Q: Eight months after the formation of the SAR, what would you say has changed in Hong Kong? A: I think we've really achieved a great deal. I look back with satisfaction that 'one country, two systems' is moving ahead very well. The foundation is now solid. I think it's a very important achievement that we have very good relations with the central people's government and an enormous degree of mutual trust. Internationally, I've travelled to all these countries and I'm about to travel to a few more. The view is that Hong Kong has done very well. 'One country, two systems' is properly in place. We have developed through the policy address the community's priorities and the way forward. We've come out with a Budget which takes into account the policy speech, moves ahead with our traditional prudent financial management and responds to the economic conditions. We are moving ahead in education, housing - about which the community as a whole cares a great deal - and in infrastructure development, transportation development and information technology. So, in many respects, one can look back and say that all the things we're looking to do are moving ahead. Of course, the eight months have been very eventful. We have seen the bird flu. The greatest difficulty was the Asian financial turmoil, which has brought to our community some pain and a very great deal of uncertainty. Certainly as a Government, we're very sensitive about the pain suffered by many as a result of the financial crisis in Asia. But I think we have successfully defended the linked exchange rate. Through some of the budgetary measures as well as our commitment to investing in the future, we're responding to the financial turmoil in a very good and positive way. People say the Government is now more sensitive to the middle class, as is shown in the Budget. But the grassroots feel they have not benefited much from it. Why is this? I think we're sensitive to every class in Hong Kong, all 6.5 million people. The well-being of all of them is our responsibility. What we're trying to do through the Budget is to help create an economic vitality which was affected very badly by the financial turmoil. We care about all groups of people. Can you tell us something about your role in this Budget? I would say that the Financial Secretary really took the lead in preparing and organising the Budget. Obviously, we have very strong traditions which we go by, ie, wanting to be sure that we preserve a strong fiscal reserve and that the Budget should also have a surplus. It has always been our policy to be prudent in our financial management, particularly in view of the Asian financial turmoil. We want to implement the policy speech objectives, for example with huge investment in infrastructure over the next four years amounting to about $235 billion. We are sensitive to the difficulties which have been faced by the community at large because of the financial turmoil. So we took these into consideration in preparing the Budget. Obviously, at a very early stage, I had my views and I had my input. But it's really the Financial Secretary who has done very well. Tremendous team work all round. There has been a perception, or criticism, that your Government has been a bit soft. If the people demand, they would get something. How would you respond? I think our Government has a set of very fundamental, solid principles. We need to stick by those principles. We need to look after taxpayers' money to make sure it is well spent. We will not change on that. I don't think we are soft. We need to be compassionate. I have said many times to those who are the most unfortunate that we need to help them to help themselves. But if we fail, or if they fail for whatever reason, and they really need help, then it's up to us to help them. I don't think there is anything wrong with that. People think this Budget is very political in the sense that the Government has done a little for almost everyone. What concerns them is that while we can afford it now, what about in the future when we're in an even more difficult situation? I think we obviously had to listen to the voices of the community in drawing up this Budget. But having listened to them, we're moving ahead based on what we believe is in the long term interest of Hong Kong. We're looking after taxpayers' money, spending it as well as we can. During these rather more difficult times, [we must ask] how we can stimulate or help stimulate some aspects of the economy, but at the same time provide some relief, maintain our long-term competitiveness and invest in infrastructure and education. We're doing all this, but we have never departed from prudence in our financial management. So you think this Budget has struck the right balance between political and economic considerations? I would not want to say it's a political consideration. It's doing what's right for Hong Kong's long-term future. Don't forget we are keeping a huge fiscal reserve, which will be needed for financial stability and confidence. In doing all this, you have also given rise to a perception that somehow the Government has abandoned principles of non-intervention and is now trying to micro-manage the economy. I'm hoping this talk will correct that impression. We're not doing that. The sale of public housing units to sitting tenants at very low prices has caused a lot of dissatisfaction among the middle class, who will now get mortgage interest relief. What many people are saying is that you're giving away more and more sweeteners to people. There has been a large acceptance in the community that there must be more home ownership, and I have suggested a 70 per cent home ownership rate. I think it's a very good thing for Hong Kong at large. The sale of flats to sitting tenants is an issue which has been debated for a long time. Everybody agreed it was a good thing to do. By doing