I am absolutely delighted to be here. I am sorry I seem to have brought a typhoon with me - and I don't mean the British media. Actually Norman was saying it is my third visit to Hong Kong since becoming Prime Minister; it is actually my sixth visit in all, as Prime Minister I am absolutely delighted to be back and I only wish I was staying longer. I have so many friends here, going back many, many years, and I still think it is one of the most remarkable and wonderful places in the world, and long may it remain so. And I said when I visited in 1998 the commitment of Britain to Hong Kong and my own personal commitment to Hong Kong remains and will never ever disappear, and this statement remains as true today as it ever was.
I know the severe impact that Sars is still having on your economy, I know that tourism, the retail trade and the entertainment and catering sectors have been especially hard hit, and I am particularly aware of the human dimensions of this tragedy. In an increasingly interconnected world, dangers as well as opportunities slip across the borders. In this regard the work of your researchers, officials and in particular the heroic efforts of your frontline health workers deserve special mention. We were relatively lightly affected by Sars, and the World Health Organisation praised your efforts in containing the disease, made it clear that we owe you all a debt of gratitude for helping to stop Sars from spreading beyond your borders. And with you we mourn those who lost their lives.
The battle against Sars also illustrated another aspect of how today's global community must and can act together when the need arises. We in Britain are glad that we could assist you with technical advice and the sharing of information. It is clear that the ties of custom, history and institutions served us both well. However, the worldwide challenge that this disease presented was met by worldwide response, and that was critical to our success. The virus is no respecter of national sensibilities, and it is good that on this occasion at least the nations of the world were able to step beyond their boundaries and cooperate effectively.
But what are the lessons that we learn from this increasing globalisation of everything in our world today? As one of the world's great trading centres, your prosperity, like Great Britain's, has been built on your willingness to allow commerce to grow. Commerce cannot exist without enforceable agreements, in other words they cannot thrive outside an impartial framework of laws. However, we all know that the courts are the last, not the first, guarantor of business, and sometimes the most expensive of either. Above all, it is confidence and trust that turn the wheels of commerce. Without confidence that contracts will be honoured, that the rule of law will be upheld, and trust that people will be treated fairly, without the existence of these elements, prosperity suffers.
A signatory with China of the Joint Declaration, Her Majesty's Government retains a strong interest in developments in Hong Kong. We remain committed to Hong Kong's stability and prosperity. The Foreign Secretary reports regularly and in detail to Parliament on developments here in Hong Kong.
Let me just offer you a few thoughts, if I can, on recent events. One country-two systems was a unique attempt to marry together two ideas that appeared in contradiction. One was the colony of Hong Kong that had developed not into a democracy, but into a dynamic entrepreneurial society that was a byword for free enterprise; the other was the need and desire of Hong Kong to be part of China, whose economy was far less open and more controlled, and whose political system was different. So the Joint Declaration between the UK and China foresaw the maintenance of the traditional freedoms of Hong Kong whilst Hong Kong adopted the basic law drawn up by China, which envisaged progress over time towards greater democracy.
Over the past few months, the difficulty of reconciling these issues has surfaced in an acute form over the proposals on Article 23. Hong Kong was set to adopt national security legislation designed to bring it into convergence with the basic law, and some people in Hong Kong felt it contravened the notion of one country-two systems. The Hong Kong government has now agreed to look again at the measures. The disagreement has given rise to much speculation that it represents a crisis for the system. Actually it indicates that despite the difficulty there is sufficient flexibility in the system to allow a disagreement to surface and then be overcome. Half a million people demonstrated, it is true, but they did so peacefully on the part of the demonstrators, and handled peacefully by the authorities. The Hong Kong government listened, the provisions on proscription have been lifted, the provisions in the Joint Declaration remain, so do those of the basic law, including those in respect of democracy.
There has of course been political controversy, that as I can tell you is not a phenomenon restricted to Hong Kong. But the system has responded. Our position has consistently been that we hope that Hong Kong will make early progress towards the basic law's ultimate aim of election of the Chief Executive and all members of the Legislative Council by universal suffrage. So what is vital is that Hong Kong continues its advance, as set out in the basic law, but maintains the stability that is the ultimate bedrock of your success here. I believe the Chinese leadership is dedicated to achieving that. Hong Kong remains a unique political construct, and its progress was necessarily going to be managed progress, but that is in the interests of everyone.
