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SCMA speaks at ‘Zurich Business Administration Paper 2007’ opening (English only)

   Following is the transcript of the speech delivered by the Secretary for Constitutional and Mainland Affairs, Mr Stephen Lam, at the opening ceremony of ‘Zurich Business Administration Paper 2007’ organised by the Hong Kong Federation of Business Students, held on November 11, 2007 (English only):

Charles (Charles Lee, President of Hong Kong Federation of Business Students), sponsors, professors, friends, ladies and gentlemen,

     I am delighted to receive your invitation once again to join, for the third time in the last few years, a function of the Federation of Business Students (FBS). I believe that on the last two occasions, I attended your inaugurations in April. This is the first time I am joining you on a fine autumn day for the commencement of your annual Business Administration Paper. This is a nice occasion. It is an important occasion for the Federation and I think it is very fitting that you have chosen to commence this exercise this particular week, because this week we have seen two important and exciting pieces of news.

     First, the University of Hong Kong has been rated among the top 20 universities in the world. This is an honour not just for the University of Hong Kong, but for the whole of Hong Kong. This is a sequel to the several years in a row in which the HKUST (the Hong Kong University of Science and Technology) has been rated as offering the top EMBA programme in the world. But I think the universities of Hong Kong, and in particular the business administration schools of Hong Kong, are becoming more and more important in Asia. It is a reflection of the pursuit of excellence which Hong Kong stands for. That is the first piece of news.

     The second piece of news: Alibaba; P/E ratio of 300. This is not what I learnt about normal market criteria when I went to university 30 years ago -- P/Es of 20 or 30 were the norm then. And so, Alibaba and other stocks and shares go up and down. But for members of the business schools in Hong Kong, for students who are pursuing BBAs (Bachelor of Business Administration), my advice for you at this point in time is that, like what we did 30 years ago -- study hard! Observe the stock market, but don’t dabble. It is important to remember that “open sesame”, the door to success for all of you, is to pursue your academic studies. Understand the market, and one day, help to manage your company’s business.

     When I studied at the University of Hong Kong, I loved finance and forecasting, cost-benefit analysis, linear programming, etc. And I remember that one day attending a lecture on operational research, the lecturer was trying to teach us various forecasting models. At the end of it he said, “Well, you learn about linear programming and regression models, but actually the most important aspect of forecasting is to understand the forces at work in the market.” Today, your theme is ‘A Ten-million Business Venture in Mainland China’. What are the forces at work? Let’s go back somewhere in history.

    The "Four Modernisations" of Mainland China started in 1978. In that year, the door of the Chinese economy was thrown open once again to the world. This reversed a policy which was set by Emperor Qianlong in the Qing Dynasty. And because of that move taken by the leadership in Beijing, we have seen phenomenal changes in the Mainland of China in the last 30 years. Also, because that policy signified to the world that China was ready to take on the world, Hong Kong had new development opportunities. It was to the mutual benefit of the Mainland and of Hong Kong that we in Hong Kong should invest in the Mainland of China. That opportunity unleashed tremendous market investment forces. So much so that 30 years on, we now have 80,000 to 90,000 factories established in Southern China employing 11 million people. We needed that opportunity then, because Hong Kong was becoming expensive in the late 1970s. Land was expensive, and so was labour. Therefore, the opening up of Mainland China gave us that opportunity to expand northwards. Also, it kept Hong Kong stable during a period of relative unease in the 1980s and the 1990s, because during those 13 years between 1984 and 1997, we had to determine our political future and to work on a smooth transition. While politics was somewhat unsettling, economics was rather lucrative. So that kept talent and money in Hong Kong. It is very important.

     Thirty years on, what do we see? China has become the third largest economy in the world. One day we will see this Chinese economy overtake the Japanese economy. Whether it will become the top economy in the world once again remains to be seen. But during the Qing Dynasty -- during the time of Qianlong, the Chinese economy was top of the world. So during your careers, you will see great changes.

     What else do we see? We see now that the whole world wants to do business with China, not just the United States or Europe. We see that the Third World leaders are all coming to Mainland China, going to Beijing all the time. Last year we saw in Beijing a gathering of the largest number of African leaders in the last few decades -- not in Africa, but in Beijing! Every year, when our Chief Executive goes to attend APEC (Asia-Pacific Economic Cooperation) Leaders’ Meeting, who are the two most important leaders? President Hu and President Bush. So China is now gaining ascendancy in the world. This is a result of the open-door policy adopted almost 30 years ago.

     What else do we see? I believe the Chinese economy is “low-cost, high-tech”. You don’t find this in many places around the world -- probably uniquely in the Mainland of China. What evidence do I cite to prove this is “low-cost, high-tech”? Chang’e (嫦娥). While the Americans may have landed on the Moon 40 years ago ahead of us, we are catching up fast and we are doing this relatively economically.

