OFFICIAL RECORD OF PROCEEDINGS

Wednesday, 11 October 1995
The Council met at Ten o'clock

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PRESENT

THE PRESIDENT : THE HONOURABLE ANDREW WONG WANG-FAT, O.B.E., J.P.
THE HONOURABLE ALLEN LEE PENG-FEI, C.B.E., J.P.
THE HONOURABLE MRS SELINA CHOW LIANG SHUK-YEE, O.B.E., J.P.
THE HONOURABLE MARTIN LEE CHU-MING, Q.C., J.P.
DR. THE HONOURABLE DAVID LI KWOK-PO, O.B.E., LL.D. (CANTAB), J.P.
THE HONOURABLE NGAI SHIU-KIT, O.B.E., J.P.
THE HONOURABLE SZETO WAH
THE HONOURABLE LAU WONG-FAT, O.B.E., J.P.
THE HONOURABLE EDWARD HO SING-TIN, O.B.E., J.P.
THE HONOURABLE RONALD JOSEPH ARCULLI, O.B.E., J.P.
THE HONOURABLE MRS MIRIAM LAU KIN-YEE, O.B.E., J.P.
DR. THE HONOURABLE EDWARD LEONG CHE-HUNG, O.B.E., J.P.
THE HONOURABLE ALBERT CHAN WAI-YIP
THE HONOURABLE CHEUNG MAN-KWONG
THE HONOURABLE CHIM PUI-CHUNG
THE HONOURABLE FREDERICK FUNG KIN-KEE
THE HONOURABLE MICHAEL HO MUN-KA
DR. THE HONOURABLE HUANG CHEN-YA, M.B.E.
THE HONOURABLE EMILY LAU WAI-HING
THE HONOURABLE LEE WING-TAT
THE HONOURABLE ERIC LI KA-CHEUNG, J.P.
THE HONOURABLE HENRY TANG YING-YEN, J.P.
THE HONOURABLE JAMES TO KUN-SUN
DR. THE HONOURABLE SAMUEL WONG PING-WAI, M.B.E., F.Eng., J.P.
DR. THE HONOURABLE PHILIP WONG YU-HONG
DR. THE HONOURABLE YEUNG SUM
THE HONOURABLE HOWARD YOUNG, J.P.
THE HONOURABLE ZACHARY WONG WAI-YIN
THE HONOURABLE CHRISTINE LOH KUNG-WAI
THE HONOURABLE JAMES TIEN PEI-CHUN, O.B.E., J.P.
THE HONOURABLE LEE CHEUK-YAN
THE HONOURABLE CHAN KAM-LAM
THE HONOURABLE CHAN WING-CHAN
THE HONOURABLE CHAN YUEN-HAN
THE HONOURABLE ANDREW CHENG KAR-FOO
THE HONOURABLE PAUL CHENG MING-FUN
THE HONOURABLE CHENG YIU-TONG
THE HONOURABLE ANTHONY CHEUNG BING-LEUNG
THE HONOURABLE CHEUNG HON-CHUNG
THE HONOURABLE CHOY KAN-PUI, J.P.
THE HONOURABLE DAVID CHU YU-LIN
THE HONOURABLE ALBERT HO CHUN-YAN
THE HONOURABLE IP KWOK-HIM
THE HONOURABLE LAU CHIN-SHEK
THE HONOURABLE AMBROSE LAU HON-CHUEN, J.P.
DR. THE HONOURABLE LAW CHEUNG-KWOK
THE HONOURABLE LAW CHI-KWONG
THE HONOURABLE LEE KAI-MING
THE HONOURABLE LEUNG YIU-CHUNG
THE HONOURABLE BRUCE LIU SING-LEE
THE HONOURABLE LO SUK-CHING
THE HONOURABLE MOK YING-FAN
THE HONOURABLE MARGARET NG
THE HONOURABLE NGAN KAM-CHUEN
THE HONOURABLE SIN CHUNG-KAI
THE HONOURABLE TSANG KIN-SHING
DR. THE HONOURABLE JOHN TSE WING-LING
THE HONOURABLE MRS ELIZABETH WONG CHIEN CHI-LIEN, C.B.E., I.S.O., J.P.
THE HONOURABLE LAWRENCE YUM SIN-LING

ABSENT

THE HONOURABLE FRED LI WAH-MING

IN ATTENDANCE

THE HONOURABLE MRS ANSON CHAN, C.B.E., J.P.

CHIEF SECRETARY

THE HONOURABLE DONALD TSANG YAM-KUEN, O.B.E., J.P.

FINANCIAL SECRETARY

THE HONOURABLE JEREMY FELL MATHEWS, C.M.G., J.P.

ATTORNEY GENERAL

MR MICHAEL SUEN MING-YEUNG, C.B.E., J.P

SECRETARY FOR HOME AFFAIRS

MR CHAU TAK-HAY, C.B.E., J.P.

SECRETARY FOR TRADE AND INDUSTRY

THE HONOURABLE MICHAEL SZE CHO-CHEUNG, I.S.O., J.P.

SECRETARY FOR THE CIVIL SERVICE

MR HAIDER HATIM TYEBJEE BARMA, I.S.O., J.P.

SECRETARY FOR TRANSPORT

MR GORDON SIU KWING-CHUE, J.P.

SECRETARY FOR ECONOMIC SERVICES

MR NICHOLAS NG WING-FUI, J.P.

SECRETARY FOR CONSTITUTIONAL AFFAIRS

MR DOMINIC WONG SHING-WAH, O.B.E., J.P.

SECRETARY FOR HOUSING

MRS KATHERINE FOK LO SHIU-CHING, O.B.E., J.P.

SECRETARY FOR HEALTH AND WELFARE

MR RAFAEL HUI SI-YAN, J.P.

SECRETARY FOR FINANCIAL SERVICES

MR JOSEPH WONG WING-PING, J.P.

SECRETARY FOR EDUCATION AND MANPOWER

MR PETER LAI HING-LING, J.P.

SECRETARY FOR SECURITY

MR BOWEN LEUNG PO-WING, J.P.

SECRETARY FOR PLANNING, ENVIRONMENT AND LANDS

MR KWONG KI-CHI, J.P.

SECRETARY FOR THE TREASURY

MR KWONG HON-SANG, J.P.

SECRETARY FOR WORKS

MRS RACHEL MARY BEDDORD CARTLAND, J.P.

SECRETARY FOR RECREATION AND CULTURE

THE CLERKS TO THE LEGISLATIVE COUNCIL:

MR RICKY FUNG CHOI-CHEUNG, SECRETARY GENERAL
MR LAW KAM-SANG, DEPUTY SECRETARY GENERAL

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PURSUANT TO STANDING ORDER 6(2), HIS EXCELLENCY THE GOVERNOR, THE RIGHT HONOURABLE CHRISTOPHER FRANCIS PATTEN, ATTENDED TO ADDRESS THE COUNCIL.

PAPERS

Subsidiary Legislation

AFFIRMATIONS AND OATHS
ELECTION OF THE PRESIDENT
SUSPENSION OF SITTING
GOVERNOR'S ADDRESS

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PAPERS

THE following papers were laid on the table pursuant to Standing Order 14(2):

Subject

AFFIRMATIONS AND OATHS

Mr Allen LEE Peng-fei made the Legislative Council Affirmation.

Mrs Selina CHOW took the Legislative Council Oath.

Mr Martin LEE Chu-ming took the Legislative Council Oath.

Dr David LI Kwok-po took the Legislative Council Oath.

Mr NGAI Shiu-kit made the Legislative Council Affirmation.

Mr SZETO Wah made the Legislative Council Affirmation.

Mr Andrew WONG Wang-fat took the Legislative Council Oath.

Mr LAU Wong-fat made the Legislative Council Affirmation.

Mr Edward HO Sing-tin took the Legislative Council Oath.

Mr Ronald Joseph ARCULLI took the Legislative Council Oath.

Mrs Miriam LAU Kin-yee took the Legislative Council Oath.

Dr Edward LEONG Che-hung made the Legislative Council Affirmation.

Mr Albert CHAN Wai-yip made the Legislative Council Affirmation.

Mr CHEUNG Man-kwong made the Legislative Council Affirmation.

Mr CHIM Pui-chung made the Legislative Council Affirmation.

Mr Frederick FUNG Kin-kee took the Legislative Council Oath.

Mr Michael HO Mun-ka took the Legislative Council Oath.

Dr HUANG Chen-ya made the Legislative Council Affirmation.

Miss Emily LAU Wai-hing made the Legislative Council Affirmation.

Mr LEE Wing-tat made the Legislative Council Affirmation.

Mr Eric LI Ka-cheung made the Legislative Council Affirmation.

Mr Henry TANG Ying-yen took the Legislative Council Oath.

Mr James TO Kun-sun took the Legislative Council Oath.

Dr Samuel WONG Ping-wai took the Legislative Council Oath.

Dr Philip WONG Yu-hong took the Legislative Council Oath.

Dr YEUNG Sum made the Legislative Council Affirmation.

Mr Howard YOUNG made the Legislative Council Affirmation.

Mr Zachary WONG Wai-yin made the Legislative Council Affirmation.

Miss Christine LOH Kung-wai took the Legislative Council Oath.

Mr James TIEN Pei-chun made the Legislative Council Affirmation.

Mr LEE Cheuk-yan took the Legislative Council Oath.

Mr CHAN Kam-lam made the Legislative Council Affirmation.

Mr CHAN Wing-chan made the Legislative Council Affirmation.

Miss CHAN Yuen-han made the Legislative Council Affirmation.

Mr Andrew CHENG Kar-foo took the Legislative Council Oath.

Mr Paul CHENG Ming-fun took the Legislative Council Oath.

Mr CHENG Yiu-tong made the Legislative Council Affirmation.

Mr CHEUNG Bing-leung made the Legislative Council Affirmation.

Mr CHEUNG Hon-chung made the Legislative Council Affirmation.

Mr CHOY Kan-pui made the Legislative Council Affirmation.

Mr David CHU Yu-lin made the Legislative Council Affirmation.

Mr HO Chun-yan made the Legislative Council Affirmation.

Mr IP Kwok-him made the Legislative Council Affirmation.

Mr LAU Chin-shek took the Legislative Council Oath.

Mr LAU Hon-chuen took the Legislative Council Oath.

Dr LAW Cheung-kwok made the Legislative Council Affirmation.

Mr LAW Chi-kwong made the Legislative Council Affirmation.

Mr LEE Kai-ming made the Legislative Council Affirmation.

Mr LEUNG Yiu-chung made the Legislative Council Affirmation.

Mr Bruce LIU Sing-lee took the Legislative Council Oath.

Mr LO Suk-ching made the Legislative Council Affirmation.

Mr MOK Ying-fan took the Legislative Council Oath.

Miss Margaret NG took the Legislative Council Oath.

Mr NGAN Kam-chuen made the Legislative Council Affirmation.

Mr SIN Chung-kai made the Legislative Council Affirmation.

Mr TSANG Kin-shing made the Legislative Council Affirmation.

Dr John TSE Wing-ling made the Legislative Council Affirmation.

Mrs Elizabeth WONG took the Legislative Council Oath.

Mr YUM Sin-ling made the Legislative Council Affirmation.

ELECTION OF THE PRESIDENT

MEMBER PRESIDING (in Cantonese): Good morning, Members. The Clerk to the Legislative Council issued a notice on 7 October 1995 notifying Members that only one valid nomination for the office of President of the Legislative Council had been received by the close of the nomination period. The nominee is Mr Andrew WONG, proposed by Mr Martin LEE, and seconded by Mr Eric LI, Mr LEE Cheuk-yan and Mr FUNG Kin-kee. In accordance with Standing Order 3A(7), I hereby declare that Mr Andrew WONG has been elected President of this Council.