I know also that Hong Kong has had a difficult year, but I can see for myself how you are bouncing back. Much of the difficulty frankly has been unavoidable. Hong Kong is an open economy and not immune to adverse regional or global economic developments. Equally it benefits when the external environment improves. This was the case with the Asian financial crisis, and I note that afterwards Hong Kong out-performed many of its regional competitors. I believe that this is due to the flexibility of your economy, and in particular the flexibility and determination of Hong Kong entrepreneurs.
The Hong Kong government is putting considerable effort into developing its creative industries. I know education continues to be a key priority for the Chief Executive and for China, and given Hong Kong's traditional strengths, it makes sense to focus on sectors which are dependent on a quality intellectual infrastructure - those sectors such as finance and the professions.
Having just arrived from China, I am struck by the vast opportunities that the growth of this continental nation presents us all. Hong Kong, occupying the pivotal position that it does in this part of the world, should do well, and we in Britain want to play our part in helping China grow, we want to play our part in sustaining Hong Kong's vibrancy, we want to share in and celebrate your future success. And it is absolutely clear to me that China's accession to the World Trade Organisation and its ever greater integration into the world economy is the most significant economic development of our time. As its borders have opened up to the world its investment capital flows, and most importantly the ideas behind them, penetrate more deeply so the country prospers.
Growing as it is by over 8% a year, the Chinese economy is set to overtake in size that of Germany by 2010. That would then make it the third largest economy in the world. Within a generation China may well become the largest economy in the world.
While China leads in the race to grow, it is not alone in making progress. According to the United Nations recently published Human Development Report, the past decade has seen 30 countries, accounting for 47% of the world's population, grow their real income per head at over 3% a year. Never before in human history has such a large body of humanity advanced so rapidly in wealth.
But what's the engine for this growth? The engine has been the willingness of more and more countries to embrace the market economy and its international dimension - globalisation. Those who are usually suggested to be losers in this are not actually the victims of globalisation. Their problems, on proper analysis, is that they are not participating in globalisation. I am glad to say that this is very well understood in China, and I feel that Beijing's version, the Socialist Market Economy, if accompanied by the proper reforms, will be a success. And a whole swathe of humanity is now trading with each other, and in the process opening up to each other. Along with products and investments flow, the technology behind the products and innovations of management come with these investments, and at the end of the day, that is what it is about. Trade is about the exchange of ideas. No country, not even one the size of China, has a monopoly of wisdom. The opening of a country to globalisation allows the rest of humanity to pass on its knowledge and expertise and profit from the exchange. So properly conducted trade is an activity in which both sides can and do win.
Those who fear liberty, hate markets and their ultimate expression, which is globalisation, because globalisation is about choice, it is about allowing citizens the freedom to choose which products and what services, and ultimately the very nature of the beliefs that they wish to hold. Rather than allowing the citizens freedom to access the ideas of the whole of humanity, some narrow minded people prefer to restrict and restrain. The command economy has failed almost anywhere, the few lingering examples are withering, albeit somewhat dangerously, and it is only a matter of time before they disappear and their people are freed.
Our job is to ensure that this happens, and until it happens, to ensure that they are restrained from harming others.
And I think today, more than ever before, political confidence and economic confidence go hand in hand. That concept of choice, driven by globalisation, is there not just difficult to some economically, it is also difficult for some politically. It is difficult for example for religious extremists or zealots. As the events of 11 September demonstrated, there are those who hate the very idea that their fellow citizens should be free to choose, free to examine the products and ideas of other cultures.
Every faith in society harbours within it the arrogant and the bigoted who wish to impose their ideas on others through terror and violence. I believe they will fail. In their isolation they cannot prosper. But they can spread their venom and they can do enormous damage through terrorism. Again it is our duty to isolate and contain them, and not to tolerate their terrorism. And the interesting thing today is that this was the message when I began my journey in Washington, when I continued in Tokyo, when I visited South Korea, and it was underlined by my visit to Beijing. During the course of this, every single leader that I met is adamant about the security threat from terrorism, and adamant also that terrorism will not be allowed refuge anywhere, for it is the common enemy of the whole of humanity.
So today we are together in the same boat, no longer able to afford to ignore the internal policies of other nations when those policies affect us all. Today the ability of rogue states to reach out and destabilise others is unparalleled in history. As a very result of this, the lessons of history are sometimes of limited utility in helping us cope with the problem. Global instability comes today, not from massed armies fighting each other, and from great powers in battle together, but from terrorists in unstable states. The understanding that we have carefully forged with our friends and allies over terrorism now needs to be extended to cover these rogue nations.
