Chamber Annual Report 2003

CHAIRMAN'S REVIEW

It is a pleasure to report to members the developments in your Chamber in 2003. The year was a milestone for Hong Kong, for several reasons and not all of them pleasant. Although we experienced one of the most difficult periods, some 12 months ago, as the concerns about SARS swept through society, we can take comfort in the strong rebound in confidence that took place in the second half of the year. The battle against SARS brought our community together in a common cause, and that spirit, I believe, will serve us well as we take on new challenges in 2004 and beyond. Your Chamber played an active role in confirming Hong Kong as the best business and financial center in the Asia-Pacific region, and in working to ensure that we remain on top. The response from our members has been encouraging, as reflected in the strong turnout for conferences, roundtables, committee meetings and delegations abroad.

The most pressing issue during 2003, and one which no one could have predicted, was tackling the myriad of challenges arising from SARS. While our excellent healthcare workers risked their lives to understand and control the spread of the disease, your Chamber presented facts to counter often-hysterical media reports, particularly in the international media. As a leading participant in the Economic Relaunch Strategy Group, we helped lay the foundations for the recovery.

Through committee meetings, lunchtime roundtables and a major conference -- "Business After SARS" -- your Chamber gathered, analysed and disseminated practical information and policy recommendations for minimising the risk of infectious diseases. One of the most widely welcomed initiatives was an information circular members were asked to send to their overseas contacts, explaining the real risks and current situation in Hong Kong. Chamber delegations also took to the road to spread the word, including missions to France, Spain, Portugal, Beijing, Shanghai, Guangzhou, Xiamen and other major Chinese cities.

The Chamber surveyed members in April for suggestions on what policy initiatives to recommend to government as a means of stimulating economic recovery and minimising the impact on business. Many of the hundreds of responses were incorporated into a formal submission, which included measures to alleviate short-term cash-flow problems among SMEs, which was subsequently put into practice by the government.

While we supported the emergency fiscal measures that were wholly justified in the face of a sharp, short shock, we remained committed to reducing overall government spending and curbing the dangerously large budget deficit. We returned to this theme as soon as it was clear that the effect of SARS on the economy was receding. Earlier in the year, in February of 2003, your Chamber produced a pay level comparison survey that delineated the difference between government jobs and their equivalents in the private sector. It was the first comprehensive pay level comparison survey of civil service and private sector pay, by any organisation, since 1986.

As concerted efforts by our dedicated healthcare workers and their colleagues in the rest of China and around the world brought SARS under control, a new challenge emerged. Due to a variety of reasons, more than 500,000 people took to the streets on July 1st to express their political views. What is remarkable is that the demonstration was entirely peaceful, resulted in no injuries, did not involve looting or rioting, and contained none of the ethnic, religious, class or "anti-business" sentiments so common in similar events around the world. The next day, everyone was back at work.

The demonstration against national security legislation, or Article 23, began the growing concern for the future political development of the SAR, the principle of its relations with the Central People's Government, and the quality of political discourse. As the year drew to a close, constitutional development emerged in public debate. I am proud to say that in both cases your Chamber has been a voice in favour of patient and comprehensive consultation, clear-headed reason and a moderate course. In developing our Chamber's position on these matters [Article 23], as on all important issues, we listen closely to the views of our members, expressed through our many committees, and discuss matters thoroughly in General Committee meetings.

The new Closer Economic Partnership Arrangement (CEPA) between Hong Kong and the Mainland of China was a dominant theme in Chamber events during the year, and rightly so. Back in late 2000, the notion of a free-trade agreement first arose within the Chamber and with the strong backing of the HKSAR and Central People's governments, finally came to fruition at mid-year 2003. On average, the Chamber held more than one conference or roundtable every month on some aspect of how members can best make use of CEPA.

The year also saw a host of distinguished guests speak at Chamber events. Among them were astronaut Yang Liwei, Nobel Laureates Prof Rolf Zinkernagel and Sir James Mirrlee, Belgium Prime Minister Guy Verhofstadt, US Consul General James Keith and Liaoning Governor Bo Xilai. Government officials from Home Affairs, Housing, Planning and Lands, the Civil Service, Education and Manpower and Constitutional Affairs offices also visited the Chamber to speak with members off-the-record in our "Town Hall" series. Inside the Chamber "family", the popular "Conversations with a General Committee Member" series continued with in-coming Chairman Anthony Nightingale, Membership Committee Chairman David Eldon and GC members Victor Li and Marjorie Yang.

The coming year should be a significantly better one for Hong Kong's economy. While we certainly need to carry through with initiatives started or continuing on from 2003, the solid, steady economic expansion among our major business partners and improving domestic economy bode well for the SAR. It is up to us, the business community, to make the most of the CEPA opportunity, and to work to ensure that Hong Kong remains the international business, trade and finance center of Asia.