Congratulations, Mr WONG! (Clapping) Will you please take the chair?

SUSPENSION OF SITTING

PRESIDENT: Honourable Members, I am deeply honoured to have been elected as President of the Legislative Council. I am most grateful for the trust you have placed on me and I pledge that I shall do my utmost to exercise impartially the authority of the presidency and maintain good conduct of Council proceedings.

I am particularly proud to preside over a Council which is facing challenging times ahead. I have full confidence that we can live up to the expectation of the people of Hong Kong.

I have been serving on a number of government advisory committees, including the Independent Police Complaints Council and the Advisory Committee on Agriculture and Fisheries. Such service in the Executive Branch will necessarily conflict with my neutral role as President of this Council. I will therefore resign from such committees forthwith.

I now suspend this sitting until 2.30 pm this afternoon.

Suspended accordingly at eighteen minutes to Eleven o'clock.

Council resumed at half past Two o'clock.

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GOVERNOR'S ADDRESS

INTRODUCTION

A Five-Year Programme
The Bedrock Principles

THE FIRST THREE YEARS

A Highly-Rated Economy
Quality Education
The Needy
Better Patient Care
Decent Homes
Open and Accountable Government
Managing the Transition
The Outstanding Issues

ECONOMIC ADJUSTMENTS

Changing Business Sentiment
Price Pressures
The Right to Work
The Role of Imported Labour
A Competitive Economy
An Infrastructure of Skills
The Regulatory Balance
Fiscal and Budgetary Policies

THE QUALITY OF LIFE

The Annual Audit
The 1995 Progress Report
The 1995 Policy Commitments
A Culture of Service
From Pledges to Charters
Caring for the Vulnerable
Reviewing Needs
A Better Benefits Package
The Challenges of Old Age
The Mandatory Provident Fund
A Modern Education
Safety at Work
A Safety Charter
Helping the Sick
The Housing Priorities
The Better-off Tenants
Estate Management
Planning for the Future
A Clean and Green Hong Kong
The New Territories
The Threat of Gridlock
The Private Car
Stable Slopes
Keeping the City Safe
The Threat of Corruption
New Residents

WORKING WITH LEGCO

Executive Council and Legislative Council
The Legislative Timetable

WORKING WITH CHINA

The Preparatory Committee and Chief Executive (Designate)
The Civil Service

CONCLUSION

PRESIDENT: Would Members please remain standing for the Governor?

CLERK: His Excellency the Governor.

PRESIDENT: The Governor will address the Council.

GOVERNOR: Mr President,

INTRODUCTION

Let me start by offering you, Mr President, my warmest congratulations on your second election success in less than a month. The confidence which your colleagues in this Council have demonstrated in you is shared by me and by my Administration. We look forward to working closely with you in the coming Session.

2. This is an historic Council, the first fully-elected legislature in Hong Kong's history. Your existence represents the fulfilment of the promises made to the people of Hong Kong in the Joint Declaration and is wholly in line with the community's future constitution, the Basic Law. I believe that it is the view not just of the Hong Kong people and the Hong Kong Government and not just of the British Government, but of most of our friends around the world, that you should be allowed to do your job for the full term for which you were elected. Any other course of action would damage Hong Kong and would damage, as well the prospect of a smooth transition to Chinese sovereignty. In partnership with the Government, you will carry heavy responsibilities. The community looks to us, the Legislative Council and the Government, to work together to make a success of the remaining months of the transition. Our ability to create an effective partnership will have a profound effect on the development of this Council and the future of decent, competent, accountable government in Hong Kong. We must not forget, too, that as we move closer to 1997, the eyes of the world will focus on Hong Kong.

A Five-Year Programme

3. In my first policy address to the Legislative Council in October 1992, I set out a five-year programme of work. That programme spelled out what we hoped to achieve in the final five years of British administration. This new Council starts its work more than half way through that agenda of improvements in every area of Hong Kong life. I would like to brief you in some detail this afternoon on where we stand with this programme. A government should be judged on its record not on its rhetoric. Good intentions are not enough. It is our performance which counts. Although much remains to be done, I hope Members will agree, after hearing my report today, that we have made solid progress in keeping the promises of 1992.

The Bedrock Principles

4. The programme I launched in 1992 was built on two bedrock principles. These principles are so ingrained in Hong Kong's systems, so much a part of our consensus, that they are usually taken as self-evident and universal truths.

5. The first concerns the economy. Hong Kong knows better than most communities that we must first create the wealth before spending a share of it on improving our public services. We must never lose sight of this fundamental economic reality, and we must accept its implications. There are no shortcuts, no soft options. Social progress is linked directly to economic progress. If we want better services, we must fund them by creating new wealth.

6. The second bedrock principle concerns our rights and freedoms under the law. There is a consensus that our civil institutions must develop in step with the development of our economy. It was for this reason that my programme in 1992 included the following proposals:

- to make our governing institutions more open and accountable;

- to ensure that our laws comply with the Bill of Rights;

- to guarantee that Hong Kong's freedoms and values are secured; and

- to deal as promptly and effectively as possible with the key issues of the transition.

In short, Hong Kong recognizes that economic and social development must take place within the framework of what is perhaps this community's most prized possession, the rule of law. This is not some abstract concept far removed from the daily lives of the people of Hong Kong. It is the rule of law which provides a safe and secure environment for the individual, for families and for businesses to flourish. This is the best safeguard against arbitrary and overbearing government. It is the very essence of our way of life.

THE FIRST THREE YEARS

A Highly-Rated Economy

7. So how have we done during the first three years of our five-year programme? I start with the economy. It is not by accident that Hong Kong's economic success is so highly regarded by the outside world. In December last year, it was widely reported that the Washington-based Heritage Foundation had concluded that Hong Kong is the freest economy in the world. In Hong Kong, that was taken as late-breaking news, something we had known for years. Last month, the World Economic Forum rated Hong Kong as the third most competitive economy in the world. These reports are a welcome recognition by the outside world of realities with which you are all familiar even if it does not always sound like that.

8. Our commitment to open markets and fair competition has ensured that, since 1992, our economy has continued to flourish. Equally important, our public finances have remained under tight control.

- GDP has grown by 18% in real terms to US$23,800 per head.

- New investment has grown by 31% in real terms.

- Total visible exports have grown by 43% in real terms, and total exports of services have grown by 31%.

- Our fiscal reserves have grown by 57%, to total $151 billion.

- Tax rates have been cut to provide reductions for almost every salaried employee.

- And, of course, the share of public spending has remained firmly below 20% of GDP.

9. So the economy has flourished mightily. And for that reason, and that reason alone, we have been able to meet the targets to upgrade our social services which I proposed in 1992. Improved social services are one of the rewards for our economic success.

Quality Education

10. On education, we promised the community that we would respond to the concerns of parents and teachers about standards in our schools.

- We would provide over 2 000 additional teachers by 1997 and reduce the ratio of pupils to teachers to 24 in primary and 20 in secondary schools. We have already achieved these targets, two years ahead of schedule.

- We would provide a computer for every secondary student undergoing a computer course. We doubled the number of school computers in 1994, meeting our target in full.

- We would enable 18% of those aged 17 to 20 to enrol in first-year, first-degree courses by 1994. We increased the number of places available by 20% to total 14 500 by October 1994 and thus achieved our target.

The Needy

11. On welfare, we promised the community greater help for the disadvantaged and the disabled.

- We would introduce a new Comprehensive Social Security Assistance (CSSA) Scheme. This new scheme has been operational since 1993, bringing higher benefits for every group of clients.

- We would provide 5 800 care-and-attention places for the elderly by 1997. We have achieved over 3 600 places. This will be a difficult target to meet. But I am determined that we will do so.

- We would provide an additional 200 foster care places by 1997. We have done better than we hoped for. We have already provided 240 foster places.

Altogether, in the welfare field, we are in the middle of a programme which will take us from second world's standards of provision to first world's standards in one five-year stride. I would like to thank all our staff who are delivering that massive improvement while rarely getting the credit for which they deserve.

Better Patient Care

12. On health services, we promised the community that we would provide faster and more effective treatment for the sick.

- We would provide an additional 4 200 hospital beds by 1997. By March next year, we will have provided 2 700 more beds, and we are determined to provide the balance, as promised, on schedule.

- We would open 13 new clinics by 1997. We have already opened nine new clinics, and the other four are under construction.

- We would reduce waiting times at accident and emergency clinics from 60 minutes to less than 30 minutes. The average waiting time today is 30 minutes.

Decent Homes

13. On public housing, I promised the community that the momentum of our programme to provide decent homes would accelerate over the next five years.

- We would build over 100 new public housing flats per day. In fact, we have managed to build an average of 117 flats a day. This means that 18 000 more families have been provided with decent, affordable public housing than we originally planned.

- On Temporary Housing Areas (THAs), we have made three pledges. The first was that almost three quarters of the people living in THAs in 1992 would be rehoused by 1997. The second was that by 1997, we would offer flats to all those who, in 1993, were living in THAs. The third was that by 1996, we would have cleared all THAs built before 1984. There has been a good deal of misinformation that we might not meet these pledges. On the contrary, we are well on course to achieving all three commitments by the scheduled target dates. I shall be saying more about THAs later on this afternoon.

- We pledged to introduce a "sandwich class" housing scheme to provide new flats for 20 000 families by 2001. Some 2 000 middle-income families will have benefited from this scheme by the end of this year, and we will accelerate production to meet our target. We will also increase our longer-term target by 50% to 30 000 families over the next eight years.

- In addition, while these new "sandwich class" flats are being built, we are providing $2 billion in low-interest loans to allow another 4 000 middle-income families to buy their own homes.

Open and Accountable Government

14. No one should underestimate the effort involved in meeting our social service targets. It has not been simply a matter of money. It has also been a matter of determination and commitment. But our 1992 agenda went well beyond the social services. I spoke earlier this afternoon about the community's expectations that our political and social institutions should be appropriate to the level of economic development and sophistication which Hong Kong has achieved. Our commitment to do so was a major feature of the programme set out in my 1992 address.

- For our electoral system, I promised arrangements that would be fair, open and acceptable to the people of Hong Kong. We have successfully held three sets of elections in the past 12 months. The elections which brought this Council into being were conducted on a larger scale than any in our history. A total of almost 1.4 million votes was cast this time round, about 80% more than in 1991.

- I promised to protect the freedom of the press, an essential ingredient of our Hong Kong way of life. We have amended 31 items of legislation which were at odds with the Bill of Rights, and we have more in the pipeline. We have given the media and members of the public greater access to government information.

- We have made it easier for individuals to enforce their legal rights. The Director of Legal Aid can now waive the means test in civil cases involving the Bill of Rights or the International Covenant on Civil and Political Rights. The range of cases for which legal aid is available has been broadened, and we have raised the income limits. These measures help to make sure that the protection of the courts is available to the community as a whole and not restricted to the better-off.

Managing the Transition

15. I also explained in my first policy address that this Government would do all that it could to prepare for Hong Kong's future under the concept of "one country, two systems". In 1992, the list of major transitional issues on which little progress had been made in the Joint Liaison Group amounted to a formidable agenda of unfinished business, business which was vital to Hong Kong's success, the very essence of a smooth transition.

16. I am pleased to say that since 1992, significant progress has been made on this agenda.

- After seven years of complex discussions on defence lands, we reached a comprehensive agreement in June 1994. This released nearly 140 hectares of land worth up to $65 billion to provide more new homes, offices, hotels, open space and other community facilities.

