Thank you very much. I really appreciate the invitation from the American Chamber of Commerce to come and speak to you today.

This is an appropriate place for my first major public remarks in Hong Kong. This Chamber has been the most active with which I have worked in my diplomatic career. In fact, I understand it is the largest and most active of all of those established overseas.

Over the years, the Consulate has worked closely with the Chamber in demonstrating America's support for Hong Kong's continued success. I very much look forward to advancing that strong partnership. During the past two months, I have had an opportunity to get to know Jason Felton, Frank Martin, other members of the board as well as a number of other members of the Chamber. From those discussions I have already learned a lot about Hong Kong and the business opportunities it presents. I very much look forward to getting to know all of you better.

Let me make clear where I stand on issues of importance to you. Gone are the days when some U.S. diplomats may have thought that Dun and Bradstreet was an intersection somewhere in London. That was not the case at the embassies where I have worked earlier this decade. Most assuredly it is not the case among our team here in Hong Kong. One of the most important things we do here is to work with you to promote the products and services of U.S. companies. We want to ensure they can compete on a level playing field with those of other companies. Our doors are open to you.

I first came to this city in 1971 as a young professor to teach for a year. If someone had told me back then that 27 years later I would be addressing the American Chamber of Commerce as the U.S. Consul General, I wouldn't have believed it. And I'm sure that some of the people who knew me back then wouldn't have believed it, either.

But I've changed, and Hong Kong has changed, and so here we are.

During the past two months, I've been going around and reacquainting myself with this city that I grew to love so long ago. The visible changes I've seen have been dramatic -- the soaring skyscrapers, the modern subway, the new airport. But on a deeper level, what has struck me the most is how much the very nature of Hong Kong itself is expressed by the idea of change. It really can be said that for Hong Kong, change itself is a constant. Hong Kong is -- and has always been -- a work in progress. And that's a positive attribute. What's different now is that it's up to the Hong Kong people and their government, within the framework of the Basic Law, to shape their own future in most areas.

One of the things that has changed dramatically since I last lived here is the economy. When I left Hong Kong in 1972, it was a city dominated by low-cost manufacturing, where hard work and cheap labor gave Hong Kong a competitive edge. I returned to a city dominated by property, banking, retail and other services, where sophistication and expertise provide the edge in a high-cost environment. And, judging from all the studies I have read, speeches I have heard and discussion I have encountered these past two months, the wheel is again turning. Hong Kong is now seeking to chart its future through the portals of the knowledge-based economy of bits and bytes.

In keeping with a more sophisticated economy, higher education opportunities in Hong Kong have expanded. The number of Hong Kong students going on to college or university has risen from less than two percent to 18 percent. This is a major change. I was gratified to see that the Baptist College where I taught has become the Hong Kong Baptist University. Lingnan College and Hong Kong Polytechnic are also universities now, and some completely new institutions -- such as Hong Kong University of Science and Technology, City University, Open University and the Hong Kong Academy for the Performing Arts -- have been founded. The web of close connections between educators and students in the U.S. and Hong Kong has grown even closer. There are now 68 student exchange programs and agreements between institutions of higher education in Hong Kong and the U.S., 24 staff exchange and training programs and more than 150 collaborative projects.

One of the more interesting things I noted while looking through my old diaries were the references to local corruption, police pay-offs and lack of due process. This is an area where there's been a real change. Now Hong Kong is known for its clean government and professional police force. The Independent Commission Against Corruption is held up as a worldwide model of effectiveness.

One thing my diaries don't talk much about is politics. There wasn't much then of the politics that one is beginning to see today. I'm thinking, for example, of the efforts of the DAB and Democrats to organize themselves for next month's District Council elections. Democratic politics are often noisy and contentious - I know that from personal experience. My ears are still ringing from my work with our own Congress over the past three years. But the fact remains that it is through democratic give and take that governments are held accountable and people make their government respond to their needs and interests. I would definitely count this change as a genuine plus for Hong Kong.

The high turnout in the 1998 Legislative Council elections shows that the Hong Kong people believe in democracy and want more of it. We have often said that expansion of democracy, which after all is envisioned in the Basic Law, should proceed at a pace that the Hong Kong people desire.

The way to find out what the Hong Kong people desire is to begin to discuss this issue as Hong Kong charts its path into the 21st century.

Another change has been in Hong Kong's economic relationship to the mainland. The emphasis during the early '70s was on insulating Hong Kong. When China opened up, this gave way to closer economic ties as Hong Kong's entrepreneurs were quick to take advantage of new opportunities to the north. Hong Kong was well positioned to become the gateway to China. But now China has other gateways, and Hong Kong's advantage over mainland cities is no longer a sure thing. China is investing large sums in ports and infrastructure, and has its own plans for a high-tech future. So, given this healthy competition, it seems likely that Hong Kong's economic relationship to the mainland will evolve yet again.

