It is my honor to introduce one of the most persistent and principled defenders of democracy in Asia, and perhaps the most respected figure in Hong Kong's democracy.

The Honorable Anson Chan is so respected, in fact, that when she served as Hong Kong's second-highest official, even the Chinese leadership understood her commitment to Hong Kong's democratic future and--most of the time--treaded lightly around her.

She has been described in both the Chinese and English newspapers in the Special Administrative Region as "the conscience of Hong Kong," as the "principled and popular head of the territory's civil service," and when she retired last year the Wall Street Journal bemoaned that "Hong Kong-style liberalism, as represented in the public service by Anson Chan, is now an endangered species."

She was--and remains--Hong Kong's conscience.

Her conscience, alas, has been sorely tested since 1997.

Mrs. Chan quietly but effectively opposed the Hong Kong government's decision to ask Beijing to overturn Hong Kong's Supreme Court on a right-of-abode case.

She has slapped down Mainland officials who try to mix politics across the Taiwan Strait with business in Hong Kong.

Although the religious sect Falun Gong had been branded as subversive in Mainland China, just before Mrs. Chan's retirement the sect was allowed to use Hong Kong's city hall for a large gathering--a striking example of freedom in a Chinese-ruled territory.

Beijing-owned newspapers in Hong Kong lashed out at the government for the decision, but it was a source of pride in Hong Kong that Mrs. Chan had insisted that Hong Kong's freedoms were not to be eroded by Beijing's pressure.

As you know, Anson resigned as the SAR's top civil servant and the Senior Official Member of the Executive Council in April 2001. Shortly before her retirement, the Hong Kong Transition Project's poll on public satisfaction with the performance of the top government leaders gave Mrs. Chan far and away the highest score of 85.

Mrs. Chan's career of service to Hong Kong was a long, distinguished, and influential one. She joined the Hong Kong government in 1962 as an Administrative Officer and held senior positions in finance, commerce, industry, social services, and economic policy.

She was Secretary for Economic Services from 1987 through 1993, a post that gave her responsibility for overseeing the development of Hong Kong's infrastructure including the now world-renowned Chek Lap Kok port and airport facilities and the liberalization of Hong Kong's telecommunications market, tourism, energy, and food supplies.

She was appointed Chief Secretary of the Hong Kong Government in November 1993, the first Chinese and the first woman to hold the position after 150 years of British incumbents. And in 1995, the Chinese government quietly confirmed that Mrs. Chan would continue as Hong Kong's chief secretary through the 1997 handover in order to ensure government continuity and in order to retain public confidence.

Unburdened by the constraints of office since her retirement last year, she has become even more persistent in her advocacy of Hong Kong's separate identity.

Last November, Mrs. Chan challenged the idea that, as the eyes of the world turned increasingly on China, Hong Kong should emphasize "one country" and forget about "two systems." "I suggest that quite the opposite is true," she said, "Hong Kong can best help itself and help our country by leveraging our differences under the two-systems concept."

Well, this is the kind of statement of principle that makes me so honored by Mrs. Chan's friendship. And why The Heritage Foundation is so honored that she has agreed to serve as a member of our Asian Studies Center Advisory Board. We are under no illusion that Mrs. Chan gains stature from being identified with us. On the contrary, Mrs. Chan has given Heritage a profound privilege by letting us be identified with her.

It is a distinct honor and pleasure to introduce a leader of such rare achievement. Ladies and gentlemen, the Honorable Mrs. Anson Chan.

--Edwin J. Feulner, Ph.D. is President of The Heritage Foundation.

SUCCESSFUL TRANSITION

Hong Kong's reunification in 1997 is a source of immense pride for our nation, as it is for many of us in Hong Kong. Speaking personally, it was a great honor and a privilege to not only witness the Handover ceremonies, but to also be amongst those who made the smooth transition from colonial administration to that of the Hong Kong Special Administrative Region of the People's Republic of China. Our national leaders have scrupulously honored their hands-off approach. Not only that, they have been extremely supportive in helping Hong Kong address some of the economic difficulties that have demanded so much of our energy over the past five years.