- In June this year, we brought to a conclusion five years of arduous negotiations on the financing of our New Airport. This means that the construction of the airport can proceed rapidly, and we shall be able to finish construction of the airport just two years from now.

- After almost four years of uncertainty since 1991, we reached agreement with the Chinese Government in June this year on the establishment of the Court of Final Appeal on 1 July 1997. While I know that this issue was the subject of heated debate in this Council, I believe the passage of the Bill has provided certainty about the continuity of our judicial system where previously there had been doubt and uncertainty.

The Outstanding Issues

17. A great deal of hard work has gone into securing these important agreements. But much remains to be done. The major items still on the Joint Liaison Group (JLG) agenda for solution before 1997 are familiar to you all.

- The issue of most direct concern to the community as a whole is the right of abode. It will be very hard for people to have confidence in Hong Kong if their own personal status is ambiguous. People need certainty about their residence rights, their travel documents and visa-free access to foreign countries. We shall go on raising these concerns in the JLG, as well as with the United Kingdom. Both the sovereign powers have an important contribution to make in reassuring Hong Kong people on these matters.

- We are almost halfway through our programme to replace United Kingdom statutes that at present apply to Hong Kong with appropriate Hong Kong legislation. We still have to enact a further 17 ordinances to complete the current programme.

- We also have a programme, largely technical, to adapt Hong Kong's laws to meet the requirements of our future status as a Special Administrative Region. We have examined all the Hong Kong Ordinances, numbering nearly 600, to see whether they need amendment to conform to the Basic Law. So far, we have prepared detailed proposals to amend about 300 ordinances. We aim to complete proposals on the remaining ordinances by the beginning of next year. We also need early clarification by the Chinese side of the mechanism for adopting these amendments. It is imperative to ensure that there is no uncertainty about the status of any laws after the change of sovereignty.

- The British and Chinese Foreign Ministers agreed in London last week jointly to intensify efforts on developing Hong Kong's container port. We shall now work to build on that commitment in order to find a way forward in our discussions on Container Terminal 9 and the future expansion of the port.

- Let me give just one more example. To secure our vital air links with the rest of the world, we have been negotiating a distinct set of air services agreements with our aviation partners. This involves separating air services agreements from those signed by the United Kingdom which also cover Hong Kong, and concluding agreements with new aviation partners. So far, 11 such agreements have been signed. One initialled agreement has been approved by the JLG and awaits formal signature. Another six are still waiting for the Chinese side's approval. However, a further four remain to be dealt with under the separation programme. Furthermore, arrangements need to be put in place before 1997, so that Hong Kong airlines can continue to overfly other countries after the transition. When the airport opens, it is important that Hong Kong has in place a comprehensive network of air services agreements and other arrangements to match. But the work which remains to be done is formidable.

18. We have also embarked on a new agenda of consultation and co-operation with China no less vital to our future prosperity.

- We have started a comprehensive series of briefings on our budgetary process. These are creating a solid foundation for the consultations with the Chinese Government which will be necessary for the special case of the 1997-98 Budget.

- We have set up a joint Infrastructure Co-ordinating Committee. This body has strengthened our cross-border co-operation, in particular on infrastructure and related matters.

19. I do not think anyone will question the importance of the agreements we have secured in the past three years or the importance of the work which must be completed in the next 21 months. As we look ahead, we can draw encouragement from the fact that we have succeeded in making as much progress over the last three years as, arguably, in any other three-year period since the signing of the Joint Declaration. But I should add, so we should have done, for time is getting short.

ECONOMIC ADJUSTMENTS

20. As we press on with the work of the transition, as well as completing the balance of my 1992 programme, we can also draw considerable reassurance from the fundamental strength of our economy. You do not have to be a Marxist to believe that economic success is fundamental not only to everything we have achieved in the past but all that we are hoping to accomplish in the future.

Changing Business Sentiment

21. Since the start of the year, we have had to cope with a change of pace in the forecast rate of economic growth for 1995. We had an excellent first quarter, with GDP growing in real terms by an estimated 5.9%. But the momentum has slackened since, and we now expect 1995's GDP growth to be 5% in real terms, rather than 5.5% as previously forecast.

22. We should not overreact to this revision of our growth forecast. Our annual GDP growth in real terms has averaged 6% over the last 10 years. For a modern economy like Hong Kong, the prospect of GDP growth of 5% in real terms in 1995 is still a very healthy rate of expansion. Indeed, this is better than most of the advanced economies expect to achieve this year, and it is in line with the medium range forecast on which our public expenditure plans are based. But nonetheless, we have to recognize that Hong Kong's economic mood is less buoyant than the fundamentals justify. We have to understand what has been called the "feel bad" factor.

Price Pressures

23. The first component of this is undoubtedly inflation. The annual rate of inflation has fallen from its peak of 13.9 % in April 1991 to 8.3% in August this year. We can draw some encouragement from this downward trend in consumer prices. But we cannot be complacent. Inflation remains uncomfortably high, and it should not be surprising that some sectors of the community have felt themselves under serious pressure from rising prices. The most obvious example is the market for new homes. In 1993, as the price of new flats soared beyond their means, many Hong Kong families began to despair of ever owning their own homes. The price-stabilization package we introduced last year was aimed at knocking out the speculators who were an impediment to the smooth operation of the price mechanism. I am pleased to say that we seem to have got it about right. Prices have consolidated in most sectors of the housing market at levels which are 20% lower than the peak prices which prevailed around April 1994.

24. But it would be dangerous to imagine that government intervention across the board is the remedy for Hong Kong's inflation. Our intervention in the property market was designed to make the market work more efficiently, not to override it. As with most of Hong Kong's economic problems, the ultimate answer to inflation is competitive markets, which are the only real guarantee of the productivity gains we need to contain inflation. Later in my speech, I will be explaining what measures the Government will be taking to make our economy more competitive.

The Right to Work

25. The other major economic worry is unemployment. I think it no overstatement to say that in Hong Kong full employment has been a most effective guarantee of social progress and stability. It should not be surprising, therefore, that when the unemployment rate began to increase earlier this year, the community demanded government action. All the more so, because the Government has always accepted a responsibility to do everything within its power to maintain full employment.

26. By normal international standards, Hong Kong's current unemployment rate of 3.5% is very low. Most communities would regard this as virtually full employment. In Hong Kong, however, we expect to do better.

- This community believes that its men and women have a duty to earn a living and to support their families.

- This community also believes that full employment should, in effect, be the Government's single most important welfare objective.

Think of what this means in practice. Full employment means that almost everyone, including those with disabilities, can get a job and will have a chance to achieve economic independence, instead of a section of the community being abandoned to poverty and dependency.

27. The Government's response to the higher unemployment figures has been both prompt and practical. In June, I brought together business and labour leaders to identify what lay behind the sudden rise in unemployment and to help us devise effective remedies. The Government then took immediate steps to address the two most pressing concerns which had been voiced.

- The first was that more foreign workers were taking up jobs illegally, thus reducing the work available for our own people. We have launched a vigorous campaign against illegal employment.

- The second was that our employees' retraining programmes should be strengthened to give workers more marketable job skills. We have already made substantial improvements to these programmes.

The Role of Imported Labour

28. The higher rate of unemployment has also led to understandable calls for changes to the importation of labour policy. I say understandable because the community attaches such importance to men and women earning their own living that it also feels that any preference in the labour market ought to be in favour of local workers. The General Labour Importation Scheme was introduced in 1989 to relieve what was then an acute labour shortage. As the shortages eased, it became obvious that we needed to reassess the policy. I have now received the report on the review of the General Labour Importation Scheme which ended last month. It points to the following conclusions.

- First, imported labour has made a valuable contribution to our economy, in overcoming bottlenecks in key, high-growth sectors or shortages of specific skills.

- Second, there is a need to retain the policy options which allow Hong Kong to respond rapidly to sudden rises in the demand for particular types of worker in our open and highly-flexible economy.

- Third, there is a very strong case for significant changes in the existing General Scheme, both in its operation and in its quota sizes.

29. In the course of this latest critical review of the General Scheme and the fundamentals of our policy on imported labour, we have listened closely to the arguments proposed by spokesmen for both employers and the labour force. In deciding on the way forward, I have paid particular attention to the views of Members of this Council. I believe that we should now bring the existing General Labour Importation Scheme to an end. It will be run down naturally over the next year or so and be replaced with radically revised arrangements for the importation of labour. We will propose a new Supplementary Labour Scheme to start on 1 January 1996. Its quota ceiling will be 5 000, compared with 25 000 under the existing scheme. Employers will have to prove that local workers are not available before we begin to process their applications to import labour.

- First, they will be required to advertise their vacancies for a specific period of time.

- Second, they will need to register their vacancies with the Labour Department and participate in a job-matching scheme, which will also involve the Employees Retraining Board where necessary for at least two months.

We shall be consulting this Council and representatives of both employers and employees on the detailed arrangements for the implementation of the Supplementary Labour Scheme at a summit on employment next month. It is important that we find the right way forward which meets the interests of both sides. It is also important that our new arrangements enjoy the confidence of the community. To achieve these goals, the Labour Advisory Board will be asked to monitor the operation of the Supplementary Labour Scheme.

30. In announcing today's proposals, I want to emphasize that imported labour has been essential to our past growth, and we must be careful to retain the option to use foreign workers to prevent any future shortfalls in the local labour supply from becoming bottlenecks to our overall growth. I believe that the new arrangements I have proposed this afternoon take into account the best features of the various suggestions which have been put forward by all the parties concerned and, most especially, by Members of this Council.

A Competitive Economy

31. I said earlier that we must do everything in our power to promote full employment. But some things are not within our power, and we must recognize the limits to what the Government can achieve. Experience elsewhere in the world has shown that, all too often, well-intentioned job-creation schemes prove in practice to be disastrous job-destruction schemes. They destroy competitiveness. They cause jobs to be exported. And, consequently, they impede economic growth.

32. The same constraints apply to what the Government can do to suppress inflation. Prudent measures to eliminate dangerous speculation and to remove the obstacles to the efficient operation of our markets do not conflict with Hong Kong's basic economic principles. But government controls and arbitrary interference with the price mechanism would only depress confidence, deter investment and damage the efficiency of our free market economy.

33. Only a commitment to higher productivity, competitive markets and rapid economic growth can achieve what I know the community wants: a job for every man and woman who needs one and more stable prices. So the role of the Government must be to promote the efficiency, flexibility and competitiveness of our economy. This is the way, and it is the only way, that we can find the remedies for unemployment and inflation. We must compete our way back to full employment and stable prices.

So what can the Government do to help the economy to become more competitive? The Government's primary responsibility is not to manage the economy but to provide the framework in which it can operate most efficiently. In practice, this means providing and maintaining our infrastructure. This is usually taken to mean our massive programme of roads, port expansion, the new airport and the rest of our public works projects. We have spent a total of $70 billion since 1992 on the physical infrastructure, and I do not think that any one will doubt the importance of these investments to our competitiveness. But in a service economy, the physical infrastructure is a necessary but not a sufficient condition for success. We have to go beyond these investments in what might be called the "hardware" of our drive for greater competitiveness. We must also invest in the "software" of success.

- First, we must foster an infrastructure of skills appropriate to our technology-based economy.

- Second, we must get the regulatory balance right to remove red tape which deters initiative and enterprise.

- Third, we must reinforce the fiscal and budgetary policies which have given us the best business environment in the region.

An Infrastructure of Skills

35. I start with our human capital, Hong Kong's most important resource. We already have an outstanding labour force, disciplined, efficient and flexible.

- These are the qualities which have enabled our workforce to raise its productivity by an annual average of 4.5% since 1985 and to reduce the average number of days lost through industrial disputes by 75%.