And finally, this brings us to the biggest change of all. When I lived here before, Hong Kong was a colony, and any change in that status was so unimaginably far off, no one gave it much thought. Now Hong Kong is a Special Administrative Region (SAR) of the People's Republic of China, and people give a lot of thought to that status, and what it means.

Under the "One Country, Two Systems" formula, Beijing promised Hong Kong a "high degree of autonomy." So far, Beijing has kept the basic promises it made to respect Hong Kong's high degree of autonomy. That means that Hong Kong's future -- for the first time in its history � is largely in its own hands. Patterns are being set right now, precedents are being established that will have repercussions far into the future, including on the perceptions of the international community.

As others have rightly pointed out, this "One Country, Two Systems" idea has never been tried before -- anywhere -- so the Hong Kong SAR is very much a pioneering endeavor. I know that all of us in this room have a stake in this arrangement, and very much want it to succeed. Personally, I think Hong Kong is a great place. It's vibrant, it's interesting, it's a good city in which to do business, it's a place where people aren't afraid to speak their minds, or publish, or go to their churches, or live their lives as they see fit.

In the last few weeks, all the talk has been about Hong Kong in the 21st century. What kind of city will it be? The Chief Executive has laid out a comprehensive vision for Hong Kong to become the "New York or London of Asia." Of course, we're flattered that New York is held up as a benchmark.

There clearly is a need for Hong Kong to step up to the new challenges it faces and again to recognize the need for further change while building on its strengths. That means preserving what has made Hong Kong Hong Kong.

So, with that in mind, let me underscore what I see as several principles that constitute the bedrock of Hong Kong's past achievements, principles that should undergird its future greatness.

The first of these principles is rule of law. This is something that you in the business community have cited time and time again as one of the main reasons you chose Hong Kong as a place to do business. But a stable, dependable, transparent and fair legal system with an independent judiciary is more than just a great competitive advantage for Hong Kong's economy. It provides the underlying guarantee for all of the other principles that make Hong Kong special, and for all of the rights that make Hong Kong's citizens free.

Because the rule of law is so fundamental, we -- and indeed all of Hong

Kong's friends -- watch with interest, and at times concern, those legal cases and those government actions that may have a bearing on the future of the common law system here. We understand that the intersection of "one country" and "two systems" is a complicated area with no easy answers. We understand that Hong Kong has not had a written constitution until now.

But the decisions taken in these initial years set precedents that can have larger ramifications, so we naturally focus on what major cases taking place now will mean for Hong Kong's future development and its continued autonomy.

The next principle is openness. It was Hong Kong's openness to the world that got it where it is today. Only by preserving and expanding that openness can Hong Kong hope to achieve its ambition to be a world-class, international city. By openness, I mean first of all, openness to ideas and freedom of expression. The free flow of information is a vital part of Hong Kong's way of life and a key contributor its economic health and success. The most obvious sign of this openness is a free and vibrant press.

Now, I know that a lot of people look at some of the excesses of the Hong Kong media, throw up their arms and say, "SOMETHING needs to be done." But this is definitely a case where some of the proposed cures could prove worse than the disease. We tend to agree with those who say that in general, the best place to address the issue of journalistic ethics is within the journalism community itself. This is far preferable to outside controls that could have the effect of restricting the press in its legitimate role. If Hong Kong wants to be woefully misunderstood in the rest of the world, there is no better way to do so than to put in place a government-appointed statutory body wielding penalties to "improve" the press. In any case, the fact that there is such lively, insightful debate on this issue in Hong Kong is a positive sign. We will continue to watch with great interest.

And, of course, there's economic openness. I don't need to tell this audience about the importance of unfettered trade, a free-market system, a minimum of controls over capital, and a welcoming climate for investment.

It's one of the main reasons you're here, and one of the things that has kept Hong Kong competitive with other cities that have lower costs or other advantages. This openness has allowed Hong Kong to change over the years, and it will enable Hong Kong to adapt to the challenges of the next century. We welcome recent steps toward introducing increased openness, transparency and competition in various service sectors, such as telecommunications, and look forward to progress elsewhere, such as banking and air services. Government has an important role to play in fostering this openness - Hong Kong, like other developed economies, must continue to ensure that its financial markets are well regulated, and that its goods and services markets are truly open and competitive, not cartelized and collusive.

Although economic issues tend to get the most attention in this economic city, respect for human rights is also one of the principles that make Hong Kong what it is. There was a lot of concern on this score before 1997, but the Hong Kong people continue to show a strong dedication to these rights and ability to pursue them. The annual commemorations of the Tiananmen anniversary, as well as the ability of Falungong practitioners to continue their activities in Hong Kong and to stage public demonstrations, have been noted as evidence that Hong Kong has retained its basic freedoms. The United Nations Human Rights Committee will review the record at a Geneva meeting later this month; that is a healthy process.

