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A Conversation with Donald Tsang

Speaker: Donald Tsang, Chief Executive, Hong Kong Special Administrative Region, People's Republic of China
Presider: Maurice R. Greenberg, Chairman, Chief Executive Officer, C.V. Star & Co., Inc.
November 7, 2011, New York
Council on Foreign Relations

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MAURICE GREENBERG: I think we're ready to start. First of all, would you all turn off your cellphones or other electronic gadgets that you may have? And this meeting is on-the-record. It's a pleasure to introduce Donald Tsang, the chief executive of Hong Kong.

To save time, I won't repeat his resume. It's in the papers that you have, except to say that he's been with the Hong Kong administration since 1967. He's done an outstanding job in Hong Kong. I've just returned from there about a week ago.

It's as dynamic, more so than the last time I was there, which was not too long ago either. He's done a great job, and it's a pleasure to introduce Donald Tsang, chief executive of Hong Kong. (Applause.)

DONALD TSANG: Thank you, Hank, and distinguished guests, ladies and gentlemen. Well, thank you for this chance to meet and speak with you today. I'd like to thank the council for its keen interest in Hong Kong.

Over the years, the council has analyzed Hong Kong's return to China's sovereignty, our role in public health issues like the SARS epidemic, our education system, our ongoing democratic reforms as well as economic and financial developments.

All the while, the council has given full play to our serious role in the international arena. In our world today of 10-second sound bites, tweets, SMS, emails, this council proves that there is no substitute for informed and comprehensive debate and analysis.

And that is why I am especially delighted to have the opportunity to talk to you about Hong Kong's unique role in today's world. And I believe in a future relationship between the world's two largest economies, the United States and China.

As you may know, my administration is in its final year. I have the honor of serving as chief executive of the Hong Kong special administrative region of China since 2005. We will hold the chief executive elections in March next year, and my successor will come into office on July 1st next year. For the remaining eight months of my term, there is much work for me to do. And I'm determined not to be lame. (Laughter.)

Considering the changes our city has been through in the past 14 years, economic changes, political changes, legal changes, social changes and more, Hong Kong has remained on a remarkably even keel. Remember that during this period we have faced not one but two financial turmoils: the Asian financial crisis of 1997 and '98; and the yet-to-finish global financial tsunami, which started in 2008.

Our economy was also hit hard by the fallout from the bursting of the dot-com bubble at the turn of the century. We have overcome health scares, including the SARS outbreak in 2003 and several bouts of avian flu and swine flu. To borrow an overused but apt phrase, it has been a period of challenges and opportunities.

Our weaknesses have been exposed, our friendships put to the test and our strengths have come to the fore. Above all, we have all come to understand more about the role of our city can and will play in the development of our nation. This deeper understanding and mutual trust and respect between Hong Kong and our sovereign is underscored by the latest national 12th five-year plan., the central government's development blueprint which was adopted earlier this year.

That plan, the 12th five-year plan, pledges to maintain Hong Kong's stability and prosperity under the principle of "one country, two systems." The plan also supports our developments as China's international financial center and a global hub for trade, for shipping and for asset management. Under "one country, two systems," Hong Kong people run Hong Kong in much the same way as they always have done.

We have a high degree of autonomy, including managing our own legal system, financial system and political system as well as individual policies on immigration, social development, et cetera. Hong Kong still plays a full and separate role in various international fora, among them the World Trade Organization, the World Health Organization, APAC and the World Customs Organization and so on.

Our city also remains a popular port of call for the U.S. Navy. All this an (sic) enhanced Hong Kong's reputation as a stable, reliable and trusted partner both for our friends around the world and for our own nation.

According to our inward investment agency, Invest Hong Kong, the number of companies from the mainland of China and from other parts of the world operating in Hong Kong has reached an all-time high of almost 7,000 firms. More companies from the United States than anywhere else have their regional headquarters or regional offices in Hong Kong. The last count was 315 headquarters.

These companies bring investment, enterprise, talent and good old American values to our city. The top five reasons for overseas companies choosing our city, according to a recent survey, are, first, low and simple tax system, free flow of information, corruption-free government, absence of exchange controls and strong network of soft and hard infrastructure.