what we did, it's a win-win situation. A win for the community at large and also a win for its individuals. Insofar as other tax concessions were made, we've made them within the broad principles I have outlined. Rather, I'd like to switch [the subject] around and ask how we can do all these things. What were the big differences before and after July 1? You know we had a Land Fund which had accumulated, I think, about $190 billion and which on July 1 became part of the SAR's assets. Even a conservative estimate of the investment income makes this a huge amount of money. There is also the three per cent rent income from those leases that expired immediately before July 1 which was not there before. Before July 1, 50 per cent of the proceeds of land sales went into the Land Fund. Today, they go straight to the SAR Government. We have a lot more income to do what we need to do, and that's what we're trying to do. At the same time, we're still keeping a very huge surplus, a fiscal reserve. I think we're very fortunate to be able to do all these things. We should be very, very proud of this. We're sticking to the peg. Do you have any idea when Hong Kong will come out of the economic turmoil. Are the right signs on the horizon? Let me first reaffirm our policy is not going to change. The linked exchange rate is very vital for confidence and our economic future. It has served us well in the past and I know it will serve us well in the future . . . We also have the means to do it - the very efficient currency board operation, the huge fiscal reserve as well as the central Government's promise of support. So we have the need to do it and the means to do it, and we will do it. I think nobody should have any doubts whatsoever. Obviously in the process of defending the linked exchange rate, interest rates have gone up, the economy has slowed down, the property market has declined, the stock market has declined, tourism has declined, retail sales have been bad and I believe unemployment will go up. We try as much as we can to alleviate the pain and move forward faster in the process of recovery. I have always said there is no instant medicine. What we have done is to concentrate on what we've decided to do, by investing heavily in infrastructure, which is not only important for our long-term economic vitality, but also as an economic stimulus. On top of that, in the Budget we've tried very hard to provide tax relief of up to $13 billion, which is approximately one per cent of our GDP (gross domestic product). So we hope this will help. But there are positive sides to this unfortunate event. Our property market has made a very quick correction. I hope we will become that much stronger and that much more competitive, because competitiveness is important to our future. Finally, what will happen in the financial market is very difficult to predict. I would like to hope that we're moving towards the end of a very difficult, uncertain period. Financial difficulties in terms of restructuring and reorganisation in the rest of Asia will probably go on for a number of years. The local and international communities have responded very favourably to the implementation of 'one country, two systems'. In your coming visit to Europe, what are you going to tell Europeans? The proof is in what is real. The fact that 'one country, two systems' is functioning very well makes my job to promote this, to explain this, overseas much easier. Obviously, we will continue to do this. I'm looking forward to going to Germany and France to talk about this particular aspect. I will also spend a great deal of time talking on financial aspects, on what is happening in Hong Kong, why the exchange rate is there, why Hong Kong is going to be stronger and better in future. And to persuade them that Asia's future continues to be bright despite the present difficulties, that China is going ahead very well, that commercial and financial firms who are interested in participating in Asia and China in the future really need to come to Hong Kong. There are concerns over the relationship between you and senior civil servants and between the administration and the legislature, especially after the elections. What's your view? The provisional legislature has been very difficult. They really performed an important role in monitoring and overseeing the functioning of the Government, in approving financing and in challenging the Government - as they should be. The future legislature will continue to do that. I'm sure, as the provisional legislature, the future legislature will also do it with responsibility with the long-term interest of Hong Kong in mind. I'm not unduly concerned. With no majority party in the legislature, will it be more difficult for the Government to get legislation passed? How would you deal with the scenario? In a community like ours, which is very open and where all policy issues are debated very keenly and openly in public, I think what as a leader or as a Government we need to do is, having listened to the people, craft a vision for the future. Where do we want Hong Kong to be in the 21st century? How are we going to get there? It's about looking at ourselves and asking where are we today, and where would we like to be in the 21st century. How do I, we, get there? Hong Kong is very successful today. Why are we successful? What are the critical successful factors that make us successful? Will the same factors be there in the future to make us get to where we want to go? What are the social, economic and political environments today that make us successful? What would that be like in the future? The responsibility of a leader, or the leadership, is to look at all these things and to get the support, having listened to the views of the public, mobilising public opinion to get you there, to where you think it should be. It's about developing plans