     So as you set the parameters for your business administration exercise, this is the backdrop -- the ascendancy of China and the Chinese economy; the whole world wanting to do business with China; Mainland China being a hinterland of the Hong Kong economy and also providing further room for growth for Hong Kong enterprises.

     But as you actually conceive your ten-million investment in Mainland China, there are a few forces of adjustment which you should also bear in mind.

     Firstly, according to the 11th Five-Year Plan for Mainland China (between 2006 and 2010), you will find the Central Government’s policies very humane, very caring. For example, the policy has just been adopted that children in the villages, in the agricultural regions of the Mainland, can have free schooling. Not just free schooling, they will receive supplements to help them buy books and make sure that they are properly nourished. So a caring government is what your investment will meet.

     Secondly, you will see a more green government. The 11th Five-Year Plan demands that any extra percentage of growth should be achieved with 20 per cent less energy being invested. And this is not just empty talk. All my counterparts -- in the ministries in Beijing, the leadership in the provincial governments, the mayors of individual cities -- all have to offer up specific plans and measurements which signify that they have achieved these green objectives.

     Thirdly, you will continue to find phenomenal growth. According to the 11th Five-Year Plan, growth is forecast to continue at 7.5 per cent per annum between 2006 and 2010. That rate has already been exceeded. Nice problem to have too much growth, but actually it means that the Central Government will need to moderate growth in different sectors. They will also need to find a way of dealing with an over-cash rich economy.

     As and when you conceive your investment venture in the Mainland of China, these are the macroeconomic factors and the forces of adjustment which you need to take into account.

     Pros and cons aside, what do we see in Hong Kong? I have mentioned the fact that we in Hong Kong invest extensively particularly in Southern China and employ 11 million people. Just think about that. That is three times as much the workforce that we ourselves in Hong Kong have. It means that day in, day out, four times the working population we have in Hong Kong work for Hong Kong enterprises contribute to our bottom line. This is something which our competitors around the world, like Singapore, would pay a handsome price to have. But they can’t change history, and they can’t change geography. In terms of international marketing and investment, Hong Kong is in a prime location.

     But we can’t rest on our laurels -- we need to move on further. My friends in the manufacturing sector tell me that labour costs in Guangdong are now becoming relatively more expensive. An average worker will cost more than RMB1,000, and they need to consider moving further afield. Where to? To places like Guangxi, Hunan and Jiangxi. But while land and labour in those locations may be relatively cheaper, there are other factors in the equation: logistics! Once the goods are manufactured, can they be delivered on time to their customers in the US, in Europe, in other parts of the world? So logistics is important.

     Finally, once you have achieved success for your investment venture in the Mainland of China, what do you do with it? Come back home -- come back to the Hong Kong Exchange; get your enterprise listed here. This is the place to be and to capitalise on your future earnings. The P/E ratio in Hong Kong may be relatively lower than that in Shanghai, but this is undoubtedly the international market in Asia. The Chief Executive had stated that he wished to enhance Hong Kong’s role as the global financial centre of Asia. What do we mean by global? It means that 24 hours a day, if you contemplate an investment in Asia, in Mainland China, in Hong Kong, you ring your broker in Hong Kong. This is like New York to North America and London to the European Union. Hong Kong will get there.

     I was looking up the speech I made back in 2006 when the FBS was inaugurated in April. At that time I mentioned that because we, the Hong Kong Government, abolished estate duty, people were investing more conveniently in Hong Kong. And the daily turnover in the stock market back in April 2006 was how much? Somewhere between $30 billion to $40 billion. These days, anything between $110 billion to $150 billion per day. So this is going to be the global financial centre of Asia. Whether you are dealing with your management game -- investment, or whether one day you are dealing with your corporate investment in real life, remember Hong Kong -- where you have come from.

     So in conclusion, I would just like to make two remarks, two pieces of advice. Firstly, you are all learning marketing, PR (public relations), advertising, investment and finance. Whatever you learn these days, in the course of your three-year BBA courses, just remember, in real life management theories only take you at most half way there. We all have to make decisions in business, in Government, on the basis of incomplete market information and analyses. Judgment requires wisdom, and sometimes courage. But don’t go too far. Always leave yourself some room to manoeuvre. This is the first piece of advice.

     The second piece of advice. There is an election one week from now, on November 18. I believe all of you are over 18 years old, and I hope that a significant proportion, if not a hundred per cent, are registered electors. Make sure you turn up for voting one week from now. Cast your vote. Choose the member of the District Council you wish to support to represent you. They will also contribute somehow to the local economy, making sure that things work well in the local district. Thank you very much.

ENDS/Sunday, November 11, 2007