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June 15, 2007 10:49 am
Transcript: Donald Tsang
Victor Mallet, editor of the FT Asia edition, and Tom Mitchell, the FT’s South China correspondent, interviewed Donald Tsang, chief executive of Hong Kong, ahead of the 10th anniversary of the former British colony’s return to China. Mr Tsang will start his final five-year term on July 1. The following is an edited transcript of the interview.
Financial Times: Looking ahead to your next term, what are the priorities going to be? What are the things you want to be remembered by?
Donald Tsang: Well, how I will be remembered is rather irrelevant. What’s important is what I set out to do and whether those things reflect the community’s priorities… [During] my election campaign I explained to the people of Hong Kong what I believed to be important. And I set out… five areas of work which the next administration beginning July 1st will focus on. I’m a simple minded man and I will just do accordingly.
The first thing I said we need to do is to find the reasonable level of physical development but balance it with environmental protection and heritage preservation. We have been lagging behind in terms of infrastructural investment over the last few years in relation to our neighbours with whom we compete. For that reason we have to think hard [about] what we need to do while we have the resources, the financial resources. But we are acutely conscious of the need to preserve our cultural heritage. So we need to strike a balance on this. For that reason I’m reorganising my government and administration to focus on this and make sure a balance is struck.
The second area is the quality of life in Hong Kong. It needs to be tackled. That includes air quality, water quality and so on. This is fundamental. We are investing quite a lot and I don’t think we’ve done enough yet. This is not only a territorial issue. It’s a regional issue.
The third area we need to do is a bridging between the rich and the poor. This is always very difficult. We are not going to do an income redistribution thing. But we must not ignore the fact that the rich [are] becoming much more rich over the last few years, particularly [as] we are now quickly emerging as a global financial centre. The financial analysts, investment bankers are getting very very rich and very well rewarded while those at the grass roots remain where they are. Incomes are not falling but the gap is widening. So we need to do something about it and I set out what I propose to do, particularly with the pursuit of social enterprises as European countries have done quite successfully….
I don’t believe in taxation as such particularly for [re]distribution purposes unless it’s absolutely necessary because I believe in small government and what I need to do is involve those guys in helping the poor – the big companies… together with the organisational power of the government, with the commercial knowledge and marketing network of the commercial enterprises… and the NGOs… to get more jobs for the unemployed in the marginal districts that we have…
[A dividend tax] has been mooted but we do not need the tax at the moment. I do not need the revenue because I’ve balanced my budget. But it’s being debated. If you look at [financial secretary] Henry Tang’s report on broadening the tax base – GST [general sales tax] and particularly dividend taxes… It’s certainly not impossible. If I need the money I will do it… But I cannot use taxation to solve the poverty issue. I think the European countries have taught us a lesson in this…
Then we also need to look at the human resource aspect of Hong Kong. Although we are immigrating a lot of people but we are not aggressive enough. We have to continue to invest a lot more in education. We will have to attract a lot more people in Hong Kong from all walks of life, all nationalities into Hong Kong to strengthen its place as an international financial centre and a global city. The human stock must be improved in the sense that we are older. Life expectancy in Hong Kong is the highest in the world – the highest in the world. In fact we are higher than Japan. But our fertility rate is the lowest in the world. That can only be bridged in the short term by immigration and in the longer term by heavy investment in education and training.
And finally I really wish to resolve this question of universal suffrage. And I think we have to get it over and I do not wish to hand over this problem to my successor in 2012.
So those are the five areas of work which I believe are essential for the work of the next administration while we continue to grow Hong Kong as a global financial centre. That’s our way of life. This is our future, where it’s going to provide the jobs and the opportunities for the people in Hong Kong. I do believe that we have the fundamentals like New York and London to create a global financial centre and a reasonably good living for 10m people here at the end of the day. We’re at seven. I think we can do well for 10… in the long term.
The optimum level city – look at the size of Manhattan and New York and London, for instance. You’ll find the power of the city can operate with all the underpinnings of a global financial centre. It’s not only the merchant bankers and the Financial Times. You need art. You need the West End. You need Wimbledon. They all need Yankee Stadium. They all need Broadway. That’s all in the make-up of a good city…
We must not allow the population to age and then shrink. We must grow in order to be competitive. It’s where success will lie is adequate stock of human resources of the right quality to sustain a global financial centre. Our universities are doing very well. We have the best business school in Asia [at the Hong Kong University of Science and Technology]. We are going to continue to do that but what’s more we need an injection of new blood from all nationalities particularly from the mainland as well to grow our market in the mainland…
I’ll be very happy if I maintain 7-7.5m by the end of my term. But I can see a city like us using physical development and good use of land and so on can accommodate a population of that size [10m].
FT: With regards to politics, how can you possibly bridge this divide between what the pro-democracy camp wants and what Beijing is prepared to give?