The news today from Iraq that Saddam Hussein's sons, who caused so much death and destruction and suffering, have been killed is a further sign to the Iraqis that the yoke of fear is being lifted from them, that the reign of terror is truly ending, and Iraq and its people can develop as a source of stability and progress for the whole region. Whatever the differences over the war in Iraq, if Iraq does indeed develop in that way, the consequences for the Middle East, for peace there and therefore for greater security in the whole of the world will be enormous and beneficial. And I hope all nations, whatever their differences over the conflict, can work together to make that reality happen in Iraq. If it does, the benefits will be felt by the whole of the world. And again what was interesting and immensely welcome was whatever capital I visited, I found the same willingness to work together on this.
Now the UK has, as you know, a longstanding commitment to free trade. British exports of goods and services contribute over $400 billion to our GDP every year, and one job in four in Britain is linked to business overseas. However we are conscious that this resolve to maintain an open trading regime is constantly under threat from protectionist interests.
The benefits of trade and globalisation go to everyone. The immediate costs are borne by a smaller number. Resisting the claims of the few on behalf of the many requires us all to provide leadership. It requires businessmen, as well as politicians, to be considerably more persuasive about the benefits of globalisation. It also requires us to be fair to our trading partners, and more importantly to be seen to be fair. It is estimated that a halving of industrial tariffs would increase world output by US$190 billion. The lion's share of that benefit - US$110 billion - would go to high income regions such as Europe, Japan, the USA and of course Hong Kong. But the lesser amount - $80 billion - would go to the developing world. However, that lesser amount is well worth having. It is twice what was given by all the nations of the world last year as aid. So freeing trade and fighting protectionism is a moral as well as an economic imperative, and freer trade throughout the world is actually the single most important thing that we could do to help the very poorest countries of the world.
So it is important therefore that this September the WTO negotiations in Mexico are a success. It is an especially sensitive meeting concerning as it does the needs of the developing world. But it will also be a difficult meeting because it calls for changes in agricultural, pharmaceutical, industrial and service regimes. Now I am pleased that the European Union has reached an agreement recently on the reform of our Common Agricultural Policy. Vitally, we have moved away from the trade production distorting subsidies. Though there is still much to do, this is a huge step forward and I hope it will be matched by concessions elsewhere. With goodwill we can increase our prosperity and aid our poorer neighbours into the bargain. So the WTO is going to be a major part of making this process of globalisation work.
Another longer term source of global friction and global threat concerns our stewardship of the environment. I know that parts of South East Asia are now routinely blighted by the smog from uncontrolled forest fires, and as you know, many of the great cities of Asia are choked and paralysed by traffic fumes. Economic growth that occurs regardless of the effect, serves to damage nature and impoverishes us all. Now I realise that it is unfair to ask China, India or Brazil to rein in their carbon emissions unless the high income nations that produce the most do so also. But here is another area where we need to work collectively for our collective security.
We, as you know, in Britain are a champion of the Kyoto Protocol on greenhouse gases. But actually to make a real impact on this problem we need to go far beyond Kyoto, in all probability reducing greenhouse gas emissions by 60% by the year 2050. So that is a huge objective to have in mind. If the world is to justify its desire for growth to future generations, then commitment to the environment must become more widespread, and other nations, developed and developing, need to join that effort.
Some people who desire growth because it relieves poverty nonetheless argue however that globalisation is a danger to the environment. I am puzzled by this. For any level of growth, globalisation leads to a more efficient use of resources. Why would anyone prefer less efficient growth? Is poverty to be alleviated by way of even greater pressure on resources? Certainly our government in the UK believes that globalisation creates unprecedented new opportunities for sustainable development. We do not wish to block globalisation, only ensure that it occurs within an appropriate framework of stable law and regulation where all can benefit.
It is this perspective that informs the approach too of the UK's Department for International Development in all its work. We are keen on helping to build institutions that work to the advantage of the disadvantaged, and we understand that this happens best when commercial interest and moral precept are aligned. Properly managed therefore, globalisation can achieve this end.
The last great attempt at globalisation was fatally damaged by the Wall Street crash and the protectionist consequences of that debacle. Today we have advanced beyond the simple prescriptions of that age. Central banks stand ready to reliquify credit when required, and beggar thy neighbour protectionist policies are seen as self-defeating. Although today we are faced with a synchronised global economic slowdown outside of China and parts of South East Asia, the world has managed to avoid recession. Nevertheless, in order to cope with the stresses produced by this pattern of growth, it is important that all countries make a commitment to greater economic flexibility.