It is easy to overlook just how successful that transition has been, although I would not try to conceal the fact that we have had to deal with some very difficult issues. We will most likely face some tough challenges in the future too. But "One Country, Two Systems" is working, and we do enjoy the promised high degree of autonomy to run our own affairs.

Hong Kong's peaceful reunification with the Mainland after more than 155 years of separation was, in my view, one of the most significant geo-political events of the last century. Never before has an entire economy and community of almost 7 million people made such a dramatic yet almost seamless change. So by any measure, a remarkable achievement.

All of the key institutions that underpin our development as a free and pluralistic society have remained in place. You've heard me mention them often enough, but they warrant repeating. It is important for our international friends, as well as people in Hong Kong, to know and understand that we remain committed to maintaining the pillars of our society that set us apart from other parts of our country, and other countries in the region. The rule of law upheld by an independent judiciary; a level playing field for business; the free flow of information, capital and goods; and a clean administration are as fundamental to our development in the future as they have been in the past five, 10 or 50 years.

In the international arena, Hong Kong has continued to make meaningful contributions in such fora as the World Trade Organization, the World Customs Organization, and APEC. We have sent our teams to the Olympics and the Asian Games and a host of other international meetings. We continue to sign agreements with other governments in a wide range of areas such as mutual legal assistance, surrender of fugitive offenders, air services, and immigration co-operation. As a city and community that thrives on interaction with the global market, we take our international responsibilities extremely seriously.

You will find no better example than our unswerving support of the global efforts to eradicate the scourge of terrorism. During Hong Kong's presidency of the Financial Action Task Force on Money Laundering in 2001-2002, we played a leading role in expanding the remit of the organization to target terrorist financing. We acted quickly and readily to implement U.N. resolutions that make it much harder for terrorists to fund their activities. Our Police Force has always maintained close links with law enforcement agencies throughout the world, including the FBI and the U.S. Secret Service. But that cooperation and exchange of information has been stepped up in tandem with our own increased vigilance against the threat of terrorist activity.

Just last week, Hong Kong and U.S. Customs Service signed a Declaration of Principles on the U.S.'s Container Security Initiative. As the busiest container port in the world, it was inevitable that Hong Kong would be asked to play a role in this important undertaking. And as a major trading economy, we not only have a vested interest, but a responsibility, to help enhance the security of the global maritime trading system. We do so willingly and gladly.

As many of you know, people of all colors, races, and creeds from every corner of the world are welcome in Hong Kong to live and work amongst us. We want nothing more than to prosper in peace as partners, friends, and equals. Hong Kong's unflinching commitment to live in a free, open, and pluralistic society is the best answer to the scourge of terrorism. And it also serves as our ongoing memorial to those who so senselessly died on September 11 last year.

This commitment to freedom is part and parcel of what makes Hong Kong such a vibrant and cosmopolitan community, and why we remain a home away from home for several hundred thousand expatiates, including 50,000 from the U.S. We are acutely aware that economic freedom is not a stand-alone determined by tax rates, tariffs, and trade access. I know that you know it is much more than that.

It's about having the freedom to read what you like whether it be a newspaper, a magazine, or on the Internet; it's about speaking your mind, whether it makes sense or not; it's about having the freedom to come and go as you please; it's about settling your differences in court with a tried and trusted legal system; it's about going to the mosque on Friday, the synagogue on Saturday, or the church on Sunday without fear of attack or reprisal. It's about being able to walk home at night without being mugged. It's about many things.

So it is hardly surprising, especially to those of us who live in Hong Kong, that some of these issues are often debated quite vigorously in our rumbustious and unfettered media, particularly if it is felt that these freedoms may be compromised or curtailed. Seen from afar, these lively exchanges might sometimes be regarded as evidence that our systems are under considerable stress. But, in my view, this type of frank and open debate is the glue that binds our society together. Heaven help us if the Fourth Estate becomes less forthright.

