What we have to remember is that we are not doing anything wrong. And we have not lost our way. The fact is that the world is changing, and the business environment is harsher than it has been in the past half century. The problems we are facing are familiar to almost every economy in the world. Competition is fiercer. Global markets are more demanding.

It is going to take a supreme effort from every single adult in this city to get us back on track to prosperity. Inevitably, that means sacrifice. It means restructuring our economy to meet the challenge of the new world order. It means small and simple tax increases, like a rise in salary and profit tax, and even a new land and sea departure tax. It involves cuts in civil service pay, and it means slimming down the bureaucracy to make us a more keen edged economy, where red tape is kept to a minimum and speed of operation and efficiency is the key to our success.

The Chief Executive did not go into explicit detail when he announced his plans to help cut our predicted $70 billion fiscal deficit this year. We could not expect him to. That will come over the next few months and particularly in the March budget. But what he did say shows that there is no shortage of opportunities, and that the Government has set its course and is ready to take some tough and inevitably unpopular action to ride out this storm.

Mr Tung Chee-hwa is leading by example by taking a 10 per cent pay cut for himself and his team. And it is good to know that civil servants have indicated their willingness to accept pay cuts if it is necessary. It is indeed necessary. Pay levels in the service have risen far in excess of private sector salaries, and a reasonable adjustment at all levels is not only needed, but overdue. Of course there must be full consultation between both parties to ensure even-handedness and maintain goodwill, but I expect to see pay cuts introduced in the March budget. If for any reason it cannot be done then, the public should be told why this is so, and assured that whenever cuts are introduced, they will be backdated to April this year.

Retrenchment is equally necessary. The Government is pledged to reduce its own spending by $20 billion by 2006 - another move which is likely to hit all sections of the community, but there is no other way. We cannot afford to lose our unrivalled reputation as a low-tax economy. That is one of our greatest attractions to foreign firms looking for a base in South East Asia. Our infrastructure, our clean government and our free flow of information are the other attributes which put us far ahead of our rivals.

We have to make sure that we keep our strengths, and build on them. And we have a lot to take pride in. We are a major global financial centre. We are number one in the world for container throughput. Container Terminal 9 will soon be in operation and there are plans to build a tenth terminal. Hong Kong is well placed to be the logistics hub of the region; our infrastructure is second to none, and we already have prospects in the pipeline through the development of the Disney theme park, with another 20 new hotels coming on stream in the next few years, to take advantage of our burgeoning tourist industry.

Our capacity to think big and to act boldly is demonstrated in the plan to build a bridge linking the city with Macau and Zhuhai - the State Development Planning Commission is conducting a feasibility study right now, and there is every reason to hope that they will give it their blessing and work can begin soon.

Co-operation with the mainland grows closer every week, to the great benefit of both sides. That is something we can be excited about, but there is still room for improvement. For example, although many restraints have been removed, it is still difficult for a mainland businessman to set up here, or to become the director of a company. That is something of an anachronism in modern day Hong Kong, when these barriers do not apply to foreign businessmen. If Hong Kong prides itself on a level playing field, this is something that has to change.

China is the world's fastest growing economy - and just as Hong Kong is perfectly placed to help it develop, so the mainland is our guarantee of future prosperity and economic growth. Bringing in more young mainland talent and entrepreneurial skills is the tonic the city needs - but we cannot sit back and wait for them to arrive. The Hong Kong Government should mount a publicity campaign on the mainland, so that our message gets through. We have the know-how, the facilities and the international contacts to smooth the way to success for up-and-coming businessmen and computer experts, and we must let them know about it.

The whole world is trying to attract that kind of talent, and in China there is stiff competition from Shanghai and other fast-growing cities. If we want to attract the top talent, we have to earn it by showing what we can offer - and that means getting out and meeting people.

On that note, I urge the Government to look to the business community in its efforts toward economic integration with the Pearl River Delta region. For a long time now, businessmen from Hong Kong have been forging links across the border, getting to know and learning how to work with Guangdong officials. I feel sure that their experience, and the excellent working relationships they have established can be of great help to our Government in the negotiations. It is also a very welcome and positive move to allow Guangdong residents to visit in a personal capacity. This will boost the tourist industry and further help us to understand each other, and to further our common goals.

The Government is also looking at ways to attract investors from all over the world - and so long as we can offer "small government, big markets" the multinationals and the small and medium enterprises will still be drawn to our shores.

So there is plenty to be confident about, even though there are still difficult times ahead. Jobs will be created as we restructure our economy. It will take time, but if we all accept a bit of belt-tightening in the short term, recovery will come all the sooner.

It is the long-term future we should fix our eyes on - that is bright with promise. We must not lose heart. Confidence is half the battle, and Hong Kong citizens, with their adaptability, their strong work ethic, and their time-tested skills at building empires out of nothing, have plenty to be confident about.

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