- These are the qualities which have enabled our economy to switch so efficiently from manufacturing to services, to shed 460 000 factory jobs since 1985 and replace them with 800 000 brand-new jobs in service industries.

This readiness to change careers, to switch employment in response to shifts in overseas demand for our goods and services, is at the heart of our economic efficiency. It is also crucial for our continued ability both to compete on world markets and to serve the needs of China's rapid modernization.

36. The secret of this high-quality workforce is relatively simple.

- Hong Kong has offered the right incentives: decent wages to allow the workforce to raise its living standards. Since 1985, the average worker's earnings have risen by over 4% each year in real terms.

- Hong Kong has promoted professional education and provided vocational training. Since 1985, the annual expenditure on training schemes, part-time courses and distance learning has risen by 76% in real terms. This year, about 155 000 adults will benefit from some form of part-time education.

37. But the skills and motivation of our labour force are only the first of the building blocks for our future success. In addition, a modern service economy requires a considerable investment in knowledge, in the intellectual skills which can harness advanced technology to our growth. In the past, neither government nor industry funded scientific and technological research on a scale commensurate with our economic progress. However, over the last three years, we have started to make good our past deficiencies. This year, the University Grants Committee will allocate $272 million in research grants, a 133% increase since 1992. In addition, we currently give financial support to the equivalent of almost 3 000 full-time research students doing advanced degrees.

38. Our investments in scientific and technological research have a direct bearing on the enterprise and innovation which are the key to our future prosperity. Since 1993, we have provided $372 million for research projects in manufacturing technology. One additional possibility is the establishment of a science park. We have conducted a feasibility study on this project, and we will be consulting widely on its findings in the coming months. We will then return to this Council with specific proposals. Our overall goal, quite simply, must be to bring together the scientists and the entrepreneurs whose alchemy is the key to our future prosperity.

39. We cannot be parochial about technology and research. We must, of course, keep up with the traditional pioneers of technological change in the major developed economies. But we must also work in partnership with the new scientific generation in China. Last year, I announced the creation of the Applied Research Centre, whose special task would be to support projects which involved researchers from China as well as Hong Kong. Already, $11 million has been allocated to fund two applied biotechnology projects which have been identified as offering exciting potential.

The Regulatory Balance

40. So far, I have talked about how the Government has taken on an expanding role in creating the infrastructure which will help our businesses to make the most of their opportunities, both in China and on world markets. But more government involvement is not the answer to every problem. Indeed, a pro-active bureaucracy, however well-intentioned, can shackle investment and stifle initiative. Red tape and over-regulation are the surest ways for Hong Kong to drive business elsewhere, especially in a dynamic region like our own which has pinned its hopes for sustained growth on economic liberalization and deregulation of markets.

41. At the same time, the Government cannot abandon all responsibility for the way business is conducted. We cannot abdicate our duty to protect the depositor, the investor and the consumer against fraud and malpractice.

- In becoming the world's eighth largest exporter of manufactured goods, we could not have afforded a reputation for shoddy or unsafe goods.

- In maintaining our position as the world's fourth largest financial centre, we cannot afford a reputation for dubious financial products and unethical market practices.

The surest way to destroy the market value of a "Made in Hong Kong" label and to cripple the credibility of our financial institutions would be to retreat from high standards of self-regulation and official supervision, backed, where necessary, by stringent legal penalties. And to retain the trust and respect of our trade and investment partners, Hong Kong's standards must meet the criteria which set international benchmarks.

42. So we have to strike a balance, a balance between providing the level and quality of regulations which guarantee the high standard of our goods and services and, at the same time, avoiding those bureaucratic controls which would strangle enterprise and deter investment. The Financial Secretary has these issues very much in mind. As you know, he has already established a Task Force to chart a course for the further expansion of our service industries. This will be reviewing what we can do to provide a regulatory and administrative environment conducive to the future development of our service industry. It will listen carefully to the views of business representatives and professional experts. In particular, we will welcome views on how the Government could modernize existing regulations concerning the service industry, in order to strike the right balance between safeguarding the interests of investors and consumers on the one hand and expansion of the industry on the other. But I want this exercise to make an even more direct contribution to reinforcing our open economy. New technologies create new processes and markets generate new products. So, as we amend or modernize business legislation, for example, the Companies Ordinance, I want the Task Force to ensure that we do not erect new barriers to business. We must use the law to promote not deter economic activities.

Fiscal and Budgetary Policies

43. In my first address to this Council, I pledged that the Government would do everything in its power to maintain a dynamic business environment, free from unnecessary government burdens and interference. I believe we have fully lived up to that promise.

44. We could not have achieved this without the support of this Council in the past. Unfortunately, however, there is a concern in some circles, particularly among businessmen, that the territory's first, wholly-elected legislature may somehow force Hong Kong to change course, that it will insist on radical economic experiments and imprudent programmes of public expenditure. I do not share this pessimism. After all, the last Legislative Council was the first to have an elected majority, and it showed no inclination to abandon the bedrock principles that I described earlier this afternoon. Similarly, I do not see how anyone who has read the party manifestos and listened to the political debates in last month's elections could possibly reach such a conclusion. Nevertheless, it is only fair to say that there is a perception in some circles that you might introduce radical changes which would lead inexorably in later years to higher taxes and would expand the Government's role in the economy.

45. Let me repeat. I do not believe that there is any inclination in this Council to do so. Nevertheless, I believe this Council could make its own, positive contribution to business confidence and provide a significant incentive to new investment by removing all uncertainty about your own convictions that economic success must remain our first priority. You could provide both Hong Kong and our trade and investment partners around the world with a clear guarantee that this Council will do nothing to undermine our financial stability or our commitment to an open economy. The most convincing way to do so would be for this Council to endorse the economic policies which have been the foundation of Hong Kong's success over the last four decades. These policies can be summed up in a simple rule. Government expenditure should increase over time only in line with the trend rate of economic growth, what I have called the "living within your means" principle of public expenditure. As a result of this rule, public expenditure has not exceeded 20% of GDP, and the Government has confined its role to supporting, not to dominating, the economy. Such an endorsement would, of course, be purely a matter for this Council. But a statement of this sort would demonstrate to the doubters that our first fully-elected Legislative Council intends to operate on the same broad consensus as its predecessors. A consensus which was confirmed by the voters of Hong Kong during the September elections.

THE QUALITY OF LIFE

The Annual Audit

46. In presenting my policy addresses to this Council, I believe they should form part of an annual audit of the Government's performance. It is for you and the community to judge whether we have lived up to our promises and matched your expectations. I hope Members will agree that since 1992, there has been nothing short of a quiet revolution in the way the public sector approaches its relationship with the community. It is now a relationship based on service, accountability and performance.

47. It is for this reason that the Government publishes its very detailed Policy Commitments and Progress Reports which cover every area of the Administration's activities. Now that they have become established, I do not mind admitting to you that, before I first introduced them, some people warned me that these documents would amount to the only two-volume political suicide note in history.

The 1995 Progress Report

48. On Monday, the Chief Secretary presented the third annual Progress Report on behalf of the Government to this Council and the community. This important document explains the position on the 471 outstanding specific initiatives announced during the past three years. Each of these initiatives was designed to improve the Government's service to the community. The Progress Report makes it clear, in each and every case, whether we have, in fact, honoured these undertakings. It makes encouraging reading for the fair-minded. It also provides useful ammunition for the perfectionists amongst you. The fair-minded will have noted with satisfaction that the Government has already completed or is on target with 94% of these initiatives. The perfectionists will have noted that we are behind our targets with 6% of our undertakings. The Report explains how we intend to get back on track with the 6%. I doubt whether there is any other government in the region, and maybe none other in the world, which produces each year such a detailed report card on its own performances.

The 1995 Policy Commitments

49. Although the Civil Service never expects headlines in the press to read "Government does a great job", it does draw considerable encouragement from the knowledge that the community values its record of success and its determination to go on improving its performance. This determination will be immediately apparent to Members from this year's Policy Commitments. The Policy Commitments contain 343 new initiatives, each of which has been fully-costed and all of which can be financed without breaching our all-important budgetary guidelines.

50. I understand that some Members were disappointed last year that my speech was shorter than usual because I summarized the Policy Commitments instead of reading out all of them. But I intend to stick to a summary once again this year. I think that only a minority of this Council have a taste for speeches of CASTRO proportions. If two hours of Chris PATTEN are not enough for you this afternoon, you can console yourselves with the knowledge that I shall be back in this Chamber again tomorrow afternoon. For today, let me just say of the new initiatives proposed in this year's Policy Commitments:

- 27% are designed to upgrade our social services and our housing programmes;

- 21% will help to strengthen the Government's support for the economy; and

- another 16% are part of our already ambitious programmes to make the best possible use of limited land resources and to meet the growing demands on our infrastructure.

51. You will also see that every Policy Commitment contains a new section summarizing how each part of the Government is responding to the requirements of the transition. As I explained in my first policy address, we have no higher priority than making a success of the transition.

52. I am sure that Members will also recognize how extensively the 1995 Policy Commitments have benefited from the advice of this Council. Many of you will recognize your own ideas and suggestions and how they have been accepted as the basis for new initiatives. The Policy Commitments also incorporate suggestions from our extensive structure of advisory committees and from professional bodies and pressure groups. The community's agenda must set the agenda for the Government.

A Culture of Service

53. Achieving these objectives will depend crucially on the professionalism, the integrity and the dedication of the Civil Service. I want to place on record once again today my deep admiration for the men and women of our Civil Service. There is a deep reservoir of respect and goodwill in Hong Kong for the Civil Service. This is not a statement which could be made about most other governments. In many communities, civil servants are not held in high esteem. But our community knows the value of an honest, committed and efficient public service.

54. The pursuit of excellence within the Civil Service begins with a commitment to raising standards rather than being content with past achievements. The civil service culture must be intolerant of complacency. There has to be an unwillingness to settle for the quiet life. For Hong Kong, the Civil Service, along with the Judiciary and this Council, is one of the key institutions in making a success of the concept of "one country, two systems".

From Pledges to Charters

55. Excellence in public administration requires a culture of service to its clients in each and every Branch and Department of the Government. The success of the performance pledges, for example, is due to the enthusiasm with which the Civil Service took to the idea of publishing targets to tell their clients what quality of service they could expect and how to complain if standards proved disappointing. Since 1992, all 47 departments delivering direct services to the public have published performance pledges.

56. I believe that we can build on this 1992 initiative. The right next step would be to develop the concept of performance pledges in areas where our services have a major impact on people's lives. The best way of doing this would be to follow the lead of the Hospital Authority. I want to congratulate the Authority for its pioneering work in developing a "Patient's Charter". This document sets out the ways in which the community and the hospitals work as partners, explaining clearly patients' rights and obligations. The introduction of the "Patient's Charter" has gone hand-in-hand with major improvements in hospital care, proving that a commitment to serving the client is not a gimmick or an additional and unwelcome burden on hard-pressed managers. Later in my speech, I shall be announcing plans for a similar charter for the workplace.

Caring for the Vulnerable

57. One of the most insistent messages which this Council and the community sends to the Government is that it expects us to accept a duty of care for the vulnerable. This sense of compassion is the other side to Hong Kong's work ethic. In Hong Kong, no one seriously disputes the need to balance the work ethic of the majority with the welfare requirements of an unfortunate few. However, there is a serious debate about how to provide an adequate welfare system without weakening the will to work. There is a widespread belief that welfare beneficiaries should be treated with dignity and should not be reduced to subsistence. At the same time, there is also a deep-rooted conviction in Hong Kong that the welfare system should cater only for those who have no other means of support and that it should offer only basic support rather than a generous alternative to finding a job.