These attributes underpinned by the "one country, two systems" are the foundation of our role as a gateway into and out of the mainland of China, a gateway not only for business, finance and investment but also a two-way flow for people, ideas, innovation, creativity and culture.

Allow me to give you an idea of the size of this gateway of Hong Kong. With a population of just 7 million, it's the single largest investor in the mainland of China, while mainland is the largest investor in Hong Kong. Last year, in 2010, we received a record of almost 70 billion U.S. dollars' worth of foreign direct investment inflows. This was the first -- this is the third highest behind the United States and mainland of China in the world. And remember, we are just a small territory of 7 million people. This is according to UNCTAD, the world investment report of this year.

And imagine this. On an average day, more than 600,000 people cross by land, sea and air between Hong Kong and the mainland of China.

That is about double the number of daily crossings between the United States and Canada. Also in Hong Kong, more than half a million people travel to and from across our seven land boundary points daily.

My administration is investing heavily in infrastructure, building mega cross-boundary infrastructure projects. Among these are a 29-kilometer bridge between Hong Kong and the less developed parts of a dynamic Pearl River delta region and an express rail link that will connect Hong Kong to the mainland's vast high-speed rail network. Our cross-boundary gateway is expanding rapidly.

And the United States is right in the thick of action. The U.S. was our second largest trading partner and our export destination last year. At the same time, Hong Kong is the United States' 12th largest export market. Last year, about 12 percent of trade between the United States and China, valued at 46 billion U.S. dollars, was routed through Hong Kong.

Despite a global economic turmoil, the bilateral trade last year grew 20 percent year-on-year to reach $66 billion. The point is that Hong Kong's door to the mainland is efficient, mutually beneficial and wide open. In his State of the Union address last year, President Obama set up the national export initiative, NEI.

The NEI is designed to help the U.S. meet its export goals. It recommends deepening U.S. trade ties with high-growth markets, including the mainland of China, as well as with other emerging markets in Asia. We see tremendous opportunities for both Hong Kong and United States enterprises arising from this initiative.

The NEI report noted cultural differences and market access barriers as obstacles to achieving these goals. Then enter Hong Kong. For one thing, we are the world's freest economy. We have been ranked number one by the Washington, D.C.-based Heritage Foundation for each of the past 17 years.

We are also a close and familiar friend of the U.S. business community. We speak the same language, share the same values and we have similar aspirations for our communities. With this in mind, the Hong Kong Trade Development Council, the TDC, has launched a Pacific Bridge Initiative. The initiative promotes Hong Kong as a springboard for U.S. exporters to reach Asian markets and particularly mainland China. In November last year, the TDC and the U.S. International Trade Administration signed the Pacific Bridge Initiative statement of intent. It was the first such initiative between the United States and its trading partner to boost the NEI.

As well as having a dynamic business-friendly environment, Hong Kong has a unique free-trade pact with the mainland, which we call the Closer Economic Partnership, or CEPA. In fact, this is the only example of a city having such an arrangement with the sovereign, another positive outcome of "one country, two systems" formula.

CEPA was signed in 2003 and remains the most preferential free- trade initiative ever signed by the mainland China. Under CEPA, all products of Hong Kong origin are exempted from tariffs when entering the mainland market, all products.

It also gives companies the first -- (inaudible) -- advantage and preferential access to 44 service sectors throughout mainland China. Important for U.S. companies, CPA is nationality-neutral, which means American firms and companies around the world that are incorporated in Hong Kong can enjoy the same benefits as local firms.

Our overriding goal is basically achieve the full liberalization of trade in both goods and services between Hong Kong and the mainland by the year 2015. Ladies and gentlemen, these are some of the ways that Hong Kong is continuing to firm up its platform as a premier gateway to the mainland.

During my term as chief executive and especially in recent years, I witnessed changing aspirations of our people and especially our younger generation. Jobs, good salaries, home ownerships are still important. But the counterbalance has shifted, giving much more weight to issues such as the environment, corporate transparency and accountability and democratic reforms. As an accountable government, my administration works hard to stay abreast of this trend. On a key issue of political reform, we have mapped out a clear timetable for universal suffrage, which means the chief executive in 2017 and our entire legislature in 2020 may be returned by universal suffrage -- one man, one vote.