At the present time the UK, despite having the lowest unemployment rate of all major industrial economies, and recording I am glad to say an unprecedented 43 quarters of growth, the UK is embarking upon an extensive reform programme. The housing market, regional pay, income support and the regulatory environment are all being examined. And we are also working closely with our European partners to lessen rigidities in the European Union. On the other side of the trade equation, it is just as important for developing nations to work to maintain a free and fair trading environment themselves. It should always be remembered that the only purpose of exporting goods is to fund matching imports. A simple mercantilist approach that works only to build reserves is in the end self-defeating, it is self-defeating in the sense that assets have been sent abroad and none received, thus leaving the country in real terms poorer, and it is self-defeating in that the exporter fails to benefit from the technology and know-how embedded in the matching imports, and above all it is self-defeating in that such a policy is pregnant with the danger of exciting protectionism amongst trading partners. The magnitude of the change that we are seeing requires therefore a broader and more balanced approach from all parties. At its heart globalisation is about the sharing of knowledge and ideas.
The international dimension of education, particularly higher education, plays a significant role in creating capital across borders. In the year 2000, according to the OECD, 1.6 million foreign students were enrolled in tertiary level institutions outside of their country of origin. Of these, 1.5 million were studying in OECD countries, with China accounting for the largest number. Along with the advantage of the English language, the UK has a strong and vibrant research and technology base, and we are pleased in addition to the 50,000 students from mainland China, 17,000 Hong Kong students are in tertiary education in the UK - the destination of choice at that level, and long may it remain so.
So I believe that as in the UK, this commitment to education will advance our prosperity. I think the extraordinary thing therefore today is that we face two quite separate issues in world politics. One is the issue of globalisation, where many people object to it because they think it is the free market gone rampant and wish to restrict it; and the other is the political issue of our security in the face of terrorism and rogue states with weapons of mass destruction. And the absolutely extraordinary thing that gives us such an opportunity is that really in today's world there is a common consensus as to how we should deal with both problems, not always in respect of each individual area a consensus about the particular method chosen, but a consensus about the nature of the threat and what we must do about it. In respect of globalisation, everybody today knows who is a policy maker right round the world: one, that you need to maintain your macro-economic discipline and stability; two, that you need high degrees of flexibility in order to cope with a rapidly changing market; three, that the essential things for government to do is not to try and regulate its way to success, but to educate its people so that they are able to add higher and higher value to the goods and services that they produce; and fourth, that free trade is not a zero sum game, that in the end actually it benefits us all. And therefore whatever difficulties are faced by individual countries as a result of high competition coming in from abroad, in the end it is always in the interest of those countries to face the competition in an open trading environment, accepting globalisation rather than try and shut down their economies or move to protectionism.
So in respect of globalisation, I think the real understanding is there of the measures necessary to run successful economies in the 21st century. And you know likewise in respect of the political challenge, whatever the differences, and we just had some in the international community over Iraq, people know today that the issue is how we make progress with stability. That is not to say that change shouldn't happen in the world, change should happen, political change should happen, but the absolute essence is that that political change happens with stability and order, not the chaos and disorder promoted by the terrorists or by those repressive and unstable states.
Now I think what is fascinating about Hong Kong is that in a sense Hong Kong is the perfect example and explanation of both the economic and the political challenges. Hong Kong at its best is precisely that modern trading environment, where there is a dynamism, an entrepreneurial flair, where people recognise they have got to compete, where they welcome that competition, where they take it on and realise that as others come into the market in which you are in, sometimes with lower labour costs, you have got to get into the higher value added markets. Hong Kong represents that in an economic sense. But also because of the particular, and very special, indeed unique history of Hong Kong, it also represents the challenge of making progress with stability in a political sense. And I think therefore that as on many occasions where in the past Hong Kong served as a reminder to the rest of the world what was necessary to produce economic dynamism, Hong Kong, if it handles the next few years well, as I believe and hope it will, can also be an example of how political progress can be made without damaging essential stability.
So one of the reasons I was so keen to come here and make this speech is that I think Hong Kong is the right place to make a speech that defends globalisation, that says to those people who are critics of globalisation, you are making the wrong argument. The issue to do with globalisation is not stopping it, it is actually spreading it to all parts of the world, not some of it, and you are also a perfect place, perhaps even particularly after the events of the last few weeks, to make the case as to why in the world in which we live today, all of us have a common interest in order and stability, and all of us have a common interest in change happening within a framework that does not disrupt that essential order and stability. So not for the first time, I suspect not for the last time, Hong Kong serves as a lesson, an example to us all.
So I am delighted to be here, and thank you so much to the British Chamber of Commerce for having given me this opportunity to make this speech to you. It is my third visit as the UK Prime Minister, but I intend to come back again to Hong Kong, for reasons of admiration, but also for reasons of personal affection.