LITMUS TEST FOR FREEDOM

I expect you will read and hear plenty of impassioned views from Hong Kong over the next three months as our community sets about debating what many regard as a litmus test for freedom in Hong Kong, and that is Article 23 of our Basic Law. This states that Hong Kong shall enact laws, on its own, to prohibit any act of treasons, secession, sedition, and subversion against the Central Government. Laws are also required on the theft of state secrets and to prohibit political activities by foreign political organizations in Hong Kong.

This matter goes to the very heart of the interface between "One Country" and "Two Systems." How do you reconcile the differences between the social, political, and legal systems of Hong Kong and the Mainland, while at the same time protect the legitimate rights of any country to national security and sovereignty? Elsewhere in the world these are national laws. But because of Hong Kong's special status, the Basic Law empowers our legislature to enact our own laws on these sensitive issues. That in itself is a vote of trust in Hong Kong.

Five years after Reunification, "One Country, Two Systems" has taken root, and we have seen a blossoming of contacts and cooperation between Hong Kong and the Mainland. As we enter the second five-year term of the Chief Executive, now seems as good a time as any to tackle this issue. I know that there are some in our community who argue that new legislation is unnecessary. But in view of our constitutional obligation, we should in my view get on with it and remove any niggling doubts about the government's intentions once and for all.

At first glance, the government appears to have taken care to develop proposals that seem generally balanced and reasonable. National security laws in other jurisdictions have been assessed and taken into consideration. There is a clear understanding that whatever we do must dovetail with the commitments to the international human rights covenants that apply to Hong Kong. The government has heeded the advice of the legal profession and other interested parties to, wherever possible, draw on existing laws when formulating the legislation needed to implement Article 23. Few new laws will be required. And to protect fundamental human rights and freedoms which are guaranteed in the Basic Law, in particular the freedom of expression that is so important in Hong Kong, very tight definitions of offenses have been formulated. In short, there must be a use of force, or a threat of force or violence, or acts of a grave criminal nature for many of the offenses to take place.

Nevertheless, there will be a number of proposals that will cause disquiet. I am sure our community will make full use of the three-month consultation period to express their concerns. But in looking ahead, and in trying to assess whether the proposals are balanced and fair, there are two points worth bearing in mind. One, our own legislature will debate this matter fully and comprehensively. They will no doubt be well aware of their constituents' views, as well as the keen eye that the international community will be keeping on Hong Kong as consultations progress. Two, the laws that are eventually passed will be interpreted by our own courts, which draw on a long history of common law experience. They have shown themselves to be fully cognizant of the international legal benchmarks by which Hong Kong is judged, and I have every confidence that they will continue to do so in the finest tradition of an impartial and independent judiciary.

Article 23 legislation is arguably the most important and sensitive legislation we have had to face since reunification. Its impact on our freedoms and our life style is far reaching. We should encourage the widest possible debate. But to achieve the best results, I think that this debate needs to be conducted with an open mind and in a calm, rational manner, free of emotion and rhetoric. The government has assured the public that it will consider carefully all views expressed. But as we all know, the devil is in the detail. We would find it very reassuring if the government was to agree to publish a "white bill," that is the draft legislation itself, for further consultation before it goes to our legislature. I think it is important to get the legislation right rather than to rush to meet a deadline.

Article 23 is one of two "outstanding" issues in the Basic Law that needs to be dealt with. The other is our democratic development. Since 1997 we have been moving ahead within the Basic Law's prescribed ten-year framework of democratic development.

We have held two Legislative Council elections and a district council poll, all of which were hotly contested by candidates from all political persuasions. Since July 1 this year, a new ministerial-style system of politically appointed officials has been introduced to make the government more open and accountable. The next district council polls will be held in 2003. This will be followed by Legislative Council elections in 2004, when the six seats from a grand electoral college will be replaced by directly elected members of geographical constituencies. At this point, half of our legislature will be directly elected by universal suffrage with the other half elected by functional constituencies representing key economic and social groupings in Hong Kong. And after 2007 it is up to Hong Kong people to decide the best way forward to achieve the ultimate goal of universal suffrage for the election of the legislature and the Chief Executive.