Donald Tsang: That’s where the challenge is. It’s not an easy job. Any constitutional change is difficult for any nationality and any territory for that matter – and particularly difficult for Hong Kong because we are not a sovereign state. We must achieve universal suffrage as a special administrative region of the People’s Republic of China. That is important. So we have to work within the framework of the Basic Law. Mr Wu Bangguo merely repeated what is in the Basic Law. There’s nothing more to it. Don’t read too much into it.
But if the Democrats are wishing to go beyond what is in the Basic Law then we’ve got a problem. So we need to knuckle down with what we have and achieve universal suffrage at the same time. I’ve got a plan as you know. In the summer this year I will put out a green paper and set out the various mainstream thinkings on this subject and start a public consultation. I’m not talking about interim steps going towards universal suffrage. I’m talking about the ultimate arrangements. I hope that after the consultation I will be able to put up a package that will achieve that and see how the population reacts.
I’ve been working on it for two years now since this debacle of the last debate on this subject in 2005. I gained experience and the opposition also gained the bitter experience of spurning not a bad interim package. So everyone needs to be careful. You need to accommodate. You cannot just be strident and obstructive. You have to compromise in any political negotiation – within Hong Kong first… It’s not too difficult to gain the public support for a package. There are nearly half a dozen packages in town each of which can gain about 60, 65 per cent support from the population. What is tricky is how are you able to get two-thirds majority in the legislature. Now I nearly got there in 2005. I was two to three votes less. But what the Democrats need to think about is not that they have got a proposal but they need to come up with a proposal that will get 40 votes in Legco. There’s no point telling me they have got a package and 22 votes. I got one and we had 37 [votes] last time and we could still not get through. That’s the challenge…
At the end of the consultation I have to stick my neck out and suggest to Hong Kong people having the consultation, having heard you, I believe this is what we want from the central government… Legco will debate on it and I hope this package will get me the 40 votes.
FT: Couldn’t you get the votes by giving the democratic camp more of what it wants? Do you think that the PRC government appreciates the autonomy part of the Basic Law?
Donald Tsang: If I do that [compromise with the Democrats] then I lose the other side. I won’t get 40 votes…
Autonomy does not reach constitutional development. It has nothing to do with our constitutional development. Constitutional development is always set out as a tripartite arrangement. Now I’ve got autonomy to deal with the economy, the social order and law and order in Hong Kong – that’s fine. But there are only a few things in the Basic Law [for] which we have to seek central government agreement: foreign affairs, defence and constitutional development. It’s always there. Since the time of the Joint Declaration. So that’s the rule of game. Now you cannot just suddenly change it …
I do have a difficult job. I have to manoeuvre between in Hong Kong the so-called democrats and the so-called conservatives… And I have to come up with a package which they all agree in a consensus and the thing is passed through the legislature and I have to at the same time persuade [the] mainland that this is the best for Hong Kong, for sustaining stability and prosperity longer term and meet the international criteria of universal suffrage which is promised in the Basic Law. There is no dispute that we will get therebut how and whether it will upset Hong Kong’s fundamental values and our position as an international global financial centre providing all the goodies and improvements of life to the Hong Kong people [remains to be seen].
FT: How do you manage the relationship with Beijing? It all seems very cordial in public, but behind closed doors, will you get tough and really fight for things you think Hong Kong –
Donald Tsang: I don’t want to get into the details. All I can say is that they are very frank and very sympathetic and very empathetic exchanges between us. I’m very impressed by the selfless way they have handled Hong Kong issues from the word go, when they are dealing with Sars, when dealing with an international financial crisis or dealing with constitutional development. They do have our national priorities at heart. They also have the interests of Hong Kong at heart. So the exchanges are frank. The exchanges are candid and professional.
FT: What competitive issues does Hong Kong face in maintaining its status as an international financial centre?
Donald Tsang: First of all we have to reach the best international practice – coming from Basle, coming from international organisations as regards corporate governance and as regards the operation of the securities markets. We have either pioneer or be in the forefront in market sophistication in the same way as London and New York is doing – introducing new products, new regulatory regimes, making sure that on the one hand the market is fertile, lots of people coming… into it from international organisations at the same time investors get protected. That is what our performance will be and we will move up the governance scale so that we are in the same ranks as New York and London distancing ourselves completely from the likes of Singapore or Shanghai or everybody else where they are still very much a territorial market hardly going beyond international… And the second thing must be a completely level playing field for business and that requires not only the convertibility of the currency but also requires the absence of any foreign exchange controls where money can flow in and out without any government impediment…
We must have the best legal underpinning and I do believe it must be a common law system as well to provide the flexibility to cope with the ever changing market… And then once we apply these things, we must have total freedom of information flow. Not only on the market itself how individual companies are doing. You must be able to tell the political backdrop which complements what is happening in the market…
FT: What are the prospects for some kind of linkage between Hong Kong and Shanghai’s financial markets?
Donald Tsang: We are helping Shanghai as much as possible to modernise the market. There are two different markets. One is an external international global market in Hong Kong and one is a regional market in Shanghai trading in renminbi which is not a convertible currency and the market is closed to foreigners by the way… These are two different markets altogether…
We are not doing too badly. We have overtaken New York in terms of value of IPOs. Now my sight is set on London. So we are doing all right but I am not complacent. But we cannot just compare Hong Kong’s market with a market like Shanghai. It is a closed market.
