TEXT: BOUCHER 1/25 AT HONG KONG GENERAL CHAMBER OF COMMERCE
(U.S. will remain strong partner in recovery efforts)Washington -- The United States is determined to remain a strong partner in the Asia-Pacific region's economic recovery efforts, according to U.S. Consul General Richard Boucher.
In January 25 remarks to the Hong Kong General Chamber of Commerce, Boucher cited a three-part process of economic recovery outlined by Vice President Al Gore at the November 1998 Leaders Meeting of the Asia-Pacific Economic Cooperation (APEC) forum.
The first step, according to Boucher, is "an aggressive recovery strategy for the short term to support the return of investment capital to those countries undertaking reform."
"The Vice President noted the need for affected nations to revive and reform their banking systems and remove obstacles to private sector growth," he said. "While taking these economic measures to deal with the crisis, he stressed that it is also important to pay attention to the human cost, to alleviate the very real suffering caused by economic contraction."
Boucher said that the United States has announced a new initiative that combines bilateral assistance, technical assistance and micro-credit "to ease the hardship and share more broadly in the prospect of renewed growth."
"The U.S. has met its obligations to the IMF. The U.S. and other countries have cut their interest rates, as has Hong Kong. The industrialized nations have agreed to establish a new precautionary line of credit, anchored in the IMF, to help stop the financial contagion from spreading. We are also working to channel more investment and trade back to the region," he said.
According to Boucher, a second component of economic recovery will require restructuring the international financial architecture to address "the broader, systemic issues associated with the crisis."
"It is clear that we need to look at ways to create more stable and sustainable capital flows," Boucher said. "This does not mean blocking or controlling the flow of capital, but creating an environment that is less likely to generate the volatile swings in the international marketplace that we've seen in recent years."
One key element to sustainable capital flows is greater transparency and openness, he said.
"Funds, governments, banks and businesses, as well as global institutions like the IMF, World Bank and World Trade Organization must open more of their activity to public scrutiny. With the encouragement of the U.S. government, some of the world's largest financial institutions have announced an agreement to set industrywide standards in the market for derivatives. Our Federal Reserve has been taking a close look at the banking system in order to constrain some of the leverage that has fueled these flows in the past. Furthermore, we are working with other governments, including Hong Kong, to put in place an international framework that will encourage the safe and efficient flow of capital, which nourishes growth and trade," he said.
The third component to economic recovery is democracy and the growth of self-government around the world, according to Boucher.
"Economic and political freedom work together," he said. "Worldwide, democracies are coping better with economic crises because their governments have the legitimacy and popular support to undertake effective reform -- to root out corruption and cronyism, to support fair regulation that protects consumers and businesses, to promote development that protects the environment, and to uphold the rule of law."
Boucher stressed that the United States takes a keen interest in Hong Kong's future.
"Hong Kong is a major trading partner for the United States and an important source of business opportunities. And it is a window on the future of China. If you take the right steps now to move forward in times of difficulty, it will remain an example to the world of what a free society with free markets can achieve," he said.
Following is the text of Boucher's remarks, as prepared for delivery:
(begin text)
The United States Role in Asia's and Hong Kong's Recovery
Remarks by U.S. Consul General Richard A. Boucher
to The Hong Kong General Chamber of Commerce
January 25, 1999Thank you very much. There's a saying in Chinese that I'm sure you all know, "Ju an si wei" -- in times of peace, prepare for danger. Well, today I would like to talk about the opposite idea -- "Ju wei si an," in times of danger, prepare for peace. The Asian Financial Crisis has been dominating both the news and our lives for well over a year now, but rather than dwelling on the economic problems of the region, I want to focus today on the issue of recovery -- how to prepare for it, how we can work together to bring it about, and the kinds of actions Hong Kong can take now to ensure that it emerges from the turmoil stronger and more competitive as a center for international business.
The economic crisis has caused untold financial hardship for individuals and for businesses, but its harsh glare has served to illuminate and clarify Hong Kong's position in the region and the world. It has highlighted the local, regional and global factors that affect Hong Kong's economic situation and competitiveness -- factors that need to be considered when planning for recovery.
