Speeches and Articles by Former Consul General James R. Keith

Commencement Address by U.S. Consul General James R. Keith
IBA-DePaul MBA Program Graduation Ceremony

J.W. Marriott Hotel, Hong Kong
December 14, 2002

(As prepared for delivery)

Greeting

Thank you, Dr. Baran, for that kind introduction and for inviting me to speak at today's IBA - DePaul MBA Program graduation ceremony. Reverend President (John Minojue) - Welcome back to Hong Kong. My congratulations to you and Dr. Mike Murad, Managing Director, IBA, for today's ceremony.

Your MBA program is just one example of the deep ties between the United States and Hong Kong. The bonds established during a program such as this go a long way to cement the excellent working relationship between Hong Kong and the United States. I am also pleased to see that you have opened your doors to one of our own, Tom Howe, the U.S. Customs Attaché based here in Hong Kong. In addition to briefings on the Container Security Initiative, textiles transshipments, and export control enforcement, I'll now be looking to Tom for economic and business advice as well.

I commend today's graduates for your hard work and foresight. You have positioned yourselves to take advantage of Hong Kong as it adapts and restructures to the new world economy and to China's growth. Given Hong Kong's well-established links to international markets and strong ties to China, itself one of the world's fastest developing economies, I am confident that a wealth of opportunity awaits this graduating class.

The Post-9/11 New World

First, let me reflect on the period since you entered this MBA program in September 2001. The world is now a very different place. The terrorist attacks on the United States on September 11, 2001, made us realize that above all, the principles and values treasured by the civilized world are under challenge from groups and regimes that accept no moral code and have no limit to their violent ambitions. The 9/11 attacks on the United States, and the more recent bombings in Bali and Kenya, demonstrate the destructive intentions of terrorist groups. This threat hides within many nations, including my own. In cells and camps, terrorists are plotting further destruction, and building new bases for their war against civilization.

In response to this threat, the civilized world must work together to fight the forces of terrorism. We have made great strides against the al-Qaida terrorist network, but the campaign against terrorism is far from over. International cooperation, determination, and continued vigilance are required everywhere. In this respect, I am heartened by Hong Kong's strong support against international terrorism. Cooperation between our law enforcement agencies has moved into even higher gear since September last year. Hong Kong has enacted legislation criminalizing terrorist financing and has agreed to participate in the U.S. Container Security Initiative. These are crucial steps given Hong Kong's role as a major international financial center and as the busiest container port in the world. Hong Kong sends more containers to the United States each year than any other port in the world. We greatly appreciate Hong Kong's continuing leadership role, including as president of the Financial Action Task Force until last July, in steering that organization to take an active part in the international campaign to encourage all countries to identify and crack down on terrorism finance. I am confident that if the international community works together, we can make further progress in the international effort to eradicate terrorism. Hong Kong can play an important role in this effort - as it has already.

U.S. - Hong Kong Cooperation

Terrorism is not the only area where the United States and Hong Kong enjoy strong cooperation. Hong Kong is also an important economic partner. The millions of containers bound for the U.S. carry over US$ 40 billion worth of goods to U.S. consumers, making Hong Kong our 16^th largest trade partner. Hong Kong and the United States share a common vision of further liberalization of the international trading regime. We are working together within multinational fora, such as the WTO and APEC, to bring down barriers globally. Our law enforcement cooperation -- in addition to fighting terrorism -- includes activities against money laundering, drug trafficking, alien smuggling and the trafficking of persons, to name but a few. We have strong and ongoing educational exchanges. U.S. Navy ships make liberty calls in Hong Kong regularly -- two aircraft carrier battle groups have made port calls to Hong Kong within the last month alone. Strong and on-going cooperation in these and other areas provides a solid basis for mutual understanding, a foundation, upon which to build an even more extensive and beneficial bilateral relationship.

Hong Kong - China Relationship

Since you are about to receive your MBA degrees, let me turn to a local issue that should be of special interest to you: that is, I'd like to talk about Hong Kong and its relationship with China, particularly with the Pearl River delta region.

Hong Kong has a long and deep relationship with the United States. It also has a special relationship with mainland China. After all, Hong Kong's proximity to the growing mainland economy is one of the factors accounting for Hong Kong's tremendous success and rapid development. Hong Kong's location remains one reason why so many foreign investors are attracted to this impressive city. It is only natural for Hong Kong to adjust its relationship with the growing China economy and strive for deeper economic interaction with the mainland. At the same time, it is important that Hong Kong preserve those special qualities that make Hong Kong different from other Chinese cities. Hong Kong's values and assets constitute the bedrock of its past achievements. First and foremost is the rule of law. A stable and transparent legal system with an independent judiciary is a decisive competitive advantage for Hong Kong.

Respect for civil liberties is another key asset, especially freedom of belief, speech, press, and assembly. These are key elements in any businessperson's decision to locate in Hong Kong. As the HK SAR administration proceeds into full and transparent consultation on all of the issues raised by Article 23-related legislation, it is our hope that the administration will be mindful of these international constituents' interests.

Hong Kong's separateness, under the "one country, two systems" framework is another important distinguishing feature of this special administrative region. This formula allows the U.S. government, for example, to treat Hong Kong differently from the PRC when it comes to strategically controlled goods, like high-tech super computers. Access to these goods is vital for Hong Kong's continued economic growth. But the United States can only treat Hong Kong as a separate entity from the PRC if Hong Kong maintains its distinguishing features -- the rule of law, respect for civil liberties, its distinct export control regime, all of which are critical to its separateness under the "one country, two systems" framework -- as it moves forward. I believe that Hong Kong can engage in ever-deepening and mutually beneficial interaction with its hinterland in the Pearl River Delta while maintaining its distinct character.