This goal has the full backing of the central government because in fact they set the timetable after the Hong Kong government asked them to consider doing so to help push forward our political development. It is another example of the successful implementation of "one country, two systems."

We will introduce various democratic elements for election next year. This will give people a greater say in who runs the city's affairs and more confidence in our ability and achieve universal suffrage. On this I must intone in Hong Kong's case we have the rule of law. We have the full freedom for people -- freedom of speech, freedom of movement. But democratic reform in terms of universal suffrage, which was used in other places to guarantee these freedoms, to guarantee the rule of law, has a different function in Hong Kong. It genuinely gives an additional thing of one man, one vote, give people the participation in selecting the chief executive. Well, Hong Kong's people enjoy almost the same range of freedom as any Americans in America.

Ladies and gentleman, I thank all of you in your interest in Hong Kong. Beyond promoting two-way trade investment, I'm confident that Hong Kong has what it takes to lift our bilateral relations to the next and more interconnected level. Each of our community will gain from healthy competition, positive engagement and mutual trust and to mention -- not to mention the general -- the general helping of the can-do spirit, which we all share. Thank you very much. (Applause.)

GREENBERG: You sit over here and I'll --

TSANG: OK, come here. Sit here.

GREENBERG: You sit there. OK.

Before taking any questions, please rise and identify yourself. Ask one question, not a dialogue, so we can get as many questions as possible.

Jacob?

QUESTIONER: Jacob Frenkel -- your Honor, this was a great presentation describing a great economy. I would like to take you a little bit back to the previous century. During the financial crisis of Asia, you obviously steeled your economy in a way, which brought it to where it is now. You have developed relations with the financial sector and the like.

Well, we are now in the midst of a financial crisis in the entire Western world. Europe is in disarray. The U.S. is still in a significant problem. A single lesson from your experience dealing with financial difficulties that one should apply or take note as one looks at both Europe and the U.S.?

TSANG: Jacob, I've discovered that the world has moved on quite a bit since the Asian financial crisis in 1997. Ten years ago, the world was far less connected -- interconnected. So the turmoil we had in 1997, '98 was very much a regional affair. Nobody seemed to bother about Asia that day, and we had to find our -- find our way out. But since then, it's all a different ballgame.

We are all connected whether we like it or not. (Inaudible) -- Jacob, now I have to after dinner, after supper, I (have already looked ?) at what happened in Wall Street when the market closed. At 4 o'clock in the morning I tend to wake up again to look at how the market closed in Europe. For reasons I don't understand I -- still I worry.

But the one thing I realized: Some very important element in dealing with crises of this kind is certainty, transparency. And the problem as I see it in Europe these days is after each and every package that comes out, we find that there is something missing there. And it hasn't got a full solution in sight.

I'll cite you one very humble example we had in 1998, in August, where our market was bombarded all left, right and center.

We had the currency manipulation and had the securities market going all the way down. Everything was in a tumble. I did some rather extraordinary things, Jacob, you may remember. I bought some shares in our market.

Of course, what I did in those days was condemn globally as something rather (extraordinarily ?) silly. But what I did in those days paled in significance what exchequers, finance ministers all over the world are doing in the last years or so. But what we did was we told exactly what people we are doing and how we are doing. And at the same time, I told people how we would get out of it after we finished with it.

And then uncertainty stopped, and the run on our banks stopped, and the market regained confidence. Of course we are in a different situation. I did not have any debt at all. I have zero debt. We balance our books and have money in our pocket. We've got lots of money to shoot out. I was preparing to do a shoot-up of three months, and they all finished within a month. But situations are more different now in that in Europe the governments overborrowed.

They haven't got ammunition for a shootout in the OK Corral. In the United States, the private sector has also borrowed and hardly any savings and so got into a problem. But the important thing I see is transparency and certainty. And let people see how to get out of the mess, and -- but it's not easy though. In our little place, it's simple.

But in the case of Europe involving 17 economies, everyone has a say -- in the United States, Congress and everything. So it would be -- it would not be easy to explain the full package to the market to ensure that they understand what it's all about and investors become confident. But that's the trick. But that's important.

