Nobody expected much excitement from Chief Executive Donald Tsang's last policy speech in his present term of office, which ends in June 2007.

As Mr Tsang himself explained: "I have set out what I can achieve and what I can't over the next eight months ... I have done my job. But nothing is perfect and I accept all criticisms."

Of course, Mr Tsang and his colleagues in the government are well aware of the challenges lying ahead. And the key person leading Hong Kong in facing those challenges could very well be him, as he is widely expected to begin campaigning for re-election soon. His track record in the government is well known, and his popularity rating has remained consistently high.

In his policy speech, Mr Tsang put sustaining economic growth at the top in his list of challenges for reasons that have become widely known to the business community. The consensus among businesspeople and economists is that Hong Kong must preserve and, if possible, expand its role in the economic development on the mainland.

Economic think tanks, business associations and political groups have put forward a host of suggestions, many of which focus on the need to integrate Hong Kong more into the mainland's long-term economic plans, especially those of neighbouring Guangdong Province.

Recognizing the importance of the financial services sector to Hong Kong's future, many business leaders and prominent economists are calling for the further internationalization of the local capital markets to tap the rapidly expanding pool of global institutional funds. The inflow of such stable funds is seen as key to Hong Kong's success in meeting the projected demand of capital by mainland enterprises to help finance their rapid expansion in the coming years.

The ability of the capital markets to meet this projected demand would greatly strengthen Hong Kong's position as a financial centre for the mainland. As such, its role in the economic development of the mainland can be assured.

Therefore, it is most encouraging to note that Mr Tsang has given such prominence in his policy speech to the liberalization of capital markets and further strengthening of the regulatory structure to bring it up to the highest international standards.

"To maintain our leading position (as a financial centre), we must pursue further liberalization ... The source of enterprises seeking to list in Hong Kong should be broadened," Mr Tsang said. "We also need to continue to enhance our regulatory regime to keep it in line with international standards."

Mr Tsang called for the amendment of the listing rules "to enable well-established and qualified foreign enterprises from different parts of the world to list in Hong Kong." At present, only companies registered in Hong Kong, the Chinese mainland and a number of well-established financial havens are qualified to apply for a listing on the Hong Kong Stock Exchange.

As a result, mainland enterprises made up the bulk of new listings in Hong Kong in recent years. There is an obvious need to attract listings by quality companies registered in other jurisdictions to draw investment from a wider source. This can be achieved by not only changing the listing rules but also ensuring a safer investment environment for all.

In the past several years, the government has introduced various measures to reinforce the supervisory role of the Securities and Futures Commission, a watchdog agency. Government initiatives have also led to the toughening of disclosure requirements to ensure greater market transparency.

For instance, the introduction of the Financial Reporting Council, which will come into operation early next year, can, according to Mr Tsang, help attain world-class standards by strengthening corporate governance and investor protection.

All these measures are built on the fundamentals that have, as Mr Tsang said, "underpinned our leading position on the financial front." Among those fundamentals cited by Mr Tsang are the rule of law, protection of property rights, the free flow of information and freely convertible currency.

Of equal importance, perhaps, are a low and simple tax regime and a highly efficient government bureaucracy that is relatively free of corruption.

We didn't expect any drama in Mr Tsang's policy speech, and there was none. But there was the right balance to keep our hope alight and put our hearts at ease.

Email: jamesleung@chinadaily.com.cn

(China Daily 10/17/2006 page4)