I know that our friends here in the U.S. and elsewhere sometimes find it hard to understand our electoral arrangements in Hong Kong, or why such an open and free-wheeling society is not yet a fully paid up member of the democracy club. Certainly, there are people in Hong Kong who believe that we should have a popularly elected Chief Executive and legislature, and that we should have it now. Equally, there are others who believe we should move more slowly. Clearly it is important to forge a consensus in the community on the pace of democracy. All this will take time. So the sooner we can begin this process the better. Hong Kong is not quite like any other place. We have a unique geopolitical context and a unique relationship with our sovereign. What we need is to construct a home-grown system of democratic government from the building blocks that we inherited on July 1, 1997. In particular, we need to encourage the further development of responsible political parties and greater public interest in participating in the political process, particularly amongst the better educated. And until we reach our ultimate goal of universal suffrage, the government must go the extra mile in exercising its authority in the most transparent and accountable manner possible and in encouraging more public participation in policy formulation and implementation. The Civil Service will continue to have a crucial role to play in the good governance of Hong Kong. Of course, the Civil Service must change in keeping with the times. But what must not change is its commitment to certain core values. By that I mean integrity, political neutrality, intellectual honesty and rigor, fair play, and the courage to speak "truth unto power."

ECONOMIC CHALLENGES

The interplay between "One Country" and "Two Systems" is also being brought into sharper focus by China's rapid economic development. The question facing us in Hong Kong is how a relatively small and congested community of 7 million can maintain its relevance and market niche in the face of such huge developments.

I believe the answer lies in making the most of our differences as a Special Administrative Region to enhance our role as an international city and an Asian hub, as well as a window on the world for China. In other words by leveraging the unique advantages of our economic and legal systems as enshrined in the Basic Law. I know that there are many in the Mainland who believe they have much to learn from Hong Kong--in corporate governance, in professional practices and standards, in law enforcement, in fighting corruption, and in the rule of law.

There is now a flurry of activity in Hong Kong to cope with the rapid opening up of a Mainland market now more closely aligned to the world's rules-based trading system. Efforts are being concentrated on two broad fronts.

On one front, we are enhancing competitiveness by adding value in key economic drivers such as financial services, transport and logistics, tourism, and producer and professional services. We have always excelled in these areas but now we must further hone these skills and attractions to more closely gel with the needs of the Mainland market and the international business community that it is also looking for a foothold there.

On the second front we are boosting the economic synergy with our prosperous hinterland, the Pearl River Delta (PRD), by working to smooth the flows of people, goods, cargo, and services across our land and sea boundaries. The PRD, including Hong Kong and Macau, is the fastest growing and most affluent region in China with a population approaching 50 million and a GDP of US$258 billion that puts it amongst the world's top 20 economies. It has specific advantages and great potential as a consumer market, a trading hub, a manufacturing base, a services market, and as a destination for investment.

More resources will be devoted to hastening the flow of people and goods through such initiatives as co-located Customs and Immigration checkpoints, the development of an electronic cargo clearing system, and the opening up of new road and rail routes between Hong Kong and the PRD. There are plans for further cooperation in the logistics and transport sectors to provide more integrated services between major port and industrial cities in the Pearl River Delta and our International Airport and container port. All these initiatives will enhance the export efficiency of the PRD region and Hong Kong's ability to serve that extra trade. In moving forward with these plans, we must be mindful of the need to protect our "One Country, Two Systems" advantages, in particular our own stringent Customs and Immigration regimes.

SETTING THE TONE FOR THE FUTURE

Ladies and gentlemen, what has transpired over the past five years, and what will transpire five years hence, and 40 more after that, will ultimately determine whether "One Country, Two Systems" is judged a success. We in Hong Kong must understand that what we do now sets the tone for the future. No society anywhere can take its freedoms for granted. It is a truism that "the price of freedom is eternal vigilance." We must continue to guard the rights, freedoms, and advantages that we have been promised and enjoy as a Special Administrative Region of China. And we must have the courage to speak up if we see any attempt to dilute these freedoms. We will not serve the best interests of our country, nor those of our children and grandchildren, if we allow them to be gradually chipped away for the sake of expedience, or a short-sighted solution to a far-reaching problem.

