Since assuming the post of principal representative for the Hong Kong Economic and Trade Office in Tokyo a little more than a month ago, I have found tremendous interest here in what has been happening to Hong Kong following its reunification with China on July 1, 1997. About five years before reunification, I was posted in the United States as the director of the Hong Kong Economic and Trade Office in New York. At that time, people questioned whether Hong Kong’s political autonomy would survive as promised under the principle of “one country, two systems.” Under that arrangement, the Hong Kong Special Administrative Region, or SAR, would run its own affairs with the exception of defense and foreign affairs, which would be the responsibilities of China.

Five years after reunification, a strong consensus exists in Hong Kong that the “one country, two systems” arrangement has become a working reality and that the essential qualities that have made Hong Kong such a unique city in the world have been protected. These qualities include political, economic and social freedoms that are safeguarded by the rule of law and the SAR’s efficient and clean civil service.

Now, Hong Kong is entering a new era. As Chief Executive Tung Chee Hwa begins his second five-year term of office on the solid foundation built up over the past five years, he will introduce a new accountability system for the principal officials of the SAR to make the government more accountable to the people.

There is keen Japanese interest in how Hong Kong will deal with economic restructuring brought about by China’s accession to the World Trade Organization and by the rise of other rapidly growing economic centers in China.

China’s accession to the WTO will make China’s trade and investment systems more transparent, more business-friendly and more in tune with international legal and business practices, an area to which Japan and the international business community attach great importance. There will be challenges and opportunities for Hong Kong.

Over the past five years, Japan’s foreign direct investment, or FDI, to China has totaled $5.5 billion, of which 77 percent went into manufacturing. Over the past two years, the number of Japanese companies establishing regional headquarters and regional offices in Hong Kong has increased by 40 percent.

To support their business interest in China and the Asia Pacific region, these companies are making use of Hong Kong’s institutional framework and the rule of law; a free flow of goods, capital, funds and information; a cluster of service specialists such as financial analysts, accountants, lawyers and other professionals; and a low-tax structure.

Increasingly, companies use Hong Kong as a base to integrate their supply chain, logistics and business activities on the mainland and throughout the region. In 2001, the number of Japanese companies with regional offices in Hong Kong stood at 533, or 23 percent of the total, making Japan the No. 1 source of regional offices in Hong Kong. The number of Japanese regional headquarters stood at 160, or 17 percent of the total, making Japan the No. 2 source of regional headquarters in Hong Kong.

Hong Kong serves as a vital gateway between the East and West and between China and everywhere else. With the growth of other cities in China, Hong Kong offers reliability, flexibility and sophisticated services, which have been built up over a long period as Hong Kong companies acquired expertise in managing companies and enterprises across the border — especially those related to China — since the late 1970s.

To ensure that Hong Kong continues to provide value-added services to support the chain of business activities of both domestic and international companies, its government plans to keep upgrading “hard” and “soft” infrastructures, with investments in education and with initiatives to stimulate improvements in quality, design and creativity of the products and services offered.

Over the years, the Hong Kong-Japan partnership has helped Japanese companies reduce risk and increase efficiency and returns in their business with China and the region. The fundamentals governing the Hong Kong-Japan partnership have not changed despite the change in the constitutional position of Hong Kong. Japan and Hong Kong have remained close economic partners, and the two-way flows of funds, people and goods have remained strong.

In 2000, Japan invested $936 million in FDI in Hong Kong, the most important destination for Japanese FDI in Asia after China. Japan is Hong Kong’s third-largest trading partner after the U.S. and China. Hong Kong is Japan’s sixth-largest trading partner.

In 2001, Hong Kong imported $22.6 billion worth of goods from Japan, while Japan imported $11.2 billion worth of goods from Hong Kong. In 2001, Hong Kong received 1,330,000 visitors from Japan, and Japan received 485,000 visitors from Hong Kong. This accounted for about 10 percent of total visitor traffic in either direction.

As the Hong Kong SAR celebrates its fifth anniversary and begins its journey into the next five years, the main interest in Hong Kong by people outside the SAR appears to be how it will cope with its third economic restructuring.

I look forward to continued cooperation with the people of Japan in reinforcing the Hong Kong-Japan partnership for the betterment of Hong Kong, China and Japan. This partnership has led to the creation of a unique blend of institutional and infrastructure attributes that encapsulates the Hong Kong “can do” spirit: the raison d’etre for people and companies in Hong Kong and Japan to work toward a win-win situation involving their economic and social activities throughout the Asia Pacific region.

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