. Madam President, the Government is fully aware of the need to move
with the times, to better respond to the demands of the people and to raise
the overall standards of our services. This is critical to improving the
business environment and enhancing Hong Kong's competitiveness.

Enhancing the Accountability System

131. In last year's Policy Address, I undertook to examine how to improve
the system of accountability. The objectives are: to strengthen the
accountability of principal officials in their respective policy areas; ensure
the Government can better respond to the demands of the community;
make sure that policies are well co-ordinated; strengthen the co-operation
between the Executive and the Legislature; ensure effective implementation
of policies; and provide quality services to the public.

132. Our study was conducted within the parameters of the Basic Law.
Today, I will outline our initial thinking emerging from the study.

133. Our idea is to introduce a new system of appointing principal officials,
applicable to the top three Secretaries (the Chief Secretary for
Administration, the Financial Secretary and the Secretary for Justice) and
most Directors of Bureaux. The Chief Executive would nominate and
recommend to the Central People's Government (CPG) the appointment
of these principal officials and would also have the authority to recommend
their removal.

134. The Chief Executive could nominate suitable candidates for all these
positions from within or outside the civil service. These officials would be
appointed on terms different to those in the civil service, including
remuneration and conditions of service. The appointment contract would
clearly state their rights and obligations. Their term of office would not
exceed that of the Chief Executive who nominated them.

135. These officials would each be responsible for policy areas designated
by the Chief Executive and would lead the departments within their
particular portfolios. Responsibilities would include formulating and
explaining policies, defending policies, canvassing support from the
Legislative Council and the public, and be answerable to the Chief
Executive for the success or failure of their policies. They would attend
meetings of the Legislative Council to answer questions, move bills and
take part in motion debates.

136. Some incumbent principal officials, including certain Directors of
Bureaux, would remain as civil servants. They would not be employed on
contract terms and would not be included in the new accountability system.

137. As a result of introducing the new accountability system, the
post-titles of those Directors of Bureaux who remained on civil service
terms would be changed. Although no longer Directors of Bureaux, they
would play a pivotal role between the civil service and the new contract
Directors of Bureaux. They would be responsible to, and work under, the
new directors. They would assist in formulating and implementing policies,
listen to the views of the public and the Legislative Council, explain relevant
policies, answer questions, secure support for policies and attend LegCo
meetings. Their existing remuneration package and conditions of service
would remain unchanged.

138. Last year, I also talked about enhancing the composition of the
Executive Council at an appropriate time. To assist the Chief Executive's
decision-making process, an important idea being considered is to appoint
to Executive Council the principal officials under the new accountability
system in addition to the top three Secretaries. Other members would also
be appointed in accordance with the Basic Law. In this way, they would
participate directly in the Government's overall policy-making process and
help set priorities for introducing policies. Work on issues which straddle
across departments would be better co-ordinated. The Government would
be able to respond more comprehensively and quickly to public demands;
we would also be able to prioritise better the allocation of resources and
formulate policies that suit the needs of the people. This is the general
thrust of our initial thinking, but we need to give further consideration to this
very important issue.

139. The new system will more clearly define the roles, powers and
responsibilities of top government officials. It will also build on the civil
service's existing strengths, such as permanency, professionalism,
neutrality, high efficiency, and freedom from corruption.

140. Since I announced the proposal to examine the accountability system,
members of the Legislative Council, academics, the media and the
community have enthusiastically expressed their views on the subject. In
the coming few months, we will examine in detail the ideas I have just
outlined and prepare proposals on the arrangements, including the
remuneration package, employment conditions, and code of practice. As
the Chief Executive, I have the responsibility to address issues relating to
public administration and put forward feasible proposals. However, it will
be for the Chief Executive in the second term to decide whether these
ideas should be implemented.

141. The entire Government has the responsibility to respond to the
community's aspirations in a more efficient and better way. As I have said
before, all our work is people-oriented and based on the premise of
improving the well-being of citizens. Every person employed by the
Government is there to serve the community - that is what we mean by
public service. The quality of the Hong Kong civil service is very good, and
our civil servants have been internationally recognised as among the least
corrupt and the least bureaucratic. However, with continually increasing
demands from the public, all Government bureaux and departments should
enhance their 'serving the community' spirit and culture.

142. A key focus of civil service reforms implemented over the past two
years has been to establish the principle of 'serving the community and
being accountable'. Through training courses, we have enhanced civil
servants' awareness of serving the community. And we have revised the
disciplinary system to make the civil service at all levels more accountable
to the public.

143. As the masters of our own destiny, we need to have a more acute
sense of the pulse of the community in formulating our policies. We need to
do our consultation work well to ensure that all public views are fully
reflected. When implementing policies, we need to understand our
community's inclinations and strive to gain their understanding and support.

144. Time is of the essence. In today's ever-changing world, we need to
make rapid responses to issues as they arise. We also need to work
efficiently without delay. Admittedly, we have not been able to put this into
practice in everything we do. There are many reasons for this, including the
complicated procedures involved, and the long lead time required. I spoke
earlier of the need to speed up and simplify the approval procedures for
public works projects. We have made some preliminary progress and I
have asked the Chief Secretary for Administration and the Financial
Secretary to accelerate the pace of handling community-related matters by
the bureaux and departments. We aim to achieve notable changes from this
improved efficiency which will benefit our citizens and enhance the business
environment.