But there are lots of room for cooperation. There’s no reason why through arbitrage arrangements that shares, stocks listed in Shanghai cannot through some financial instruments be traded in Hong Kong … Similarly I do not see why Hong Kong stocks cannot be co-listed in the Shanghai stock market through an arbitrage arrangement. Not in a competitive mode in a complementary manner and that is perfectly feasible and the only [international] market that can do it is Hong Kong because we have the renminbi circulation here … and we are capable of doing a clearance arrangement and a settlement arrangement here in Hong Kong for that purpose. So I can see a lot of scope.
A merger of the markets is difficult because we have two different regulatory regimes. We are an international platform way ahead, about 15 years ahead in terms of regulatory measures.
We are discussing this [cooperation]. We are discussing the mechanics of it, how it can be done without undermining the fiscal system and the financial system in the mainland which is important to us as well. At the same time I want to make good use of the pool of renminbi in Hong Kong in a better way… We are using renminbi for trade transactions. We are dealing with renminbi for soaking up bond issues.
Depository instruments are quite feasible in fact … It’s not difficult at all to do this. All you need is cooperation between the monetary authority of Hong Kong and the central bank in the mainland. And we are pals. We work together very closely already so there is really not too much difficulty for doing the arbitrage arrangement but this would be a big step for the mainland. They quite rightly so have to be very cautious how it might impact on the mainland market … I do not want to characterise [China’s reaction] in any way but I’m very enthusiastic…
So we are helping them to promote domestic stocks. They can help us to propagate our stocks on the mainland without compromising each other’s financial regime. I think it will be a fine idea and there is lots of room for doing this…
FT: What’s your position on a possible competition law for Hong Kong?
Donald Tsang: It is in my manifesto but we won’t do it just to make the lawyers happy. We have to do it to make sure the market is more accessible, deprived of unnecessary monopolistic and oligopolistic activities in the market and provide easy access and encourage competition, making sure that small and medium sized enterprises in Hong Kong have a proper place in the market.
FT: How long is it going to take to clean up the pollution problem in Hong Kong? Do you accept that there is a pollution problem?
Donald Tsang: We have [a pollution problem]. Every city is a challenge. We are leaving no stone unturned. This is one of the main planks in my [campaign] manifesto. But it is not a territorial issue. It is a regional issue. I am putting tonnes of money, billions of dollars in changing our vehicular fleet… I am leaving no stone unturned in this but I must also recognise the fact that we have got a neighbour that is growing and they are acutely conscious about environmental impact as well. They are putting [desulphurisation equipment] in their power plants and they are also at the same time shutting down dirty factories but this is going to take time.
But we have set ourselves a target… We have got an agreement with them to reduce our emission level by half, generally half… using 1997 as a benchmark and 2010 as the destination…
It will be reached… I’m certain the air quality in Hong Kong in terms of a variety of emissions will be a lot better by the time I leave office in 2012 than now. And I would also wish to do something about global warming as well although we are doing pretty well in terms of carbon emission compared to Europe and compared to America. I will be an active player in this.
FT: Does it make sense to put so much emphasis on physical infrastructure development? Is there really a future for Hong Kong as a shipping hub?
Donald Tsang: When I talk about [our development programme] it’s the creation of a cultural centre in West Kowloon, creating a sports centre in east south-east Kowloon, talking about construction of a cruise terminal in Kowloon, talking about physical bridges and railways connecting ourselves with the Pearl River Delta and then from there beyond to the rest of the mainland – these are the sort of things I’m talking about.
Now as far as the container ports are concerned I’m acutely conscious of the [ports] competition coming from Guangdong province and from elsewhere and we have to compete… As far as construction of container ports is concerned this is entirely a [private sector] investment. Government does not provide for it… If we cannot compete [and Shenzhen’s] Yantian will [become] the number one port in the world, which it’s likely to be, and that’s the end of matter. I cannot just thump my hand and say come what may we’ll do this and lose our shirt. We can’t do this and I’m not doing this anyway because the next generation container ports will be community [private sector] financed through private participation. I only provide the land or the seashore involved and not anything else. We won’t be shooting ourselves in the foot and losing our shirt by competing with a port which we are not in the same league… The die is cast in that in the next 10 years the largest container port will be in Yantian, will be in Shanghai, not in the likes of Hong Kong or Singapore. We therefore have to go up to the high end of the market and do what we can…
FT: What are your memories of managing Shatin [a “new town” in Hong Kong’s New Territories] as a district officer in 1982-84?
Donald Tsang: It was wonderful. That was my best job in public service. Best job. We got freedom. I did not have environmentalists in my hair in those days [laughing]. We were moving 100,000 people every week into Shatin. We were pulling down mountains. We were reclaiming seas and we were building our new town. We were turning a village into a modern city. It was very exciting for me and the community was very supportive. We worked very happily with them. It was a lot of groundbreaking things we did during my two-year stint in Shatin.
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