Business and the Economy

Globally, the world economy continued its strong recovery in 2003. The International Monetary Fund estimates that world GDP rose faster last year than in either 2002 or 2001, and while the numbers are not final, that certainly seems to be the case in both the US and East Asia. There are, however, increasing global economic concerns. Overly large fiscal deficits in Europe and the US (albeit, not as large as a percent of GDP as is the case in Hong Kong) limit governments' abilities to react to slower growth or external shocks. The steady decline in the value of the US dollar, and increasing pressure on China to revalue are a cause for concern. In combination with growing protectionism in the US and the collapse of the Cancun round of trade talks, the dangers to trade are clearly rising.

Mainland China remains the driving force in Hong Kong's economy, and increasingly, that of the rest of East Asia. The 37.1 percent rise in two-way trade recorded last year provided critical business for Hong Kong companies amid the SARS-induced slump in domestic demand. More than 55 percent of all China's trade arises from foreign-invested enterprises, and Hong Kong-based companies comprise the largest share, at nearly 45 percent of cumulative foreign investment. Moreover, the rise of tourism from the Mainland of China to Hong Kong, in part because of easier visa rules, proved to be the most important factor in overcoming the impact of SARS. Hong Kong's own trade expanded sharply during the year, rising 11.6 percent over 2002. Hong Kong ranks 10th in the world in merchandise trade and in trade in services. Within the total, services, which are about 15 per cent of two-way trade, were hurt by the loss of tourism during the SARS period, but are recovering well.

Hong Kong cannot avoid external shocks and still remain the most open and free economy in the world. SARS cost us dearly last year, prolonging our struggle with deflation increasing our unemployment. Although we lost over 10,000 jobs last year, that was little more than half the rate of 2002. While that may be little comfort to those seeking work, the reduction in the unemployment rate since the third quarter is promising. By late in the year, it was clear that consumer price deflation is finally coming to an end. Property prices picked up strongly in the last months of 2003 and the earliest measures of price change are all showing better-than-expected figures.

As briefly mentioned above, our fiscal balance deteriorated in the past three years, and work is needed to both reduce recurrent spending and broaden the tax base. The best time to make the tough decisions is when business and consumer confidence are rising, and before decisions are forced upon us. Just as national security legislation and constitutional development require us to adhere to the terms laid down in the Basic Law, so too, does that document compel us to restrict ourselves to a low tax and balanced fiscal position.

The Chamber has long been a strong voice for reducing the overall size of Government, improving efficiencies through structural reforms and bringing compensation packages back in line with those in the private sector. Our pay comparison survey last year and a similar comparison of benefits carried out in conjunction with the Employers Federation of Hong Kong clearly show that there is a great deal that needs to be done. We do not favour continually cutting civil service pay until the budget balances; that would foolishly risk an increase in corruption and a deterioration in service. Rather, we need to remove entire functions from the hand of government, and look to the private sector to provide more of our community services.

In the face of the Asian Financial Crisis, the bursting of the high-tech financial bubble, recession and SARS, government rightly took steps to ease the tax burden. Now, as we emerge from the necessary price adjustments forced on us since the late 1990s, we need to return to the long-delayed need to tighten our fiscal belt. Broadening the tax base will ensure that the burden of financing government is more equitably shared among those who benefit from public services. This will entail sacrifices by all sectors of society  business, consumers, salary workers and government  but to postpone these necessary steps until the economy magically cures itself would be courting disaster.

Concluding Remarks

The past year will be marked with an asterisk as one that should have been better but wasn't, primarily due to events outside of our control. Because we are the most international business center in the world, we have to expect the unexpected, move quickly to take advantage of arising opportunities and retain the resources to cope with unanticipated reversals. Your Chamber is working hard to ensure that Hong Kong is prepared for what faces us in the future, and that we are well equipped to weather the typhoons always lurking just over the horizon. We pride ourselves in being a clear voice of reason within the SAR's business community, and will continue to speak out on behalf of our members, our society and our belief that Hong Kong is special.

To do so, we need to remain financially sound, enhance our service to members and expand our numbers. As we stride fully into CEPA and more deeply integrate with the rest of China, we will be guided by our overall mission of safeguarding, representing and promoting the interests of the Hong Kong business community, at home and abroad.

In closing, I would like to extend my personal thanks to Deputy Chairman David Eldon, our three Vice-Chairmen: Lily Chiang, Anthony Wu and K K Yeung; Our Legislative Council Representative in the Commercial (First) functional constituency, The Honourable James Tien, continues his fine work on behalf of the Chamber, its members, and the entire business community. I would also like to thank the many members of our Chamber committees, and particularly the officers of those committees. They are the backbone of this Chamber, and contribute tirelessly, and their work is deeply appreciated.

Finally, I would like to express my thanks and gratitude to the Chamber CEO, Dr Eden Woon, and his staff for their tremendous contribution during the year. They stepped up to the challenges of 2003 with dedication, good ideas and hard work. To you, members, I would like to extend an open invitation to raise your own ideas and suggestions with the Chamber Secretariat, and to wish every success in your business and to Hong Kong overall in the year ahead.

Anthony Nightingale
Chairman

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