Hong Kong and Mainland China's economies should see further integration after China's accedes to the WTO, HKSAR Chief Executive Tung Chee-hwa told business leaders at the HKGCC's inaugural "Distinguished Speakers' Series" luncheon on Feb 22.

But he dismissed fears that closer integration with the Pearl River Delta would have a negative impact on Hong Kong.

"This worry is understandable and may be true in the short term. But, in my view, the integration with the Pearl River Delta is a natural process that we should not resist, but rather we should embrace," Mr Tung said.

Rapid growth of cities and townships in the Pearl River Delta coupled with greater consumer spending power of its citizens will drive trade through Hong Kong and demand for consumer goods and services, he said.

To illustrate his point, Mr Tung said about 40 per cent of Hong Kong's trade originates from the Mainland, and about three-quarters of the containers that pass through the SAR's port originating in the Mainland, especially the Pearl River Delta. Mainland companies account for some 30 per cent of the Hong Kong Stock Market capitalisation. And an average of 270,000 people travel between the boundary every day.

"All this shows that our economy is intrinsically linked with the Mainland," he said. "It has always been a 'win-win' situation and will continue to be so."

Mr Tung revealed that a common vision of a Pearl River Delta regional economy is shared by leaders in Guangzhou, Shenzhen and Dongguan and the Macao Special Administrative Region.

"In the months ahead, we will study and hope to identify some measures to promote co-operation in these areas," he said.

Among the opportunities that offer the greatest potential are those in information technology development, financial services, retail and distribution, import and export, professional services such as legal services, construction and project management, and transport and logistic services, he added.

But the Chief Executive stressed that the initiative must come from the private sector, with the SAR Government acting as a facilitator.

He also said that the SAR Government was striving to provide a conducive environment for attracting investment and promoting the free flow of people, talents, and goods and services.

Among the issues being tackled are the boundary congestion problem, and improving the air and water quality as well as the general environment.

Mr Tung said his discussions with the Mainland provincial and municipal leaders and the Chief Executive of Macau SAR on these issues have been encouraging.

When asked by a member of the audience about rumors that the Guangdong Provincial Government has already agreed to direct access and free travel for Hong Kong Permanent Identity Card holders to the province, Mr Tung said it would be wrong for him to comment on rumours.

"But I will say because of the existence of 匭ne country, two systems' and the importance of maintaining 匭ne country, two systems,' we have to give a great deal of careful thought to any of this process of moving forward. But at the end of the day, the more liberal, the easier it is for people to travel across the boundary, the better it would be. I am quite sure of that," he said.

Mr Tung rebuffed the recent report by the Economist Intelligence Unit (EIU) which forecasts the SAR's ranking as an international business centre will fall from 3rd to 12th place between now and 2005, in response to a question from the audience.

With the number of multinationals headquartered here increasing by over 20 per cent, a US net portfolio investment in Hong Kong of US$5.3 billion, US$23 billion of foreign direct investment, and the recent Standard & Poor upgrading from A to AA, Hong Kong's economic indicators are all flashing green.

"I would think that these numbers speak for themselves," he said.

Mr Tung also scoffed at the accuracy of magazine reports, citing the antipodal swings in their views as illustrated by Fortune magazine's cover story, 偲he Death of Hong Kong,' which it published prior to the 1997 handover