Hong Kong - Pearl River Delta

Hong Kong has strong and pragmatic reasons to pursue closer economic ties with mainland China, and with the Pearl River Delta in particular. Measures to ease the flows of goods and people across the Hong Kong-China border aren't only good for Hong Kong and China. They also help U.S. firms that send exports here. Hong Kong is the United States' 13^th largest export market and many of the U.S. products headed this way actually end up in China. Thus, if Hong Kong finds better ways to tap into the China market just across the border, that can translate into more business for American firms.

Hong Kong's economy has undergone a remarkable transformation in the past two decades. Perhaps this was a subject of some of your coursework. The restructuring of the manufacturing sector has seen local firms moving their low value-added work out of Hong Kong. But the higher value and higher skilled work--now meaning primarily services--remains here in Hong Kong. As a result, Hong Kong has played an irreplaceable role in powering the rapid expansion of the mainland economy, and especially that of the Pearl River Delta.

Since the transformation of this region has been so dramatic, and since you as young business leaders are likely to contribute to this development, let me elaborate somewhat. Increased flows of people, freight, capital and information between Hong Kong and Guangdong have resulted in a symbiotic relationship between these two economies. The lower cost of labor and land costs across the border draws manufacturers to Guangdong; today, at least 75% of Hong Kong's manufacturing takes place in China. That amounts to an estimated 65,000 Hong Kong firms employing 6 million workers in the Pearl River Delta. This growing interaction between Hong Kong and the Pearl River Delta, not only allows manufacturing by Hong Kong to expand beyond what could ever take place in Hong Kong itself, but it also facilitates the expansion of Hong Kong's higher value-added services sector at the same time.

Services now account for nearly 90% of Hong Kong's GDP. A good deal of these services support activities in the Pearl River Delta and beyond. For example, Hong Kong acts as a trading platform, handling approximately 80% of the Pearl River Delta's exports and imports. On an average day, 35,000 vehicles and 380,000 people cross the boundary between Hong Kong and Guangdong, making this one of the busiest borders in the world. Indeed, nearly half of Hong Kong's economic activity is related to trade. The trade and logistics sector account for approximately 25% of Hong Kong's GDP. Finance, insurance, and real estate services that support trade account for another 20%.

Hong Kong not only acts as a trade and logistics hub, it is also a financial center and tourism destination. Here too, there is increasing interaction between China and Hong Kong. The Hong Kong Stock Exchange, including its second board -- the Growth Enterprise Market -- is the most popular overseas listing platform for Chinese firms. Just this year the Bank of China raised close to US$ 2.5 billion and China Telecom raised US$1.5 billion on Hong Kong's stock exchange. A number of smaller Chinese firms also listed on the GEM this year -- often raising many millions in their initial public offerings.

Hong Kong has also become an important destination for mainland tourists. Mainlanders account for over 40% of all tourists coming to Hong Kong and are the highest spenders while in Hong Kong, buying brand-name fashions and jewelry. Hong Kong has already had over 5 million mainland Chinese tourists this year, an extraordinary increase of almost 50% from a year ago.

Apart from serving as Hong Kong's manufacturing hinterland, the Pearl River Delta also serves today as Hong Kong's back-end service support center, consumer market, popular tourist destination and even a place for Hong Kong people to work and live. Per capita GDP among the Pearl River Delta's 30 million long-term residents is already close to US$ 4,000. Retail sales of consumer goods in the delta reached US$ 38 billion in 2001. That's nearly half of Australia's total yearly retail turnover. The Pearl River Delta area already has the highest penetration of private cars in China with approximately 50,000 sold every year.

Interaction is Positive

There has already been extensive discussion in the business sector, within academic circles and in the government on ways to foster closer links between Hong Kong and the mainland. Some of the proposals have included enhanced cross boundary passenger and cargo clearance, assistance to the Hong Kong business sector to facilitate early penetration into mainland markets and coordination of infrastructure development plans for the Pearl River Delta. These suggestions show that Hong Kong is serious about reinventing itself to remain one of the leading global cities in Asia.

From the U.S. perspective, we support this increased economic interaction between Hong Kong and the Pearl River Delta. Greater contact can only lead to constructive change within China itself, as Hong Kong acts as a driving force for modernization, bringing management know-how, technology and marketing skills to China. Over time, China will learn best business practices from Hong Kong firms. Beyond the commercial realm, I believe this interaction will also help China develop a more rules-based society governed by the rule of law. Already, Hong Kong government and private organizations are actively sponsoring WTO compliance seminars for PRC judges and lawyers. There is regular interaction between Hong Kong and PRC trade officials, customs officials, and immigration officials. All this contact helps the mainland understand the expectations the rest of the world has for China. More important, it helps China to comply with those expectations.

Closing

At the beginning of this speech I congratulated the members of this graduating class for your hard work and foresight. Foresight. I emphasize this word because I believe the IBA-DePaul graduates here today recognize the potential in Hong Kong's future with the Pearl River Delta. You realize that the United States is deeply involved in this region and that Hong Kong is in the process of restructuring. You know that you can best take advantage of the opportunities ahead by gaining the business knowledge you need to participate in China's and Hong Kong's greater interaction with the United States and the rest of the world. I hope many of you will find ways to deepen the ties between the American people and citizens of Hong Kong and the PRC. I commend you for your hard work and your dedication. Congratulations!

*      *      *      *      *