Reviewing Needs

58. As a result of considerable public discussion of these issues, particularly of the financial needs of our elderly population, I promised in last year's policy address that we would undertake a new, in-depth study of the Comprehensive Social Security Assistance (CSSA) Scheme. This Review draws on information from 7 400 households participating in the year-long Household Expenditure Survey which ended last month. This survey is a mammoth exercise which we undertake only once every five years, and it provides a wealth of information. For the purpose of the Review, we compared the current level of CSSA benefits with the actual spending patterns of CSSA recipients and those in the lowest 5% income group. These spending patterns were drawn up from an analysis of data provided in the first six months by the Expenditure Survey. The results of this analysis suggest that there are people for whom the safety net has not been adequate. Some of the results contradict conventional wisdom about which groups need higher levels of support. But overall, the social security system seems to have worked as intended. It provides not a lavish but an effective safety net for the poorest members of our community.

59. CSSA benefits are not an incentive to the able-bodied to leave the workforce voluntarily. Living on CSSA benefits would clearly be nobody's preferred option. The 153 000 CSSA beneficiaries are exactly those vulnerable and unfortunate individuals that the community wants most to protect because of their mental and physical disabilities or their social and economic disadvantages.

A Better Benefits Package

60. As I have said, the Review will be completed early next year. But we know already that some rates are too low, that some members of the community are suffering today from genuine financial hardship. These are the groups whose current levels of social security benefits are inadequate. Their standard rates of CSSA benefits were significantly below the spending levels of equivalent categories of people in the lowest 5% income group. On the other hand, the standard rates for vulnerable groups like the single elderly, children, and people with a disability were generally above the spending levels in the lowest 5% income group. In these circumstances, I believe we must act promptly to provide help where it is needed and justified. Subject to this Council's approval, I propose the following improvements in benefit levels from 1 April 1996.

- Single parents and family carers will receive a 54% increase in their standard rates, which will increase from $1,045 to $1,605 per month.

- Elderly persons living in a family unit will receive a 12% increase in their standard rate, which will increase from $1,505 to $1,685 per month.

- Adults whose ill-health prevents them from working will receive increases of between 46% and 54% in their standard rates. This will raise their monthly standard rates from $1,210 to $1,770 (for a single adult) and from $1,045 to $1,605 (for an adult living in a family).

- Adults who are unemployed but actively seeking work will receive an increase in their standard rate payments of between 23% and 27%. This will raise their monthly standard rates from $1,210 to $1,490 (for a single adult) and from $1,045 to $1,325 (for an adult living in a family). This rate of increase has been adopted specifically to ensure we do not provide support at a level which could provide a disincentive to find a job.

61. In setting out these improvements, I have referred consistently to increases in standard rates. It is worth recalling that the standard rate forms only one part of the total CSSA benefits. In addition, over 95% of CSSA recipients also receive supplements and special grant payments to cover such items as rent and school expenses.

62. We expect the new rates to benefit up to 52 000 people in need. We estimate that the higher rates of benefit will cost about $300 million to implement. The Secretary for Health and Welfare and the Director of Social Welfare will be explaining the full details of these new benefits on Friday.

63. I am making these specific proposals today, ahead of the final outcome of the Review, for those groups for which we have clear evidence that standard rates are inadequate and must be increased. But this exercise is only the first stage of the Review. I anticipate that it will recommend other important changes as it considers all aspects of the system including:

- the rules under which CSSA payments can be received by people who choose to receive benefits outside Hong Kong;

- the level and scope of the special grants for which all CSSA recipients are eligible;

- the level and administration of the long-term supplement paid to everyone who has been receiving CSSA for over 12 months;

- the level of permitted disregarded earnings which recipients may retain in addition to CSSA payments; and

- the level of the assets limit which is one of the eligibility tests for CSSA.

64. Let me emphasize that, so far, we have an analysis of only the preliminary information from the Household Expenditure Survey. We have acted promptly to help those groups identified as being the most obviously vulnerable. There are other groups, elderly people living alone and children, for example, who benefited from the improvements I announced in previous policy addresses. We shall have to wait for the final outcome of our Review before deciding whether further improvements may be justified to benefit other vulnerable groups. But let me make it plain this afternoon. We shall ask this Council to endorse additional benefits for them if the Review so recommends.

The Challenges of Old Age

65. I said earlier that some of the results of our analysis of the Expenditure Survey data run counter to conventional wisdom. This just serves to demonstrate the value of such reviews. I think it fair to say that before this exercise, many of us would have assumed that elderly men and women living alone would be the worst off in our community. In fact, the average benefits received by a single elderly CSSA client, including the standard rate, special grants and supplements, currently come to a total of $2,710 a month.

Adequate financial support for the elderly must remain a high priority. But equally important with advancing age is the total programme of services for the elderly, the special provisions for the frailties and disabilities that come with old age. In my previous policy addresses, I outlined ambitious programmes to meet the needs of the increasing numbers of elderly people. The recommendations of last year's Working Group on Care for the Elderly chaired by a distinguished former civil servant who is now an Honourable Member of this Council have helped us refine our targets. Since 1992, we have made considerable progress with our programmes.

- We have provided nearly 5 000 special flats for the elderly in convenient urban locations since 1994. We have rehoused over 23 000 elderly people living in bedspaces and other unsuitable accommodation since 1992. A new priority scheme for the elderly has reduced their average waiting time for public housing by three years.

- We are already providing an extra 4 000 places in care-and-attention and old people's homes. We will provide a further 1 600 places this year.

- About 25 000 old people are already being served each year by our geriatric health teams, and the four new teams to be set up this year will serve an additional 9 000 clients a year.

- We have expanded facilities to treat the diseases of old age. For example, we have reduced the waiting time for cataract operations from 15 months to nine months.

67. The full list of how we have expanded our social services and housing programmes to cater for the elderly is much longer, of course. This year, we will spend a total of $9 billion both on financial assistance and on our increasingly comprehensive health and welfare services for the elderly, an increase of 50% in real terms over 1992. We are well on our way to creating a proper framework to meet the health, welfare and housing needs of old age.

The Mandatory Provident Fund

68. But we are less well advanced in providing an effective system of financial security for the retired. We have made a start. This year saw the enactment of the Mandatory Provident Fund Schemes Ordinance. Much of this Council's agenda in the coming months will be devoted to the Government's proposals for bringing the scheme into operation by 1997.

69. We will need to make early progress on such complex but essential issues as investment guidelines, the interface arrangements for existing occupational retirement schemes, and the regulation and approval of trustees and service providers. We will start to introduce the extensive subsidiary legislation which will define in detail the Mandatory Provident Fund Scheme and its functions. We will bring forward detailed proposals for the finance and staffing of the Mandatory Provident Fund Schemes Authority. Subject to this Council's approval, we shall provide a total capital injection of $5 billion for the Authority.

A Modern Education

70. I stressed earlier this afternoon the importance of skills for our future success, and perhaps the most important thing the Government can do for the workforce is to provide a sound basic education. Our record of investment in educating our children has been improving rapidly. By the time a boy or girl reaches the age of 15, the community will have spent a total of $149,000 on his or her education. Over the last three years, Hong Kong has moved well beyond the basic level of nine years of compulsory education. This year, 41% of our Form V students will continue their formal education. And 86% out of those who complete Form VII will remain in full-time education, studying either for degrees or for other qualifications.

71. The statistics of our efforts to create a modern educational system to serve the entire community are encouraging. But now that we have the teachers, the classroom places and the school facilities we need, parents have become far more concerned, and rightly so, about the quality of schooling that their children receive. They are concerned to ensure:

- that teachers are fully equipped with the professional skills they need to help students get the most out of school;

- that under-achieving children get the special attention they need to encourage them to succeed; and

- that the schools themselves offer an environment in which both teachers and students can perform at their best.

72. We have already made considerable progress in these three vital areas.

- The Hong Kong Institute of Education was set up in 1994 to ensure that the training of our teachers meets the increasingly demanding standards expected of the profession. This year, we have provided $642 million for training courses for teachers.

- We are spending $340 million to build 10 new schools by 1999 specially designed to cater for the needs of poorly motivated students and those with severe learning problems.

- We are building additional facilities in a total of 240 schools to provide the modern environment which teachers and students need. This programme costs $2.4 billion and will be completed by 1997. We have already air-conditioned 413 schools to reduce the disruption caused by excessive noise pollution.

73. Parents increasingly recognize the importance of pre-school education. I believe that good pre-schooling facilities make a substantial contribution to a child's ability to do well later on. At present, 85% of all children between the ages of three and five attend kindergartens. This year, we will spend $140 million to ensure that children are not denied access to kindergartens because their parents cannot afford the fees. About 240 kindergartens benefit from the subsidy scheme which helps them to meet prescribed standards of qualifications and salaries for their teachers. Already, more than half of all kindergarten teachers have been trained. We have just raised the minimum entry qualifications, and we shall train another 1 130 serving teachers this year.

Safety at Work

74. There can be no doubt about the Government's determination to provide the best possible environment for students to take full advantage of their learning opportunities. But we can be far less satisfied about the quality of the working environment which many of them face on leaving school.

75. In my policy address two years ago, I stated frankly that our safety record was unacceptable and that our workers' chances of being injured at work were several times higher than in most other developed economies. Since then, the Government has introduced new regulations, raised the penalties for safety offences and made contractors' safety records a criterion for winning government contracts.

76. What effect have these measures had? Last year, rates of death and injury in the workplace for all occupations were 31% lower than they had been 10 years earlier. Much of this improvement, however, is simply the natural consequence of the shift in the pattern of employment from manufacturing to services. Sadly, the figures for industrial safety (which include manufacturing, catering and construction workers) remain far from satisfactory.

- In 1994, the rate of deaths and injuries for industrial workers was 7% lower than in 1992, an encouraging trend.

- However, the rate was still 5% higher than 10 years ago, which demonstrates how much improvement is still required.

Tragically, the construction industry in Hong Kong continues to have one of the worst safety records anywhere in the developed world, with 275 deaths and injuries last year for every 1 000 workers, again higher than the rates in 1985.

77. The Government cannot solve this problem by itself. We could not hope to employ enough inspectors to supervise every workplace and construction site. We have to look for new ways to bring employers and their workers together in a joint effort to create a safe working environment. We will only succeed if we can convince everyone in the workplace of two essential facts.

- Most deaths and injuries are avoidable. Almost all could be prevented if employers promoted safe work practices and if workers co-operated.

- Both employers and employees must accept a joint responsibility for improving safety. We need a zero tolerance of unsafe working practices.

A Safety Charter

78. I am proposing, therefore, a three-part-strategy to achieve a substantial improvement in our safety standards.

- First, we are preparing a "Charter for Safety in the Workplace". We shall take Members' views fully into account before publishing the document next year. It will make clear the rights of the worker to enjoy a safe working environment and the obligation on the employer to prevent deaths and injuries. It will also emphasise the responsibility of the employee to co-operate in following safe working practices and reporting workplace hazards.

- Second, we are already at work encouraging the new "partnership for safety" between employers and the workforce. A consultation document published in July announced 45 specific recommendations to slash accident rates and improve safety standards through proper safety training for the entire workforce and an obligation, especially on industries with the worst records, to develop formal safety programmes and establish safety committees. These measures target the construction industry in particular.

- Third, we will continue to deter bad safety practices by using all our legal powers to pursue relentlessly anyone responsible for avoidable deaths and injuries in the workplace. If we find that existing powers are insufficient, we shall ask this Council to reinforce our "partnership for safety" with new legal measures.

79. The community demands, rightly, that the workforce be treated with respect. This is not simply a matter of paying reasonable wages. Even more important is to guarantee them a safe and healthy workplace.