Curbing Expenditure and Enhancing Productivity

145. We firmly believe in the principle of 'small government'. In the long
term, we need to simplify our organisational structure, curb government
spending and progressively lower the proportion of public expenditure to
Gross Domestic Product. This will allow the free market forces to come
into play.

146. Last year, we implemented a Voluntary Retirement Scheme for the
civil service. So far, about 9 000 early retirement applications have been
approved. Most of these civil servants will gradually retire this year and
over time we will see annual savings of almost $1 billion.

147. Government bureaux and departments have also adopted enhanced
productivity measures to increase their efficiency and to reduce
expenditure. This will allow annual savings of $6 billion starting from
2002-2003. All savings will be used to meet the community's needs. This
clearly demonstrates the commitment of the civil service to enhance
efficiency.

Upholding the Rule of Law and Public Safety

148. Since the establishment of the Special Administrative Region
Government, we have continued to strictly uphold the rule of law. Our
courts have maintained their independent judicial authority and the rights
and freedoms of our citizens continue to be protected by law.

149. Public safety and security are pre-requisites for a stable and
prosperous society. Hong Kong's disciplinary services maintain law and
order with a high level of professionalism. During the past few years, our
overall crime rate has dropped and we remain one of the safest cities in the
world. Visitors feel safe in Hong Kong, but we will not be complacent; we
will continue with our efforts in ensuring peace in society.

Constitutional Development

150. The Basic Law sets out the principle under which our constitutional
structure should develop in a progressive manner. Our experience over the
past four years has shown that this is the right approach. The election for
the next Chief Executive will be held in March 2002. And the next
Legislative Council election will be held in 2004. As to the constitutional
structure after 2007, we have to review the operational experience of the
Hong Kong SAR since its establishment, including experience gained from
elections. This will provide the basis to consult widely with the public
before reaching a conclusion.

151. Madam President, when we were reunited with the Motherland in
1997, Hong Kong and other Asian economies were flourishing. In my
speech marking the establishment of the Special Administrative Region, I
mentioned that we had to be alert to the challenges that lay ahead because
I was already aware of latent problems behind the facade of prosperity. At
present, the world economy is deteriorating rapidly and Hong Kong is
experiencing its most difficult period in years. But we must look at the
other side of the picture, our own advantages and our future prospects.
We must have hope and confidence in ourselves.

152. In my speech today, I have spoken at some length on how we will
facilitate a smooth economic restructuring and relieve the hardships of our
people. I have also talked about social service development and raising the
standards of administration. This will be the major thrust of our efforts for
some time in the future.

153. Economic restructuring takes years. The recent cyclical slowdown in
the world economy and the terrible terrorist attacks in the United States
have aggravated the situation.

154. Hong Kong has weathered many crises in the past and since
reunification we have confronted many challenges. However, after the
storms, we have emerged with a new outlook each and every time.
Although we are still facing unavoidable hard times, our experience has
reaffirmed my belief in Hong Kong and my confidence in our future.

155. I have confidence because Hong Kong is endowed with distinct
advantages - natural advantages or those that are the result of strenuous
past efforts. Added to this is the firm support of the Central Government. I
have confidence because I know that the people of Hong Kong have in
past decades fought and overcome all sorts of adversities and difficulties.
We have developed determination, indomitable strength and courage to
take up new challenges. Therefore, if we can unite and work together,
reinforce our advantages and invest in the future, particularly in education,
we will overcome adversity, maintain our leading edge after economic
restructuring and reap the benefits of the new knowledge-based economy.

156. To push forward economic restructuring, all of us should start by
embracing self-improvement, through the process of lifelong learning and
the acquisition of new knowledge and new skills. Together we have an
important task - to establish a continuing learning society with education as
an ever-growing enterprise.

157. I have said that regardless of the economic situation in the next few
years, the Government should steadfastly continue to increase its
investment in education. Education sits at the top of our social policy
agenda. We are determined to succeed in our education reforms and to
build a partnership with all those involved. There are many individuals and
organisations in Hong Kong who are devoted to the community and have
contributed greatly to education. On behalf of the Government, I offer my
heartfelt gratitude. I call on them to continue to actively participate in the
further development of our education system. I appeal to all entrepreneurs
and employers: continue to support education wherever possible and try
your best to give staff time off to pursue further education or retraining.
This will ultimately enhance the success of your enterprise. I appeal to all
those working in the education sector: strive to bring your skills to new
heights and excel in both teaching and learning. I appeal to all parents: try
to spend more time with your children. Encourage them not just to study
hard but to become well-rounded individuals. Finally, I appeal to all young
students: grasp valuable learning opportunities and prepare yourselves well
for the challenges ahead. This is my biggest hope because you are the
future of Hong Kong.

158. In the face of our current economic difficulties, the most reliable
source of strength is ourselves - the people of Hong Kong. In the past,
when confronted with adversity, Hong Kong people always rise to the
occasion. We maintain our composure, walk the extra mile, strive for
excellence, better ourselves and break new ground. I firmly believe that
with our intelligence, determination and adaptability, we can overcome all
difficulties as we forge ahead towards a bright future.

Wednesday, October 10, 2001

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