What happens in Hong Kong matters very much to the United States. It matters because of the extensive ties between our peoples, our shared attachment to universal values, and our common interests. In fact, American support for Hong Kong is not just a matter of policy -- it's a matter of law. The Hong Kong Policy Act says that the U.S. should play an active role in maintaining Hong Kong's confidence and prosperity, its role as an international financial center, and the mutually beneficial ties between the people of Hong Kong and the U.S. The Act gives us the flexible tools necessary to work with Hong Kong under Chinese sovereignty as it continues to enjoy -- and more importantly to protect -- its high degree of autonomy. So we will be partners in Hong Kong's quest in the next century to become an even greater international city, as well as a city of China.

As many of you know, we have a very broad agenda of engagement and cooperation with Hong Kong that embraces trade and investment, international economic policy, law enforcement cooperation, protection of intellectual property rights, halting illegal textile transshipments, protection of strategic technology, educational and cultural exchanges, environmental protection, and, hopefully, a return to regular U.S. Navy port calls. I want to single out just two areas today.

The first one is the environment. I suspect that you all were pleased to see the environment featured so prominently in Mr. Tung's policy address, and so were we. The deteriorating quality of Hong Kong's environment is one of the things that businessmen cite most often as a negative factor for doing business here. I know this is a priority for the American Chamber, and for us as well. The business community has taken an active role in promoting environmental improvement. The establishment of the Business Coalition on the Environment, of which the American Chamber is a part, is a key step.

The United States has experienced and dealt with a number of serious environmental problems. We have developed equipment and expertise, and are fortunate to have in Hong Kong a mechanism to share them: the U.S.-Asia Environmental Partnership. Perhaps some people aren't familiar with AEP's work, so let me describe it briefly.

AEP explores ways to harness U.S. experience in order to help Hong Kong and the region to improve environmental quality. AEP has brought American experts to speak on issues ranging from waste management to sustainable development, from indoor air quality to corporate stewardship. It helps to introduce U.S. environmental technology to Hong Kong by providing assistance to American environmental companies that are looking to enter the local market, and by bringing delegations from Hong Kong to the U.S. to participate in environmental seminars and see equipment and technology in operation. One example of this partnership is a project that AEP is working on with the Hong Kong government and a local university that will use U.S. technology to enhance the energy efficiency of a government office.

Improving Hong Kong's air, water and solid waste management as well as integrating environmental considerations into decision-making is not easy. There are bound to be controversies and obstacles here just as there have been in the United States and elsewhere. We have found that the keys to success are three-fold. First is private sector involvement in developing innovative, practical, and cost-effective solutions to environmental problems. The second is sustained government leadership and the commitment of real resources to make a change for the better. Finally, and perhaps most importantly, there needs to be broad, informed public discussion and participation in this effort so that people better understand what is being proposed and develop a stake in restoring the environment. You will know progress is being made when your children, like my 12-year-old, want to talk about the environment around the dinner table and demand changes in the wasteful habits of their parents.

The other area of potential cooperation I wish to highlight is air services. Once a dream and now a reality, Hong Kong's huge, shiny, new Chek Lap Kok airport -- occupying a geographic crossroads � offers unparalleled opportunities for Hong Kong to expand its links worldwide.

Freed from Kai Tak's size constraints, the new airport could handle as many as 35 million passengers per year -- far more than the 28 million handled in the past 12 months. Comparable growth in air cargo is possible. To turn this potential into reality - with its manifold benefits for Hong Kong - we need to work toward air policies as modern as the new airport itself.

We very much welcome Chief Executive Tung's commitment in his policy address to implement a more liberal policy for air cargo services.

What would a modern airport governed by modern, flexible passenger and air cargo policies look like? Many more flights to and from more destinations could accommodate both hectic businessmen and leisurely tourists - and also help to pay for the airport itself. In the holds of these aircraft, high-value goods, perhaps products of cooperative partnerships and synergies between U.S. and Hong Kong firms, would be transported to speed- and service-minded customers around the globe.

Similarly, air cargo firms could put together creative flight combinations that respond to rapidly shifting production sources and markets while maximizing efficiency and profitability. This would enhance the ability of Hong Kong manufacturers to coordinate just-in-time production across several Asian countries, helping cement the Hong Kong SAR's niche as a marketing and management center. Increased international transport links would thus spur new investment, bring more revenue to hotels, restaurants and air service industries and boost tourism.

As we move into the new millenium, as Hong Kong plans for its long-term future, this is a time for creative and farsighted thinking. The U.S. and Hong Kong will be discussing these questions in coming months. We hope we can reach results that enable us both to seize the opportunities before us.

So those are just a few of the areas where we feel we can contribute to the continued vitality, prosperity, and stability of Hong Kong.

As we look ahead to the 21st century, Hong Kong faces significant challenges that also present major opportunities. The Asian Financial Crisis - like Typhoon York - made a direct hit on Hong Kong. Even more fundamental factors are coming more clearly into view - the impact of globalization of the world economy, opening of Hong Kong's telecommunications and broadcasting environments, growth of e-commerce and the internet economy, changes in Hong Kong's economic relationship with China and transformations in Hong Kong's economy itself.