to achieve these objectives, these visions, and organising teams to move forward. Teamwork is very important. In the Government today, we have tremendous teamwork in moving forward. Obviously, the success of this Government will be our ability to move people with us, and that includes some, if not all, of the political parties. We may win some. We may not win them all. But if you have a good product, we will get there. That's what we need to. Some people have said you have done too much and made all sorts of decisions. They have said you should take a back seat. What do you think? With having a vision, developing plans and implementing them, teamwork is very very important - getting different people doing different things. Certainly, there are people saying to me I'm not doing enough. There are people saying to me I'm doing too much. I think I get it just about right. The teamwork is very good and moving ahead very well. There are also concerns about conflicts between Exco members and the provisional legislature undermining your leadership. What do you think? I think our teamwork is very good, but teamwork does not mean we have to agree on things. People come from different backgrounds, different upbringings and have different beliefs. Obviously there will be different views. If members of Exco and members of the administration and myself have different views, it's perfectly all right. It's also very important we have different views so that we can find what's the best way forward. But having made a decision how to go ahead, we're all behind it, because we all know we are doing it for the long-term interest of Hong Kong. In achieving your objectives, you have to rely on senior civil servants. In the eyes of the public, some of them may not be doing a very good job. Has the thought ever flashed in your mind that things could be better if you could appoint someone to head up a government department like a minister? I've said many times that a ministerial system at this stage of Hong Kong's political development is not the right thing to do. I'm working very closely with the Chief Secretary, Financial Secretary, Secretary for Justice and all the bureau chiefs. They are all very diligent and hardworking and doing a tremendous job. Like you, like me, none of us are all triple A plus. But the important thing is that we all know each other, work together and supplement each other's strengths and weaknesses. Do you see much difference between yourself and the last Governor in style, substance and role in the administration? I would say our focuses are different. I'm a Hong Kong person. I've lived here most of my life, although I was away as a student in the UK and as a businessman in America for long periods of time. But basically I've lived here most of my life. So I think I hear the pulses of the people better. I think our priorities are different. Our priorities, for instance, are economic vitality, livelihood issues, education, housing. These are the issues which I care very much about. And I want to be sure that they come out right. Are you going to do anything to move towards greater democracy during your term? The evolution of the political process is clearly defined in the Basic Law. I've said that before and I'll say that again. We will move forward according to the Basic Law. I think it is the right pace to move forward. This is not to say the Government is not accountable. Democracy is about accountable government. I think our Government is responding very well in terms of accountability. The society is very open. Before July 1, several Chinese officials said Hong Kong had become a 'political city'. Do you see this has changed? I think Hong Kong is a very open society. Everybody is entitled to voice his views. What the Government needs to do more is to engage the public more in debates about long-term public policy issues. We need to look at yesterday's problem, how to fix it; but just as important is to look at our long-term future. Whether we are being too politicised or not is really about how we can, as the responsibility of the Government, get the whole community to be more focused on some of the longer-term issues so that in the 21st century we are much more successful than we are today. Do you think Hong Kong has become more or less politicised? That depends on your definition of the term 'politicised'. I think if it's a question of engaging the community in a debate about policy issues, we need to do a whole lot more. By the end of June, what would you like to have achieved at the first anniversary of the SAR? It's been a very eventful eight months. The Government is not just about building accommodation for the future. It's not just about developing strategic plans, building up teamwork, moving together. These are all very important. The Government is all about responding to crises, whether it's the bird flu or financial turmoil. We responded to what needs to be done. The Government is about anticipating dangers in times of peace. These are the things we as the Government and I as the leader must do all the time. These are things we are doing everyday. Putting this aside, there's a lot of lessons from the bird flu. Public hygiene, health and environment in Hong Kong is just not good enough. As a community, we must be very committed to changing it. Looking at all the fires that have happened in buildings, some of which I have visited. A lot worse could happen if we don't do something. So in the shorter term, how can we do a better job in safety awareness, in public and government commitment to a new culture of safety and fire prevention? In the long term, how do we accelerate urban renewal, go ahead with the things we ought to do? The work never ends. I'm very glad the whole team is very well together. Do I have any regrets? I wish I could spend more time with my grandchildren. Unfortunately, I can't.