Unless it is done the press will certainly find fault with you package and enlarge it, and immediately the run would continue. And it's scary since we're all connected, as I said -- far more connected than we were 10 years ago.

My banks, our banks are hardly exposed to European debt instruments. But I do know whether our banks -- (inaudible) -- whether their main clients may be exposed and they might be in trouble as a result. So we are worried.

GREENBERG: Yes?

QUESTIONER: Thank you. Deroy Murdock with the Atlas Economic Research Foundation -- we're having quite a debate about tax reform in this country right now. And Hong Kong has something like a flat tax or an outright flat tax.

I'm wondering if you might describe it briefly and let us know how significant an ingredient the flat tax in Hong Kong is in Hong Kong's formula for success and any advice you'd care to offer us as we consider tax reform in the United States.

TSANG: Well, I cannot pretend that our simple tax system is a recipe for success elsewhere. But I can explain to you what it is. It is a flat tax. We have no personal income tax. We've got salaries tax because we do not have double taxation as such. We have no capital gains tax. So only people on salaries terms, they pay a tax.

Maximum rate is 15 percent, one five. Those guys who live on dividends -- (those are the ?) big shots of this world -- the captains of industry who lived on dividends, they are tax-exempt. Those dividends are garnered from corporate. Corporates are being taxed. Corporate profits tax is a maximum of 16.5 percent. But most corporations will employ clever accounting and usually pay about 8 (percent) to 9 (percent.) (Laughter.)

But that's all. We have no value-added tax. We have no other tax. But we need the discipline, the disciplined government in that the administration deliberately self-impose on itself that we do not take up more than 20 percent of the GDP. In other words, you have to be a reasonably small and compact and efficient administration. And taxation is also maxed out at 20 percent roughly of the GDP. So we balance our books every year. That's how we do.

When we collect -- sometimes we collect more taxes than we can spend. We then put this away as a fiscal reserve. And when some years when they are dry, particularly running a deficit over the financial crisis, we then take money out of the kitty and spend it. At the moment, we are about 500 billion (dollars) or $600 billion in terms of fiscal reserves. That is not a foreign exchange reserve. It's much larger.

But that's our tax system. It has its own advantages. It's simple. It's transparent. In terms of disadvantages, it is -- in that people say it's not fair, in that the rich pay exactly the same rate as the poor. But in our case, only about 40 percent of our working population pay taxes. The poor just do not pay. They don't need to pay.

So we find that we have sufficient money. Somehow we believe in a little economy like Hong Kong that Laffer's curve works in a sense that sometimes you cut taxes; you get more revenue. And we did it. For instance recently we did some rather interesting things. We abolished the duty on alcohol, on wine.

We used to collect about a billion dollars' worth of taxes. But suddenly giving up the billion dollars is going to have a lot more coming from profits tax and then Hong Kong now overnight becomes the wine auctioning center -- overtaking New York, by the way. (Laughter.) So interesting, fascinating what cutting taxes will do.

But as I said, don't -- this is -- this is Hong Kong. We are a small economy, and what works in Hong Kong might not work here. You have a much more complex political system. We are getting very complex, too. And we just ran -- we have just finished one election. It was quite a nightmarish thing. And we're going to have more. But it works in the case of Hong Kong.

GREENBERG: It'd be nice if we could try it. (Laughter.) Yes?

QUESTIONER: (Off mic) -- New York University. You've outlined the major infrastructure program -- bridges, railways. How are you going to finance that?

TSANG: It will be financed on our reserves.

QUESTIONER: (Off mic.)

TSANG: Well, every year our taxes -- our taxes come from two sources, sums of recurring revenue coming from personal taxation, salaries tax, from corporate profit tax, from rates which is from homeowners. But at the same time we sell land, property land, which we get what we call capital revenue.

And -- (inaudible) -- that's all income, we invest back into infrastructure. And at the moment we are spending about $60 billion every year on our infrastructure. We maintain it this way. We have found it is most effective way to deal with unemployment, particularly at the grassroots level. And when the economy is good, we find it easier to finance. When the economy is bad, we find it's a good supply of a lot of jobs.

And in a city like Hong Kong, if you want to be continually competitive, you must have continued investment, investment both in hard infrastructure and soft infrastructure like education and other on the soft side of things like arts and culture and sports. It's very important to make a harmonious society. But we finance it ourselves.