There were, of course, local factors -- the bubble in the property market raised costs for items such as office rents and housing. A bubble in the stock market among certain stocks, particularly the so-called "red chips," created highly inflated prices. Throughout the economy, expectations of high returns in the property market drove out other investment opportunities.
The high cost of doing business stands out more clearly as a major negative for Hong Kong as demand has weakened for the types of services Hong Kong provides. Looking ahead, competition with other cities where costs have fallen sharply is likely to grow. In a recent survey by the American Chamber of Commerce in Hong Kong, member companies re-emphasized their view that the worst factors for doing business here are high housing costs, high office lease costs, high labor costs and low environmental quality. A majority of the respondents indicated that these factors were not satisfactory. Simply put, prices and wages need to fall, or other gains will need to compensate for higher prices. We all know which course we would prefer.
The financial crisis has also highlighted Hong Kong's regional role as a key conduit for investment in and out of East Asia. Playing this role helped Hong Kong to prosper during the 1980s and early 1990s, but it also made the city subject to the perils of the region, as we have discovered in the past year. Moreover, the turmoil has spotlighted how deeply Hong Kong is affected by global investment flows and trends. I think many of us have understood Hong Kong's real global position only through this crisis. We've learned to worry about Russia and Brazil, as well as watch the numbers from Wall Street and elsewhere.
So, given all of these local, regional and global factors affecting Hong Kong, what kinds of things can be done now to prepare for recovery? Though the danger has not passed, one can already see signs of the beginnings of recovery in the Asian region, though still fragile and uncertain. Stock markets and currencies have risen since October, and trade surpluses have brought some measure of economic stability.
If we work together, we can see a way out of this economic crisis, and the United States is determined to remain a strong partner in this effort. At the APEC meeting in November in Kuala Lumpur, Vice President Al Gore outlined a three-part process to bring about a return to economic growth in the Asia-Pacific region.
The first step, he said, is an aggressive recovery strategy for the short term to support the return of investment capital to those countries undertaking reform. We have worked with the international community to mobilize support for countries in crisis. The International Monetary Fund, the World Bank and the Asian Development Bank have committed $65 billion to the affected countries in the region. The specific steps that President Clinton called for in September to spur growth have begun to be implemented. The U.S. has met its obligations to the IMF. The U.S. and other countries have cut their interest rates, as has Hong Kong. The industrialized nations have agreed to establish a new precautionary line of credit, anchored in the IMF, to help stop the financial contagion from spreading. We are also working to channel more investment and trade back to the region.
The Vice President noted the need for affected nations to revive and reform their banking systems and remove obstacles to private sector growth. While taking these economic measures to deal with the crisis, he stressed that it is also important to pay attention to the human cost, to alleviate the very real suffering caused by economic contraction. International bodies are providing more support to strengthen the social safety nets of Asian countries. The U.S. has announced a new initiative that combines bilateral assistance, technical assistance and micro-credit to ease the hardship and share more broadly in the prospect of renewed growth.
While taking these measures to promote recovery in the short term, we also have to address the broader, systemic issues associated with the crisis. That's the second part of the strategy -- reshaping the world's financial architecture to keep up with today's high-speed, computer-linked global economy. President Clinton, in a speech January 8 in Detroit, noted that money moves across the globe at greater speed and volume than ever before, which can increase investment in a country almost overnight but which can also trigger a collapse. He said that a major focus of his international efforts this year will be to modernize the world's 50-year-old financial architecture so that it supports the modern global economy and the movement of money.
It is clear that we need to look at ways to create more stable and sustainable capital flows. This does not mean blocking or controlling the flow of capital, but creating an environment that is less likely to generate the volatile swings in the international marketplace that we've seen in recent years. A key element will be to bring greater transparency and openness to our international economic system. Funds, governments, banks and businesses, as well as global institutions like the IMF, World Bank and World Trade Organization must open more of their activity to public scrutiny. With the encouragement of the U.S. government, some of the world's largest financial institutions have announced an agreement to set industrywide standards in the market for derivatives. Our Federal Reserve has been taking a close look at the banking system in order to constrain some of the leverage that has fueled these flows in the past. Furthermore, we are working with other governments, including Hong Kong, to put in place an international framework that will encourage the safe and efficient flow of capital, which nourishes growth and trade.