And in plotting our course, we should stick to the basics--that is, the guiding principles of the Basic Law, and the basic fundamentals on which our success as an economy and a society have been built. This is especially vital now, at a time when Hong Kong is facing such great change in the economic and political spheres. When you enter uncharted territory or choppy waters the last thing you want to do is throw away your compass.

I think we have much to be proud of in Hong Kong. We have, by any standards, some of the best physical infrastructure on the world. And we're building more. Our institutional infrastructure--our legal systems, clean government, a level playing field--enjoys the trust and respect of the international community. Our economic policies, low taxes, and free-market philosophy have provided locals and expatriates with the freedom to "have a go" and pursue their dreams--and they get to keep most of the money they make from doing it as well.

Admittedly, we are going through a difficult patch at the moment with the continuing restructuring of our economy and the associated cost adjustments. These have painful consequences but we have to face up to them. There are no quick fixes. As in the past, we should recognize change for what it is--it is both a challenge and an opportunity. Since the end of World War II, we have pulled ourselves up by the bootstraps and faced down serious challenges in every decade since, to create one of the most remarkable and prosperous cities on the face of the planet. We can do so again. Our legendary "can do" spirit may be a little under the weather at present but it has certainly not died. I am confident we will emerge from our present difficulties stronger and better able to benefit from Mainland China's steady growth. We will also be ready to exploit the opportunities that will follow from a rebound in the world economy. Our medium to long-term prospects remain good. So for those who are ready to write off Hong Kong, let me recall the words of the New York Times: "No one [I repeat, no one] has ever made any money betting against Hong Kong"!

--The Honorable Mrs. Anson Chan, GBM, CBE, JP is former Chief Secretary of Hong Kong.

Questions

Question: For those of us who love Taiwan, what lessons can we learn from Hong Kong's experience that might be relevant to a future reunification of PRC in Taiwan?

Mrs. Chan: The "One Country, Two Systems" concept was designed not just with Hong Kong in mind, but more particularly with Taiwan in mind. And as Chinese, of course, we all hope that one of these days, Taiwan will be reunited with China. I think China has made it quite clear that it hopes to do so through peaceful means and through discussion. And we must all hope, as I'm sure you hope here, that that will be the way.

Question: One, would you comment on the commercial and financial competition with Shanghai? How do you see the relative strengths of Hong Kong and Shanghai as different parts of the PRC? Secondly, with regard to Taiwan, when the day comes when they do have direct travel arrangements across the strait, how would you see that affecting Hong Kong?

Mrs. Chan: I think it is entirely possible to be optimistic about the future growth of Shanghai just as one can be optimistic about the future goals and prosperity of Hong Kong. The two are not mutually exclusive. In other words, the rise of Shanghai need not spell the demise of Hong Kong.

And indeed, in a vast country like China, Deng Xiaoping once said, China requires many Hong Kongs and many Shanghais. It is true that Shanghai is coming up very fast and therefore Hong Kong needs to be particularly on its toes. We've always known in Hong Kong that we have to run just to keep still.

But I think that there is still a wide gap between Shanghai and Hong Kong, not so much in the physical infrastructure, but in what I describe as the "software"--the rule of law; the predictability of government policies; open, transparent government; a critical mass of banking institutions and financial management companies; and the ability of firms to take their disputes to court and the certainty that disputes will be judged and resolved fairly in the courts. These are very important attributes of Hong Kong.

I would also add that the free flow of information and the freedom of the press are also very important considerations for business people. And finally, we have a freely convertible currency whereas, at the moment, the Chinese currency is not freely convertible. So I do think we have strengths upon which we should build.