Occasionally, occasionally we have joint ventures. We also give it to franchises people. For instance, our utilities are run entirely by private sector. Even our trains, which are profit-making, interesting enough, are run by private sector. It's a listed company. So our tunnels -- our tunnels are franchised, partly owned -- some tunnels are owned by government. Some tunnels are owned by private sector from which they collect tolls, which is self-financing. But as I said, it's a small territory of 7 million people. But it seems to work.

GREENBERG: Could I ask a follow-up question on that? If there's going to be a new infrastructure project, how long does it take from conception to get approval?

TSANG: Getting longer and longer.

GREENBERG: You're following us. (Chuckles.)

TSANG: Yeah, that's what -- it's the price you pay with democracy. I mean, it -- (inaudible) -- us to remember 35 years ago when we tried to build one thing called the Tuen Mun bridge, which is -- connects up Tuen Mun highway connects the -- one part of a new territory, a new town to central.

And it was planned on the back of an envelope between the then secretary for the new territories and the governor and then vote -- one vote -- (inaudible) -- legislature and everything was finished, three years, OK? Now, where we spend, we are lucky to spend about five years arguing. Building is quite simple and straightforward.

But arguing, arguing because we have to convince the local population. We have to convince the district council. Then we have to convince the legislature and usually a lot of debate. And then there are a lot of demonstrations. People lock themselves up on a construction site -- the sort of thing you have -- I mean, you have. (Laughter.)

All I can say is it's getting longer and longer. But we are reasonable people. At the end of the day, then we still have to work. The fact of the matter is people have the bigger choice. If you want to be competitive, you want the city to not just wither away, you have to put in fiber optics, you have to put in bridges, make sure people move, funds move, people move, vehicles move, goods move. Otherwise it will wither away.

So at some point, then even politicians would give way. I'm sure it happens in this country, too, where you go through the motions of what we are doing and we are laughed out of court by our mainland neighbors in China. Come on, we built the thing in three years. You guys are doing it in eight, nine.

But we do it with less blood. (Laughter.)

GREENBERG: Yes? Thank you. You, yeah.

QUESTIONER: Hi. Good evening, Binta Brown from Kirkland & Ellis. So you've mentioned so far that you balance the books every year, sometimes collecting more revenue than you spend. You've mentioned massive infrastructure -- TSANG: By Hong Kong standards, yeah.

QUESTIONER: -- that you're financing. So leave aside our federal government. Let's focus, for example, on New York City. How do you do it, and what lessons can we draw? You're balancing the books and spending on infrastructure, something which we don't seem to be able to understand here.

TSANG: Well, by constitution, Ms. Brown, we must balance our books as much as possible. Otherwise we are brought into court by -- (inaudible) -- so we have to try very hard to do so. But something which I mentioned in answer to the gentleman's question is we sell land. Land is a valuable asset in Hong Kong.

In New York, the government does not own land for sale anymore. And for that reason, we have a reasonable income from land sale every year. And the land sales enable us to go into infrastructure projects. If we run out of land, then we'll find something to create it, by reclamation, by going into caverns -- going right in the mountain cavern to produce land.

For our utilities, we moved all our reservoirs. Everything moved under the caves and then create new land for development, for residential, commercial development. Somehow we manage. And that enables us to have additional source of revenue. The important thing is we are -- we are rather frugal in looking at our expenses.

Like, as I said, if you impose on yourself that you spend no more than 20 percent of GDP, then you'll find that you're able to -- then you'll be able to collect the taxes, able to meet that sort of expenditure program. But if you try to spend more than that, then you might have to borrow from elsewhere.

Then you go into debt or you -- then you raise taxes here and there. Then you become less competitive. We in Hong Kong, we want to do an international global financial center. Financial institutions, as you gentlemen and ladies know, operate on various lender profit margins.

You would tax (it ?) a bit more. These guys are footloose. They walk. So the important thing is you must keep yourself competitive -- (inaudible) -- places lean. And in the process you find that tax are not the most difficult thing to collect in Hong Kong. And we're able to do that. But it's a far more mature city in New York. And also I do not contribute anything to -- all our people pay taxes to the Hong Kong government.