Helping the Sick

80. Adequate housing, decent wages, and modern education are not enough by themselves to provide the quality of life to which the community aspires. In Hong Kong, as in all the advanced economies, standards of health care are also a major concern. Once again, we are determined to meet the community's aspirations for a modern, comprehensive health system. I believe that, in terms of the number of patients whom we shall treat this year, we are already providing an impressive level of service to the sick.

- This year, our hospitals expect to treat 846 000 in-patients. In addition, we shall add an extra 800 hospital beds.

- Our general clinics expect to treat 4.5 million out-patients, while our specialist clinics expect to treat a further 6.3 million out-patients.

81. But the size of our programmes is no longer the only benchmark. Much more important is our ability to deliver health care to groups with special needs or who are particularly vulnerable. This goal is playing a major role in shaping our current programmes. Let me give some examples.

- We introduced a new Student Health Service last month. It provides regular screening, physical examinations and health education to 450 000 primary school children. In September next year, it will be extended to cover 443 000 secondary students. We are expanding our capacity to meet the special needs of adolescents. Next year, we will be setting up a pilot centre to provide medical and psychiatric care for adolescents.

- We will keep up the momentum to improve the standard of medical care and the quality of life for the mentally ill. In 1992, I was able to announce proposals to reduce overcrowding at Castle Peak Hospital, thanks to a generous donation of $500 million from the Royal Hong Kong Jockey Club. This initial project will be completed early next year. We must now start the ambitious final phase, and we will be coming to this Council with a request for some $850 million to be able to do so. We shall then have replaced obsolete and inadequate facilities with modern and more spacious accommodation for 750 beds.

- We are promoting the concept of self-help and mutual support among the chronically ill. Next year, we will set up eight new Patient and Carers Resources Centres. We will also provide an extra two rehabilitation co-ordination teams to serve the chronically ill.

82. Once again, the full list of ways in which we are endeavouring to raise standards is far longer than the examples I have mentioned. When Members come to read the 1995 Policy Commitments, they will see in detail how we propose to continue to adopt a comprehensive approach to health care which meets demands for higher standards of care and service at a price which both patients and the community can afford.

The Housing Priorities

83. Despite the priority which the Government and the community have given to our housing programmes over the last four decades, the lack of decent, affordable housing remains the single biggest source of complaint which I receive. I am sure that Members of this Council share this experience.

84. Hong Kong has moved far beyond the need to provide basic shelter for a poor immigrant population.

- 800 000 families now own their own homes, including 200 000 families whom we have helped to buy subsidized housing.

- 700 000 families, a full 41% of the population, live in heavily-subsidized public rental housing of an increasingly high standard.

85. The average waiting time to be allocated a Housing Authority flat is now below seven years, almost two years less than in 1992. Nevertheless, the waiting list for public rental housing remains too long. We are now pledging to reduce the average waiting time to under five years by 2001, but I should warn Members that this will be no easy task.

- We still have an enormous backlog to make up for, as we clear the temporary housing and squatter areas, for example, and press on with schemes to upgrade the earlier generations of public housing units to meet today's standards.

- We also have new and growing sources of demand for public housing, as we respond to the special needs of vulnerable groups such as the elderly and the new arrivals from China.

The Better-off Tenants

86. Let me put the problem of waiting lists another way. There are about 150 000 families on the General Waiting List for public housing. At the same time, 70 000 families who live in public rental housing also own private flats. This means that they are benefiting from subsidized public housing flats while often using their other flats to collect rents as landlords. A further, significant number of our public housing tenants have incomes or assets well beyond what they would need to buy their own homes. It is plainly wrong that public housing should continue to accommodate tenants who have the financial resources to meet their own housing requirements at the expense of those with a genuine case for rehousing. I know that this issue has been the subject of detailed examination by the Housing Authority, and I look forward to receiving their proposals for a comprehensive solution by the end of this year. This Council will have the opportunity to discuss these proposals, and there will also be a public consultation exercise.

Estate Management

87. We also have to recognize our obligations to the Housing Authority's tenants, to the 700 000 families who live in public housing. They have a right to safe and pleasant homes, with responsive and efficient management and high standards of security, cleanliness and amenity in each housing estate. We have gone a long way to meeting these expectations, and we shall be doing even more in the immediate future.

- This year, we are spending some $4 billion to renovate some 15 500 older flats and to maintain the quality of the public housing stock.

- We will relieve overcrowding. Over the next three years, we will rehouse at least 24 000 families whose living space per person is less than 5.5 sq m.

- By 1996, all public housing offices will have Customer Service Counters. We will also begin to privatize estate management on a trial basis next year. By 1997, all housing estates should have their own Estate Management Advisory Committees to give tenants direct access to management.

- By 1997, we will have provided adequate security facilities in all housing estates. Most tenants will be able to screen the identity of visitors from their own flats. Lighting and other security features will make estates a safer environment.

88. We are also determined to improve the conditions under which 40 000 people live in Temporary Housing Areas (THAs). Let me remind Members that in 1992 there were 55 THAs. By 1997, we will have cleared 42 of these. We will have met our earlier pledges in full. But it is simply not possible to make a pledge to clear all the remaining THAs. With the best will in the world, the flow of new arrivals from China and our success in clearing the squatter areas mean that the only alternatives to the retention of some THAs are:

- either to allow people to sleep on the streets, which would be totally unacceptable; or

- to allow families affected by clearances to jump the queue for rehousing which would be grossly unfair.

89. I have personally visited 10 of these THAs, both officially and unofficially, and I am very conscious of their inadequacies, in terms of space and facilities, and the constant struggle to maintain standards of cleanliness and security. I said earlier that I am determined to live up to the specific pledges on THAs which I made in previous policy addresses. Plainly, rehousing of existing THA residents is the only real solution. In the meantime, however, we have to improve the living conditions for those who still have to live in THAs. The Secretary for Housing has already made a start with a programme to renovate the THAs which will be retained and to improve their management. The aim is to achieve a secure and better living environment for all THA residents. In parallel, some older rental blocks in the urban fringe areas will be used to house families affected by clearance programmes. The Housing Authority is also developing new designs of temporary accommodation, which will provide more space and better-quality living and which will gradually replace the existing type of temporary housing.

Planning for the Future

90. Our ultimate aim must be to encourage families to become owner-occupiers. Over the next six years, the Government plans to provide subsidized programmes to help 190 000 families to become owner-occupiers. That is an impressive goal, and it is one that we can achieve without reducing our commitment to build public rental housing for 141 000 families over the same period. At the same time, we will use the Housing Project Action Team to fast-track residential developments in the private sector, where necessary, so that our targets for home ownership can be met.

91. I think we have reached the stage at which we need to take a hard look at our long-term housing strategy. The Secretary for Housing will shortly start work on a comprehensive reappraisal of our future housing objectives and every aspect of the way in which we manage the enormous resources committed to providing decent, affordable houses for this community. I expect to receive his recommendations by the middle of next year. We will, of course, wish to consult this Council, the Housing Authority and the wider community about how they should be taken forward.

A Clean and Green Hong Kong

92. No matter how we upgrade our health care or improve our housing or increase our leisure activities, we will still have to pay too high a price for economic progress if the air we breathe and the water around us are poisoned. As I said in my first policy address, Hong Kong can no longer plead poverty as an excuse for ignoring serious threats to the environment. We cannot leave the task of cleaning up past pollution to future generations.

93. We have made a good start to improving the quality of air on our streets. The principal remaining source of pollution is the high density of vehicles which use our roads. In 1994, we set ourselves the goal of reducing the level of vehicle pollution by 20% within two years. We have two new measures to help us reach this target.

- Last month, we published for public consultation our proposals for encouraging taxi and public light bus operators to shift from diesel to petrol vehicles which cause less pollution. We plan to cease to register any new diesel vehicle under four tonnes. We intend to bring these measures into effect next year.

- We propose to require larger diesel vehicles to undergo an annual smoke inspection and to increase the penalties for smoky vehicles.

Because of the extreme densities of traffic on our roads, it is vital that all our vehicles run cleanly. I hope that we will have the full support of this Council when we introduce these new measures to tackle the serious pollution caused by vehicles.

94. Every day, some 1.5 million cu m of heavily polluted waste are dumped into the harbour and our coastal waters. This tide of filth would fill 750 Olympic swimming pools. Unless we press ahead with urgent measures to dispose of sewage safely, to prevent the uncontrolled dumping of waste and to make the polluter pay, our community's health will continue to be at risk and a major amenity will be unusable.

- For the urban areas, the High Priority Programme of the Sewage Strategy will reduce the flow of pollution into the harbour by 70%. This project will be completed by early 1997 at a capital cost of some $9.4 billion, on schedule and within budget.

- In the New Territories, the first phase of the livestock waste control scheme has reduced pollution of the worst rivers and streams by 70%. Our goal is to reduce pollution from this source by 90% over the next four years at a cost of $1.35 billion.

- We have introduced charges under the Sewage Services Ordinance to implement the principle of "the polluter pays". We have introduced charges for using the facilities of the Tsing Yi Chemical Waste Treatment Centre. We will also levy charges on private operators using public landfills to dump non-household waste.

The New Territories

95. Good environmental policies are also about creating amenities for the community's enjoyment. Hong Kong has already designated over 40 000 hectares of land as country parks and special areas, 40% of the total land area and an exceptionally high proportion by international standards. We plan to expand this total and to improve the management of these areas which offer relief from the congestion, noise and pollution of so much of our urban life.

96. The beauty of our country parks is in marked contrast to the squalor of over 700 hectares of environmental black spots in the New Territories. Since 1994, a special Task Force has made a good start in tackling the most serious cases.

- Illegally occupied government land is being cleared and landscaped in Pat Heung. Unauthorized developments are being prosecuted vigorously.

- The maximum fines for offenders have been increased. At the same time, negotiation and persuasion are used to encourage more responsible attitudes towards land use.

- In 1996, the Task Force will use a similar strategy to clean up a further 180 hectares of land in the Northeast New Territories.

I should like to appeal to the towns and villages of the New Territories to support our efforts to end the black spots which blight so much of the landscape around them.

The Threat of Gridlock

97. The cost of road construction is enormous. Since 1992, we have spent $20 billion on new roads and road improvements. This year's bill will come to almost $9 billion. Despite these huge investments in the road system, plus very heavy spending on traffic management systems, Hong Kong risks traffic gridlock if we fail to check the rise in the numbers of vehicles using our roads. The grim alternative is the sort of paralysis which peak-hour traffic inflicts on travellers in so many Asian cities.

98. Why has our massive spending failed to buy us the solutions we need? Why is the breakdown of a container lorry, a landslip or a traffic accident enough to create serious disruption?

- First, our road system has to serve not only the territory's own domestic needs but also the traffic generated by the continuing surge in the Pearl River Delta's economic activity.

- Second, we have more vehicles than our roads can accommodate, and the potential demand for families to own their own cars far exceeds our ability to build new roads.

The Private Car

99. The figures on private cars speak for themselves. At the same time, they offer a blunt warning of worse problems to come.

- Hong Kong today has only 44 cars per thousand residents, compared with 106 per thousand in Singapore, 291 in Japan and 565 in the United States.

- Yet our roads are already among the busiest in the world. Hong Kong already has 163 private cars per kilometre of road compared with 102 in Singapore, 32 in Japan and 23 in the United States.

However, we cannot go on expanding our road system to meet all the potential demand. Congestion will become intolerable if Hong Kong does not succeed in keeping the growth in private cars to well below the levels of other advanced economies. If we do not hold down the growth rate to 3% or less a year, our road system will start to slide into paralysis.

