For Hong Kong's future economic development, Tsang mentioned three main areas: regional economic cooperation, expanding the renminbi (RMB) business, and furthering the Closer Economic Partnership Arrangement (CEPA).

Regional economic cooperation

Indisputably Hong Kong is one of the most important drivers of economic development in the pan-Pearl River Delta (PRD) region. The process of integration began in the late Eighties when Hong Kong factories were relocated in the PRD to take advantage of cheaper land and lower labour costs. This cooperation has since then further extended to the neighbouring province of Guangdong.

The region is spread over an area of 2 million square kilometres and has a population of 450 million. This region will undoubtedly continue to be an important growth engine in the whole of China. I can see many complementary relationships between Hong Kong and other parts of the region. Hong Kong has a good international network, legal system and service industries that can contribute significantly to the region's growth. For example, Hong Kong has always been an important capital-financing centre for enterprises of the country.

At present, 30 per cent of the companies listed in Hong Kong are mainland-related enterprises. Almost all major initial public offerings (IPOs) conducted in Hong Kong during the past two years have been mainland-related companies. These are not exclusively State-owned enterprises (SOEs) because Hong Kong is also very active in raising capital for private mainland enterprises. In short, Hong Kong has been successful in attracting funds from the international community for mainland enterprises.

And Hong Kong shall continue to act as a platform for the mainland-related enterprises wishing to expand their overseas business and those eager to engage in cross-border mergers and acquisitions to become multi-national companies. This is particularly important for the country's future economic growth.

Expanding RMB business

Hong Kong is the region's international financial centre. But it's not yet a financial centre of the country because mainland enterprises will not come to Hong Kong to raise RMB funding. Banks in Hong Kong have begun to participate in some RMB businesses, offering more choices to depositors because the SAR people can operate saving deposits in RMB.

If Hong Kong can participate more fully in RMB-related business, it would definitely be beneficial to the RMB exchange rate system's reform programme.

As a financial centre, Hong Kong is ready and equipped to assist enterprises related to the Chinese mainland to raise funds by issuing bonds dominated in RMB. This will enhance Hong Kong's status as a major fund raising centre through its position as a first choice to arrange equity and debt financing for enterprises from the Chinese mainland.

At the same time, it could offer more choices to companies and investors. Eventually, the market will need RMB derivative instruments for hedging when the exchange rate system moves into the next stage of reform. Hong Kong is definitely the ideal place to test the water because of the city's experience in the international derivatives market.

Furthering CEPA

CEPA I and II involve tariff-free access to the mainland for many Hong Kong-manufactured products and trade liberalization in 26 service sectors. The agreements have brought mutual benefits both to Hong Kong and the mainland. According to a government survey, jobs are being created on both sides and the people of Hong Kong are optimistic about their economic prospects. One may get the impression that CEPA is more beneficial to Hong Kong than to the mainland. But in the long run, the mainland economy will also benefit from the experience of Hong Kong's service sector.

The government has just announced CEPA III that allows further integration in trade and investment. In sum, the CEPA agreements have played an important role in reviving Hong Kong's economy after the 2003 SARS epidemic.

Tsang also announced the possibility of letting highly educated talent to come to Hong Kong to look for jobs. Such people (from mainland) cannot come to Hong Kong now without a job offer. But the new policy would allow them to visit Hong Kong to look for a job. This is a further step in attracting overseas talent to Hong Kong and will have a significant impact on Hong Kong's long-term economic development.

Most of the economic policies are concerned with further integration between Hong Kong's and the mainland's economies. In terms of economic integration, further cooperation with the pan-PRD should benefit the entire region, including Hong Kong. There is certainly more room for cooperation than competition.

Some critics feel that Hong Kong is going to be absorbed or swallowed by the mainland. The fact is that Hong Kong is part of China. There is a need for closer relationship between Hong Kong and the mainland. And that implies cooperation not only in economic development, but also on the issues of security, information sharing, environmental protection, and fighting diseases (such as SARS). More importantly, it is essential for the chief executive to enhance the mutual understanding between the two communities - Hong Kong and the mainland.

I see Hong Kong standing out now as an extraordinary city of China. The question we need to address is whether Hong Kong will, in the future, continue to be the extraordinary city of the country or will it become simply one of many Chinese cities. The question that follows is: what do we need to do in order to maintain Hong Kong's position as an extraordinary city of China? How can we enhance Hong Kong's status as the region's main international financial centre and simultaneously contribute to the fast-growing Chinese economy?