But you've got federal taxes, the local taxes and county taxes, all the rest of it. And the city of New York does not have access to all the taxes it collects in New York itself. So we are somewhat different. But the discipline is interesting. It is something which started in the colonial days, that as I said, 20 percent of the GDP. In U.S., I think it's been up to about 40 (percent) -- in Europe, a bit more.

GREENBERG: Back there?

QUESTIONER: Great. Brett Shisler -- it's quite a pleasure to be here, particularly since I'm a candidate for a global master's degree from NYU Stern and Hong Kong University. I was hoping you could help me with my homework. (Laughter.)

So my assignment's around China being a world power. Since '78 it's obviously swayed our world economy, and I was curious from your perspective what principles or free-market principles, in particular in your case, would they have to adopt to be not only a third world or current third world reserve currency and a world power? If you could write a three-page essay for me, that would be great, too. (Laughter.)

TSANG: Well, I can't help you much in this. I mean, I cannot pretend our little tail can wag the big China dog. It is a different political structure. It's a different economic structure altogether. China operates still on a normative economic plan. We don't, like you. We don't operate on economic plans. We have land- use plans. We have other programs but we do not control the market, the economy as such. We rely heavily on the market.

But China is doing exceedingly well. You can see double-digit growth all these years, particularly through export and heavy investment on education -- (inaudible) -- extremely large pool of talent and educated people. So I'm sure things are changing, and the domestic consumption is being encouraged.

A lot of infrastructure program is being invested in the mainland itself, and people's lifestyle is different. It's changing as well. I'm sure that domestic consumption will replace some of the export reliance that China has up until now. But there is a lot of challenges. Essentially mainland China -- if you look at it carefully -- is still a poor country.

We still have very poor parts of our nation. But then of course look at the coastal areas we have. It's pretty affluent, and it's growing at double-digits every year. This year will be moderate. But there's a lot of things to overcome, a lot of challenges ahead -- the financial sector, the internal competition which has not been overcome. There are still market barriers between provinces and so on.

But the formula that we have in Hong Kong has really grown from time immemorial well-tested from the basic principle of Adam Smith. So we do intervene when intervention is necessary. And like I explained to you, in 1998 we did exactly that. And also we intervened heavily in the welfare system, public health system and in housing programs. But if you need a bit more research, look at our website. It provides quite a bit. (Laughter.)

GREENBERG: Can I ask is inflation a threat in the near term to Hong Kong?

TSANG: Yeah, it is. It is an issue at the moment. It's running about 5 (percent) or 6 percent. And it's much higher than before.

It is a global phenomenon, and some people try to blame it because of our linkage to the U.S. dollar, and the weakening of the U.S. dollar has been responsible for this, which is not true. Just look around us.

My neighbor, Singapore, their currency is not linked to the U.S. dollar. But the rate of inflation in Singapore is just as in Hong Kong. It's a global -- (inaudible) -- phenomenon at the moment. It's not easy to resolve. But things are looking -- I'm not sure.

Maybe it's now turning around. I'm rather pessimistic about the global economy in the coming years, particularly in the next two quarters. I believe it's heading towards -- 50-50 chance going to another bout of recession. In that case, it's not inflation I'm worried about.

GREENBERG: Deflation.

TSANG: I'm talking about deflation, in fact.

GREENBERG: Yes?

QUESTIONER: My name is Peter Lao. I'm a health care provider based in New York City. My question to you, sir, is that we are also in the United States trying to undergo some kind of health care reform. And I understand that in Hong Kong very citizen has universal coverage. Now, in terms of universal coverage for the citizens and -- how do you explain it? Does it benefit you economically or what kind of tips we can learn from you? Thank you.

TSANG: Well, we -- first of all, we spend about 15 percent of government programs on health care at the moment. And we have also a pretty healthy population as well. We spend a lot more on preventive health care in Hong Kong than you do in the United States, which is less expensive from our point of view. And somehow -- perhaps the dietary differences or something -- I do not know -- we also live pretty longer as well.