100. We must find a new strategy, one that applies the "user pays" principle to our road system. Of course, I accept that it would be unfair to make the family car an unattainable dream for the average family. But I think it would be equally unfair to allow the private car to threaten the travelling convenience of the community as a whole. To find the right balance, I believe we should allow the individual to decide how much use to make of a private car. But when the decision involves adding to road congestion, the private car-owner should be prepared to pay a price for doing so. Electronic Road Pricing offers us the technology to do so.

101. I must warn this Council that Electronic Road Pricing is not the whole solution to our traffic problems. We will still need to press ahead with our road building and improvement works, to continue to expand and upgrade public transport and to improve our management of the various traffic systems. But I expect road pricing to make a considerable contribution to avoiding gridlock and minimizing the worst congestion.

102. When I refer to potential gridlock on our roads, I am not speaking hypothetically. The people of the Northwest New Territories know exactly what I am talking about. Their lives were seriously disrupted in August and September when the threat to public safety was so serious that we simply had no option but to shut down a section of the Tuen Mun Highway.

103. The stark reality is that, at present, we have no spare capacity in our transport system in the Northwest New Territories. That is why we are building the Country Park Section of Route 3 which should be completed in mid-1998 and which will provide the extra capacity we so desperately need. But this is only part of our programme to bring relief to the Northwest New Territories. Road-widening works, traffic-surveillance systems and bus-only lanes will all help us to make the best of our existing capacity.

104. For the longer term, we are looking to the Railway Development Strategy to relieve some of the pressure on our roads. We are undertaking the initial planning for three high-priority projects.

- First, the Western Corridor Railway. This will link West Kowloon with the border and take some of the port's container traffic off the roads, as well as serving the commuters in the Northwest New Territories. We are considering with the KCRC whether this service could be extended to Tuen Mun Town Centre.

- Second, the extension of the MTR to Tseung Kwan O. This will help to relieve some of the pressure on the road system in East Kowloon.

- Third, a new rail link between Ma On Shan and Tai Wai, with a KCR extension to Tsim Sha Tsui. This project will provide additional capacity for commuters from the Northeast New Territories who will be able to leave their cars at home.

Some of the feasibility work has been completed, and we are expecting specific proposals from the KCRC by the end of the year and from the MTRC in early 1996.

Stable Slopes

105. This year's typhoon season brought us a further reminder that we cannot take our physical safety for granted. Since the 1970s, we have done a great deal to improve the stability of slopes adjacent to buildings throughout our city. But this has not been enough, as the tragic landslips in August brought home to us. We are determined to give slope safety an even higher priority in the coming year.

- We will be providing $1.3 billion to accelerate the review of potentially hazardous slopes and to upgrade their stability. We expect this programme to be completed by 2000.

- We have recruited three outstanding international experts to provide the best technical advice on our slope safety. This new Technical Review Board has already begun its work.

- We have adopted a comprehensive package of practical measures to redress the risk of landslides. These include greater priority for slopes close to busy roads and footpaths, identification of all those responsible for the safety of man-made slopes and closer monitoring of our drainage systems.

106. Hong Kong lives and works in some of the most densely-occupied high-rise buildings in the world erected on slopes which present some of the world's most challenging geo-technical problems. The Government is determined to use the most modern technical resources available to overcome the potential hazards of our unique urban environment.

Keeping the City Safe

107. By almost any standard of comparison, be it North America, Europe or our neighbours in Asia, Hong Kong is a law-abiding community. Our crime rates are strikingly low by the standards of the developed world, and there is a profound respect in the community for our Police Force and for the other disciplined services.

108. Over the past three years, I am pleased to be able to report that we have made considerable progress in tackling the two areas of crime which have been of greatest public concern.

- The rate of violent crime has declined by 11%.

- The number of armed robberies has declined by a remarkable 61%.

109. Our streets and our other public places are now safer. But the picture is not entirely rosy. We have our problems, and I now want to address three particular areas of concern.

110. The first concerns the general level of crime. Despite our success in reducing the level of violent crime and the number of armed robberies, and despite the fact that there are now 800 more police officers on our streets than there were in 1992, the overall crime rate has actually increased by just under 6%. It might be a statistical blip, and we shall have to follow the figures very closely in the months ahead. But this is a statistic which has already rung alarm bells throughout the Government. We are deploying an extra 400 police officers on the streets this year, and we plan to deploy at least another 200 in the year ahead. We will take vigorous measures to counter any upsurge in criminal activity and to ensure that our streets are safe.

111. The second area of concern in the past year has been drugs. I chaired a conference on this vital issue in March this year, and I was encouraged by the determination of all of those involved to ensure that drug abuse is not allowed to spread to the mainstream of Hong Kong society, that its spread be halted or reversed. To assist in the battle against drugs, we will be asking this Council to provide $350 million to establish a Beat Drugs Fund. The Fund will finance projects relating to drug abuse, preventive education, publicity, research, training, law enforcement and treatment and rehabilitation. These are the tools we must use to roll back drug abuse and to roll up the gangs of drug peddlers.

112. We shall also provide additional resources aimed at reducing the demand for drugs. We shall be increasing the subventions to non-government organizations to help them meet the growing demand for their counselling, treatment and rehabilitation services. We shall also be establishing two additional residential treatment centres for young people who have fallen victim to opiate abuse. And there will be a new counselling centre to help people break free of their addiction to psychotropic drugs.

113. The education of these young people must not be forgotten. Like other youngsters, they need the skills and training to help them make their way in life. This is now being addressed through a new package of assistance which includes the offer of a monthly grant to every drug treatment and rehabilitation agency to help them provide education for their young clients. This should be of particular value to those religious agencies offering therapeutic services to drug abusers. We have also taken action to help young abusers to continue their education after leaving a residential treatment programme, for example, by making it easier for them to re-enter the school system.

The Threat of Corruption

114. The third area of acute concern is corruption. How could it be otherwise, with reports of corruption to the Independent Commission Against Corruption (ICAC) up 45% since 1992. Part of this rise is likely to reflect the success of our campaign to encourage people to report corruption. But we cannot afford to fall back on such comfortable explanations. We have to go on battling corruption at every level and in every section of our society. We must make sure that corruption remains a high-risk activity for the offender.

115. This will be a special priority during the remaining months of the transition. In the coming year, the ICAC will step up its efforts to eliminate corruption.

- It will extend its Business Ethics campaign from the management to the working level. The aim is to provide staff at every level of business with an ethical framework in which corruption has no place.

- In a related initiative, the Hong Kong Ethics Development Centre will provide corruption prevention services to its clients and will launch detailed prevention programmes in co-operation with the leading chambers of commerce and professional bodies.

- The ICAC will also increase its efforts to curb cross-border corruption by improving its liaison and intelligence-sharing with its counterparts in China. The Commissioner has just attended a major conference on corruption in Peking. This was an important opportunity for us to develop our links with China in the fight against corruption.

116. Hong Kong has a distinguished record for fighting corruption. In the past 21 years, corrupt practices have been driven to the margins of our public and commercial life. That is where they must remain.

New Residents

117. As 1997 approaches, we have to make practical arrangements to absorb the 64 000 children who now live in Guangdong and other parts of China but who will have a right of abode in Hong Kong under the Basic Law. We also have the long-standing problem of spouses resident in China but married to Hong Kong residents. We have taken steps to avoid a sudden influx of these children after 1997 which would put our housing, schools and other social services under serious strain. We arranged with the Chinese authorities for the daily quota of One Way Permit holders to increase from July this year from 105 to 150. This increase is to be used exclusively to reunite Hong Kong permanent residents with children and spouses.

118. On the whole, the newcomers do adjust, supported by the powerful network of family which remains such a valuable feature of Hong Kong society. Nevertheless, adjustment to Hong Kong can be a challenge, especially in the difficult first few weeks. We intend to expand our orientation and information services which offer new arrivals advice on how to obtain the assistance of the social services if they need it. The children must be our first priority. In April, we launched a special programme to introduce newly-arrived children to Hong Kong life. We help them find school places, and we provide courses to assist some 6 000 of them to catch up with their Hong Kong classmates in key subjects.

119. While most new arrivals seem to settle in quickly, our concern remains that some may face special difficulties in integrating fully into our society. The Home Affairs Department has been given direct responsibility for monitoring and assessing the services we provide to ease the process of integration and to identify groups who are especially at risk. Through the District Officers' liaison network, we should be able to make sure our programmes reach those who need help and identify the most suitable approach for responding to the practical problems as they emerge at the district level.

WORKING WITH LEGCO

120. The progress we have made in implementing the ambitious programme I announced in October 1992 would not have been possible without the support and encouragement of the Legislative Council. Almost all of these proposals had financial implications and, in some cases, needed legislation to give them effect. The same will be true of many of the proposals I have described this afternoon, and the many more new initiatives set out in the 1995 Policy Commitments. I think it is clear that unless we work together ¢w the Legislative Council and the Government ‚01¢w any plans to improve services for the community will amount to nothing more than good intentions.

Leadership and Oversight

121. Hong Kong's peculiar constitution defines quite separate and distinct roles for the executive and the legislature. Policy formulation is clearly the responsibility of the executive. The Government is expected to give a lead. It will, I hope, be obvious from all I have said so far this afternoon that we will be providing that leadership. But this leadership must continue to be constrained by accountability, through this Council, to the community. The role of the Legislative Council is different. The community expects Members to scrutinize the Government's proposals carefully, to criticize where necessary and, at times, to protest against them. The Council has, of course, been doing this in the recent past, and in this sense, the role of the Council has not changed. But while the recent election has not given the Council a mandate to operate as an alternative administration, it is the first Council in Hong Kong's history to be entirely elected. Your mandate in performing your important oversight role has, therefore, clearly been enhanced.

122. This Hong Kong system, with an executive-led administration accountable to an increasingly-elected legislature, has worked very well in the last four years. Despite all the gloomy forebodings in 1991, there has been no constitutional gridlock. On the contrary, the Government's legislative and financial programmes have been dealt with by the Council fairly and expeditiously. Over the last two years, the Government has presented some of the most complex and, frequently, controversial bills ever introduced into the Legislative Council. They have had far-reaching consequences for Hong Kong. For example:

- on constitutional development, setting up the fair and open system of elections which went off so successfully last month and which brought all of you here;

- on the rule of law, establishing Hong Kong's Court of Final Appeal and ending uncertainty about our judicial system after 1997;

- on equal opportunities, creating legal remedies against discrimination on grounds of sex or disability;

- on the New Airport, providing the funding and the corporate structure which will enable us to complete construction of the airport in just two years from now; and

- on retirement protection, extending the right to membership of a properly-run provident fund to every member of the workforce.

123. We will have just as much to do in this new Session, and I am convinced that, given frank dialogue and goodwill, we can complete our agenda. The people of Hong Kong have high hopes, both of the Government and of this new Council. We must not fail them.

124. Some people have, nevertheless, suggested that there should be a more formal channel of communication between the executive and the legislature. As Members with a long memory will know, I suggested the establishment of a Government-LegCo Committee in my address to this Council in 1992. For various reasons, Members did not think this was the right answer. I have an entirely open mind on the subject of communication. But I believe that all of us recognize that there are issues relating to the handling of government business in this Council which the Administration needs to discuss with Members. I have therefore asked the Chief Secretary to consider how this might best be done. She will, of course, welcome any suggestions that Members of this Council may have.

Executive Council and Legislative Council

125. In my first policy address, I announced the separation of the Executive and Legislative Councils. It seemed to me that overlapping membership had impeded rather than facilitated the development of both Councils. I felt then, and still do, that Members of the Executive Council would find it difficult to offer me frank and impartial advice if they also had loyalties to a political party. Equally, it would be difficult for Members of the Legislative Council to perform their role of scrutinizing frankly and critically the proposals put forward by the Government if they had already approved those proposals as Members of the Executive Council.