The third part of the economic recovery plan outlined by Vice President Gore focuses not on purely economic issues but on something that provides the best guarantee for prosperity in the future, and that is democracy and the growth of self-government around the world. Whether it is in expanding individual liberty, helping people find their way out of poverty, or regulating the constructive chaos of markets, we know that freedom works. And economic and political freedom work together. Worldwide, democracies are coping better with economic crises because their governments have the legitimacy and popular support to undertake effective reform -- to root out corruption and cronyism, to support fair regulation that protects consumers and businesses, to promote development that protects the environment, and to uphold the rule of law.
Now, this is a long agenda for structural reform. For some countries in the region, it's much longer than for others. Hong Kong can take pride in the fact that many of the key elements -- free markets, rule of law, strong anti-corruption measures, personal freedom -- have been an integral part of the system here for years. Indeed, that is why Hong Kong has been able to adjust better than many to the financial crisis. But although the fundamentals are sound, the events of the past year have shown that sticking to principle is essential but not enough to remain in a leadership position. There are things Hong Kong can do, changes Hong Kong can make, to speed its own recovery and to position itself for the future. Today I would like to give you some of my thoughts for your consideration. The Hong Kong government and private sector have begun to move in some key areas, but work remains to be done in others.
As I look at Hong Kong from the standpoint of U.S. interests, I see four key areas where Hong Kong can prepare for recovery and make itself more attractive as an international business center. These are: building on your foundation of freedom, improving your markets, upgrading your technology and opening up as a new, and clean, city for business and tourism.
A first priority, I think, is to continue to develop and push forward on the fundamentals -- freedom, rule of law, democratization, free and fair markets, local autonomy, free flow of information. Over the past year and a half, there have been a series of events that have raised questions about whether Hong Kong may be compromising a bit on some of these basic principles -- some arguments and decisions in courts, decisions on who and who not to prosecute, intervention in the stock market, proposals to appoint members to revamped district councils and other changes in the election system. We have seen China take jurisdiction in a major criminal case, and other developments that have raised our concerns.
Now, I'm not saying that Hong Kong is abandoning fundamental principles. Some of these events involve complex situations and hard decisions. What I am saying is that we spend time debating whether or not Hong Kong is going backward when the focus should be on how Hong Kong is going forward. How will Hong Kong build on its foundation of freedom, rule of law and limited democracy? In this area as in all others, the status quo is not the standard; it does no good to complain about change. The people of Hong Kong and the friends of Hong Kong expect it to develop further its free society as well as its free markets.
Second, Hong Kong has an opportunity to improve its markets. We applaud the hard work the Securities and Futures Commission is doing to update the securities regulations to improve disclosure and regulation. Better regulation makes a market more attractive to investors, while helping protect against collusive activity and market manipulation. Other Asian cities are competing to become Asia's premier financial center. With modernization, Hong Kong can stay ahead. Hong Kong also needs to look at some of its services sectors where, frankly, a lack of competition has raised costs, reduced choice and hindered efficiency. The government has made a good start by moving to liberalize the broadcast and telecommunications markets, but don't stop running six feet before the finish line. We hope Hong Kong will complete this process by allowing full competition in local fixed network services.
Another way to improve Hong Kong's free market system is through stricter enforcement of laws and regulations to protect the interests of legitimate buyers and sellers. We recognize and applaud the efforts Hong Kong has made in protecting intellectual property rights and combating piracy of computer software, videos and compact disks. But this remains a serious problem, and one that has the potential to derail Hong Kong's own prospects to develop information-based industries. Stopping the illegal transshipment of textiles is also necessary. Besides, it's in Hong Kong's own interest and the interests of Hong Kong workers to protect the integrity of the "Made in Hong Kong" label.
The problem of money-laundering also needs further attention. Criminal organizations are determined to use every means available to subvert the financial systems that are the cornerstone of legitimate international commerce. The world's leading financial centers -- New York, London, Zurich -- are known increasingly for their adherence to strict codes of disclosure and vigilance against money-laundering, and Hong Kong needs to do likewise if it wishes to be considered their equal.