But I repeat again, I think that Shanghai and Hong Kong can play very useful, complementary roles. We have, after all, very different hinterlands. And over the course of time, it would be expected that Shanghai would perhaps be very important in the whole context of the development of the Yangtze River Delta region, but Hong Kong would continue to play a very pivotal role in the Pearl River Delta and region.

And the other part of your question was about Taiwan. Of course, one of these days, we expect that links, whether it is in shipping or in aviation or in trade will be established directly between Taiwan and the Mainland. But this need not mean that Hong Kong will no longer play a role. I think that while some of the indirect trade and investment will obviously go directly from Taiwan to other parts of the Mainland, nevertheless, we will continue to have a slice of the cake. In absolute terms, our role may be smaller, but in relative terms I think we will continue to have a fair share of the cake. That is provided we ensure that we remain competitive and build on our strengths.

Question: Two points. Martin Lee who led the movement on democracy before 1997 and who also insisted on the application of the rule of law--we have not heard much from him. Would you please comment about his activities, particularly on Article 23? And could you also say something about Falun Gong. We do not know much about what they are doing in Hong Kong or here. All I know is every time I drive by the Chinese Embassy I see a group of people standing there like statues.

Are they free to express their opinions and what are they all about? What is Hong Kong's attitude, and what is China's reaction to that?

Mrs. Chan: Martin is alive and well and, indeed, I think he continues to speak up. Very recently he's been in quite a number of newspapers commenting on Article 23. I think that it is right and I understand the concerns that Martin and others have expressed on Article 23. But as I said in my presentation, we do need cool heads to look at this issue and we must keep our eye on our ultimate objective.

What is our ultimate objective? Our ultimate objective is a piece of legislation, that is clear and unambiguous, that is tightly drawn and includes sufficient safeguards to ensure that all the rights and freedoms guaranteed in the basic law are indeed protected. So that is our ultimate objective.

I don't think that at this stage it is particularly helpful to attempt to second guess the motives of either the SAR government or the central government. Indeed, I would say that from what I've seen of the consulted documents, so far, I think we should give credit to the SAR government for making a conscientious effort to try and seek the right balance. But of course, we've only just started this consultation exercise. The SAR government has made it quite plain that this is a genuine consultation, that they invite views, they're very willing to sit down and talk with anybody who has views, and so hopefully, at the end of the day we will end up with a piece of legislation that everybody can live with.

The Falun Gong is, as you know, outlawed on the Mainland but not so in Hong Kong. They continue to be a legally recognized organization and their activities will be allowed for as long as they keep within the law. The group in Hong Kong is actually not very large, but they can go about their activities quite legitimately. I was recently in Vancouver and I saw that some of the Falun Gong members seemed to be permanently stationed outside the Chinese Embassy in Vancouver. But in Hong Kong they can go about their business, quite clearly, and they can apply for government premises and government premises, for example, are allocated on a first-come, first-served basis. So I don't detect that there's any attempt to interfere with their freedom to go about their activities provided they keep within the law.

Question: You mentioned the economic difficulties in Hong Kong in recent months. What's your view about a recipe for changing the taxation system?

Mrs. Chan: We're actually required by our constitution to maintain a low tax regime. That doesn't of course mean that the current rates for personal tax and profit tax are immutable. The Financial Secretary has made it quite clear that he is very serious about balancing the budget and in that context, I think we're all waiting to see what his next budget will produce, whether he will feel the need to adjust the rates of tax. But we come back to the provision in the Basic Law which is, we are required to maintain a low and simple tax regime.

Dr. Feulner: Thank you very much, Madame Chief Secretary. One of the points you made is that "economic freedom is not a stand-alone." My colleagues and I, as you well know, are very proud of the fact that we have launched the last eight editions of our Index of Economic Freedom, which we publish jointly with The Wall Street Journal, in Hong Kong because Hong Kong has in fact been number one in economic freedom of the 161 countries we rank. So I caution all of your successors in government to pay attention to your quote, when you said, "When you enter choppy waters the last thing you want to do is throw away your compass." We view our Index as being one of those compasses.