126. I know that, in the past, some Members of this Council have called for seats in the Executive Council, for an Executive Council which is representative of the Legislative Council. But to be frank, I have not detected much of a head of steam behind the idea this year. What is more, it is clear from what some Members have said recently in public that if they were appointed to the Executive Council, they would find it impossible to accept the requirements of confidentiality and collective responsibility that have, with good reason, always been a principle of Executive Council membership. For these reasons, I believe it best to continue the separation of the two Councils' membership.

127. As I explained in my first policy address, I rely on the Executive Council for the wise counsel which can best be obtained from independent members of the community who have distinguished themselves in their own professional and business careers. As you will all know, last summer, Baroness DUNN, one of the community's most distinguished public servants, resigned from the Council. And another of our Members, Mr John GRAY, who will be retiring from the chairmanship of the Hongkong Bank next year, has told me that he would like to step down from the Council before the new legislature gets into its stride. I should like to thank both Baroness DUNN and Mr GRAY for all their work. In their place, I shall be appointing two former Members of this Council, Mr Vincent CHENG and Mr Jimmy McGREGOR. I look forward to working with them.

The Legislative Timetable

128. Mr President, before I leave the subject of the relationship between the Government and this Council, I would like to say something about the Legislative Programme. Once again, Members of this Council have a lot of work ahead of them. We are publishing today an indicative programme of legislation. This lists 50 pieces of legislation to which the Government attaches priority and which it plans to introduce into this Council during this Session. These will have a direct impact on the well-being of every family in Hong Kong.

129. This programme of legislation is one of the issues that the Government would like to review with Members of this Council, in whatever forum is agreed as the most appropriate. We need to discuss, for example, whether the programme needs to be adjusted to take account of Members' own priorities. I spoke earlier of the importance of co-operation, and this is an obvious area in which we can, and should, work together. My hope, my aim, is that we should be able to move forward by consensus wherever possible. This will involve Members of this Council being ready to give their broad support to the Government's programme, and the Government, for its part, taking as much account as it can of Members' views while ensuring that the wider interests of the people of Hong Kong are safeguarded.

130. Co-operation of this kind would not be fostered by unilateral action on either side. Some Members of this Council have said that they intend to introduce Private Member's Bills on important issues of public policy early in the new Session. That is, of course, within their right to decide, provided that their proposals do not have the object or effect of disposing of or charging any part of the public revenue. But I do wonder whether the public interest would be best served by this Council and the Government operating on parallel tracks rather than moving forward on an agreed basis. As I have said, I would like to see greater co-operation in this area between the Government and this Council. Give and take will be needed on both sides. The Government is very ready to play its part. I hope that Members of this Council will be ready to join the Government in this process, in the interests of the people of Hong Kong.

131. For me, those interests must be paramount. If at any point I judge them to be in jeopardy, I may need to fall back on those constitutional powers which are in place for that purpose. Refusing assent to legislation would be a difficult decision for me to make. However, I would not shrink from doing so in a particular case if it were my honest view that this course of action would be in the best interests of Hong Kong. That said, and I want to stress this point, our collective aim must be to work not at the limits of our constitution but in the mainstream of constructive co-operation. I hope with your assistance, Mr President, we can achieve a new level of effective dialogue to meet the expectations which the community has of both the Government and this Council.

WORKING WITH CHINA

132. Last week, the Chinese Foreign Minister, Vice Premier QIAN Qichen, visited London and reached a number of important agreements with the Foreign Secretary on matters affecting Hong Kong. Much of the preparatory work for these agreements was carried out in Hong Kong in advance of the visit, and it is particularly encouraging to note the positive spirit in which they are being taken forward. This bodes well for improved co-operation over Hong Kong issues in the last two years of the transition. The main results of the visit were:

- a large measure of agreement on the working relationship between the Hong Kong Government and the Preparatory Committee;

- agreement on contacts between senior Hong Kong civil servants and Chinese government officials;

- agreement to work together on the handover ceremonies;

- and agreement, as I mentioned earlier in this speech, on intensifying our joint efforts on developing Hong Kong's container port.

The Preparatory Committee and Chief Executive (Designate)

133. In my policy address last year, I gave a specific commitment to provide assistance to the Preparatory Committee and the Chief Executive (Designate) once they are in place. Since then we have reaffirmed this commitment and have made good progress.

- During her visit to Peking in July, the Chief Secretary emphasized the high priority we give to establishing the right working relationship with the Preparatory Committee and the Chief Executive (Designate) to provide them with the practical assistance they may need in carrying out their heavy responsibilities.

- Later in July, I wrote to Director LU Ping setting out a series of initial proposals on how this working relationship might be structured. Last week, when the British and Chinese Foreign Ministers met in London, they reached a large measure of agreement on the way forward.

134. Any effective framework for co-operation must include practical, efficient and common-sense arrangements which will meet the requirements of both sides.

- We need to ensure that arrangements put in place are consistent with the provisions of the Joint Declaration and the Basic Law and, of course, do not undermine the authority of the Government in discharging its responsibility for the administration of the territory until 1 July 1997, the discharge of its responsibility for which it is accountable, of course, to this Legislative Council.

- In addition, we will need to make absolutely sure that we do nothing which might adversely affect the morale and the confidence of the Civil Service.

135. For the Preparatory Committee, we envisage providing a great deal of information on the work of the Policy Branches and Departments. This is a formidable undertaking, and we thus proposed the establishment of a Liaison Office to manage the process on the Hong Kong Government side and to provide an efficient central point of contact for the Preparatory Committee. This proposal was endorsed at the meeting of the Foreign Ministers.

136. The Liaison Office will be a part of the Hong Kong Government. It will be headed by the Secretary for Constitutional Affairs and staffed by civil servants, and it will report directly to the Chief Secretary and to me. We envisage that there will be regular meetings between the Liaison Office and the Preparatory Committee's own Secretariat.

137. As for the Chief Executive (Designate), since he or she will be preparing for the assumption of office upon the establishment of the Special Administrative Region, we envisage that he or she will need much administrative and practical support. We have given preliminary consideration to the forms of assistance which we could render, and we will be taking this forward in discussion with the Chinese side.

The Civil Service

138. Co-operation and understanding with the Chinese side will also be enhanced through the informal get-together sessions in Hong Kong between Hong Kong civil servants and Chinese officials. Following the agreement in principle by the Foreign Ministers on this programme, we have already contacted the Chinese side to start organizing the meetings. We hope that the first session will take place a few weeks from now. The intention is to enable Chinese officials to gain a better appreciation of the work done by our Heads of Branches and Departments and their perspectives of the future. It will also enable our senior colleagues to get to know the Chinese officials better. These occasions will enhance mutual understanding and will make it easier for the Civil Service to cope with the change of sovereignty and all its implications.

139. Finally, I should make it clear that I stand fully committed to working with the Chief Executive (Designate) to make sure that the work goes well, that the co-operation we have promised becomes a practical reality. I make no specific proposals here on how the relationship might be structured. The essential point is that I stand ready to offer the hand of friendship and co-operation to the Chief Executive (Designate). It of course remains my position that whenever Director LU Ping is available, I would be happy to meet him. There can be hardly anyone in Hong Kong who would not welcome such a meeting.

CONCLUSION

140. This afternoon, I have briefed you in some detail on what we have achieved so far under the five-year programme I announced in 1992. I am glad that the Administration has been able to achieve so much, although I have not sought to gloss over the fact that in a few areas we have fallen short of our goals. I have identified the current gaps in our services and what we are doing to rectify them. I have reviewed for you the challenges that lie ahead, and what the Government plans to do, with the support of this Council, to meet the expectations of the community.

141. In preparing my speech for this afternoon, I have been conscious of the unique nature of the Legislative Council Session which has just begun. You are more representative than your predecessors could hope to be, and you take up your responsibilities as we enter the final phase of the transition, the period in which we will also have the task of assisting the Preparatory Committee and working in close collaboration with the Chief Executive (Designate). The Government will need the wisdom, as well as the goodwill, of this Council in achieving our objectives in the months ahead.

142. By the time I address this Council next year, Hong Kong will be a very different place.

- More prosperous? I am confident that our economy will go on growing, fuelled by the sustained expansion of the Chinese economy and the entire Asian region.

- Better served by its public sector? I have no doubt that the Civil Service will continue to raise both its sights and its standards in fulfilling this year's Policy Commitments.

143. And Hong Kong will also be clearer and, I hope, more confident about the future. With the appointment of the Preparatory Committee, and the Chief Executive (Designate), a great deal of the speculation about the future should end. This time next year, therefore, I will have a different task in my policy address. I will have to focus on how we are handing over Hong Kong in good order, with its stability intact and its prosperity secure. So today's speech is the last, the very last of its kind that I will make.

144. I am confident that, whatever the difficulties, we will achieve as much progress in the final 21 months to July 1997 as we have achieved since 1992. This confidence is founded on the way that this community responds to all the challenges that it encounters. It has been my hope, my consistent hope, that the men and women of this community would feel that they have a personal contribution to make to Hong Kong and its well-being. All our efforts to make the Government more open and accountable, to develop our civic institutions in line with our economic and social progress, have been based on the firm belief that individuals can make a difference. That, in the last resort, the prosperity of Hong Kong, and the survival of its special way of life could be secured best by expanding the opportunities for the community to become involved in its own administration. For individuals to shape their own lives, to achieve their own goals, to realize their own dreams as members of the most vibrant and dynamic city in this region.

145. Mr President, I began this speech by saying that, as we approach 1997, and beyond that historic moment too, the eyes of the world will be on Hong Kong. So they will. Our friends will be willing us to succeed. The cynics will be waiting for us to stumble. What we have to do is hard. No one doubts that. We have to develop our system of democratic administration in the way first promised to the people of Hong Kong a decade ago, while at the same time co-operating in the transition with the future government of the territory.

146. And as we cope with the day-to-day challenges of that double task, we will find ourselves asked more and more insistently by the people of Hong Kong, and by those from the rest of the world, one simple question. Is it all going to work? They will want to know whether Hong Kong will survive and prosper to enjoy that much advertized better tomorrow. My own answer is clear. Yes, Hong Kong will grow and succeed in freedom, stability and decency, provided its people want to do so strongly enough and have the self-confidence to recognize that the values that have made Hong Kong great are the values of the future, in Asia and the world as a whole. The future lies with those who can combine economic opportunity with human dignity and freedom.

147. There is perhaps one other pre-condition of success. To trust Hong Kong. I hope that the future sovereign power will show that it does so by starting to talk to Members of this Council, to all Members of this Council, who are better placed than most to help others understand the key to Hong Kong's success. The problems of aligning and balancing Hong Kong's economic success and its social progress with the evolution of its governing institutions will not suddenly disappear on 1 July 1997. They can and must be tackled constructively and successfully, in a way which safeguards Hong Kong's way of life and enables this community to play that active part in China's continuing economic revolution which it wishes to perform.

148. There are just over 600 days to the lowering of one flag and the raising of another, just over 600 days to the bands, the speeches and, I dare say, the fireworks. It is not long now, and every day will count. We should dedicate ourselves ¢w Britain, China and Hong Kong ¢w to using each of those days to help make this community's future secure. That is what we owe the people of Hong Kong. That is what they expect of us. We must not fail them. My Government, for its part, is determined to succeed.

SUSPENSION OF SITTING

PRESIDENT: In accordance with Standing Orders I now suspend the sitting until 2.30 pm tomorrow afternoon.

Suspended accordingly at twenty-five minutes to Five o'clock.

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