A third key area where Hong Kong can move forward is to upgrade its level of technology for the future. Hong Kong is already moving government services on line through its Electronic Service Delivery project. I think there are things other governments, including my own, can learn from this impressive approach. The government's plans to modernize infrastructure also contribute to maintaining Hong Kong's economic competitiveness. The same American Chamber of Commerce survey that I mentioned earlier found that the communications network and basic infrastructure were, along with geographic location, the most positive features in the Hong Kong business environment. This has been one of Hong Kong's key strengths, and it can offset some of Hong Kong's weaknesses, such as high costs.
In the private sector, Hong Kong companies need to become cutting-edge users of computers and telecommunications technology. Even the smallest Hong Kong companies are multinationals which can benefit from the productivity gains of using technology better. If high costs continue, you'll need to find efficiencies somewhere. Using technology better is one of the obvious places.
It also means upgrading the human element through worker training and, more fundamentally, upgrading and modernizing the education system. Because of its history, Hong Kong has a dual or triple-language heritage -- an enormous plus in the competition for international business and an asset that few of its rivals can match. But it will take an excellent educational system to build on that foundation and to ensure that as Hong Kong strives to become a technological center, its schools and universities are fostering the skills and knowledge that will be needed.
Let's face it. Except for a fine harbor, Hong Kong's setting is not particularly hospitable -- a group of rocky islands and a mountainous peninsula. It is the talent, hard work and vision of the people of Hong Kong that have made this one of the most prosperous and sophisticated cities in the world today. But what about tomorrow? What kind of vision do you have for what Hong Kong can be in the 21st century? Let me throw out a few ideas for your consideration.
One of Hong Kong's unique assets is its location. This city should be a major hub for tourism in the region and a destination in its own right. But there are things Hong Kong needs to do to make this happen. An open air service regime would help Hong Kong fulfill its potential as a major global air service hub. The U.S. has signed liberal aviation agreements with 31 countries around the world, boosting passenger traffic and cargo access, and bringing economic benefits to local economies. Every new passenger, no matter which airline carries him or her, brings a contribution to Hong Kong's economy. Every new airline becomes a booster for Hong Kong.
As one of the most fascinating cities in the world, Hong Kong ought to be a great tourist destination. But the Asian economic crisis, high prices and a certain amount of post-handover tourist fatigue have caused tourism to slip. Hong Kong is no longer a bargain-hunter's shopping mecca, so to bring the tourists back, Hong Kong needs to capitalize on its cultural uniqueness -- its vibrant Chinese heritage as the primary element, coupled with its shine as an international city. The world is full of modern cities, but there is only one Hong Kong. From a physical standpoint, future development needs to be done with an eye for preserving the esthetic beauty of the city, since that is one of its main assets. And of course, neither the harbor view nor the quality of life is enhanced by the worsening haze of air pollution over the city or the mess in the harbor. As we have discovered in American cities, dealing with this problem does entail short-term economic costs, but these are more than offset by the long-term economic benefits for business, public health and tourism.
While travel and tourism are important, Hong Kong's larger vision of its economic future will determine its fortunes. As you well know, Hong Kong's days as a low-cost manufacturing center are gone, probably forever. The days of large profits in a steadily rising local property market may also be gone. But if Hong Kong further develops its strengths, improves its markets and rises to a new level of technology, it is well positioned to remain a competitive provider of services for the entire region and to become a marketing center for high technology, including business services and environmental technology. Hong Kong has the creativity to rebuild its lucrative entertainment industry, but only if it protects its intellectual property. As recovery occurs, Hong Kong will become the financial center for regional restructuring, a debt market for the region, and a conduit for the return of capital to East Asia. That is why U.S. companies remain here and why the decisions Hong Kong makes are important to the United States.
Hong Kong's example and role as an influential advocate of open, well-regulated markets is also important to us. With its separate membership in the World Trade Organization, APEC and other international economic bodies, Hong Kong can be an active player pushing for free trade in the region and around the world.
Of course, what I have offered to you today are just my thoughts, and the thoughts of other American officials who want to see Hong Kong and Asia recover from the current economic crisis. What actually happens is up to you. Hong Kong people will determine their own future. That's the meaning of 1997.
But I want you to know that Hong Kong's future is important to us, too. Hong Kong is a major trading partner for the United States and an important source of business opportunities. And it is a window on the future of China. If you take the right steps now to move forward in times of difficulty, it will remain an example to the world of what a free society with free markets can achieve. Thank you.
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