I mean, we are -- Hong Kong, we have -- the life expectancy now is the longest in the world. Our men tend to live to 80 and our women to 86. Our men are the longest living things on Earth. I don't know why. Perhaps we get high blood pressure earlier in our age so that we then discipline ourselves -- (inaudible) -- do all the exercises we need. But in terms of health care, we are struggling as well. We are able to finance it under the present program without individual contribution. But I believe this is not sustainable. All the people tell us -- a lot of people are telling us in 10 years' time or perhaps less it may go bust. With the present technology, the advancement of technology and so on, it's getting more and more expensive.

Everyone wants to go through the same medical procedures. The poor man in the street and the richest guy wish to enjoy the same sort of medical treatment, some of which are very expensive. But it's a challenge. But we have now proposed to the population, which has accepted a voluntary health -- a health insurance scheme with a startup fund from the government and with the shared responsibility with the population. I hope it will work.

But this is a real challenge but something we have been rather lucky. We have done quite well with the limited resources that we have. But our medical school is quite good. Access to public health services is quite exemplary by international standards. We are rather proud of it. But I'm not sure that we have got it answered yet.

And of course we admire what President Obama has done over here. But he also pays a price at the end of the day politically and then so on. We also have -- we discussed this health care reform for years, years. We still haven't reached a legislation stage. So we have -- (inaudible) -- more carefully than President Obama. We are learning from his experience. (Laughter.)

GREENBERG: I would say so. We have time for one more question.

All right, back there?

QUESTIONER: Hi. My name is Robert McCreary. Thank you very much for your presentation today. And as Mr. Greenberg said earlier, this meeting is off-the-record. So I'd like to get your personal opinion --

TSANG: On the record.

GREENBERG: On the record.

QUESTIONER: Oh on the record, OK, well -- (laughter) --

TSANG: You'll still (get an ?) opinion. (Laughter.)

GREENBERG: Where were you?

QUESTIONER: In your opinion, then, how long do you think we will have to wait before the Hong Kong dollar is adjusted significantly or until Hong Kong adopts the RMB as its currency? TSANG: Certainly not in my term -- (laughter) -- let's look at it this way, Mr. McCreary. People always ask me these questions. We have been hooked to the -- linked to the U.S. dollar for nearly 30 years. We went through ups and downs with the U.S. economy. We adjusted our economy dramatically in 1998, 1999.

In fact, asset value came down by nearly 60 percent. Our people believe this is the right thing to do. The fact of the matter is I personally -- most of my colleagues and many other people who have been -- lives in Hong Kong do not believe in the integrity of a small currency operated in the free market. It would be buffeted left, right and center.

People will speculate against it. Well, you can manipulate it, as some people do. You just fix the exchange rate. That's not what we do. We want to do it honestly.

We tell people every U.S. dollar you give us, we're going to give you 7.80 Hong Kong dollars. Similarly, give me 7.80 Hong Kong dollars, I'll give you U.S. dollars any time, any minute of the day. It gives certainty to the market. The most important thing, Mr. McCreary, is look at our trade.

Our trade is more than four times our GDP, four times our GDP, the largest ratio we've ever seen. And what underpins trade is stability in currency. If they do not know the exchange rate, they will lose their shirt. So we are not going to do that. So we look around.

What's the best thing to link up to? The U.S. dollar, the reserve currency, our largest foreign trading partner -- it's good for us. Why do believe ban together around (a ?) currency? Because of trade certainty. Why we have NAFTA? Why would Europe, despite all the difficulties they have, have tried to ban together (under ?) the eurozone? Because it has strength derived from a stable currency.

So I'm sure the market speculators want us to change and move the peg around. I'm sorry. We're going to disappoint you. We won't do that. We won't do that. It will stay this way. I think -- personally I believe we will link up to the U.S. dollar until such time the renminbi itself, the currency of our own nation, becomes fully convertible. And that won't be tomorrow. That won't happen for quite some time.

And in fact the current financial crisis will scare a lot of people in my nation to make sure they would do it property, too. Much better, yes, try it out in Hong Kong, which they are doing now with renminbi. So try your luck with renminbi market. Try not to speculate my currency. You're going to get hurt. (Laughter.)

GREENBERG: You know, we've had many chief executives of countries come here. I doubt I've ever sat through a meeting like this with anyone who has done a better job than you. Thank you so much for coming. (Applause.)

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