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CNBC Transcript: Carrie Lam, Hong Kong Chief Executive

Following is the transcript of an exclusive CNBC interview with Carrie Lam, Hong Kong's Chief Executive at the 2018 Asian Financial Forum in Hong Kong. The interview was broadcast on CNBC on 15 January 2018.

All references must be sourced to a "CNBC Interview'.

Interviewed by Bernie Lo, Anchor, CNBC.

Bernie Lo (BL): Carrie Lam, Chief Executive of the Hong Kong Special Administrative Region, joins us on the program. Carrie, good to see you again. First thing I want to talk about just briefly because it is topical over the weekend. Yesterday we did see that the pan-dems are holding a primary process to field the candidates for the bi-election, which is coming up the second week of March to replace the former legislators in the Legco. How is that situation going? How's your relationship with the Pan Democratic camp going in the half year that you've had to interface with them?

Carrie Lam: Well, in the last six months or so as I have pledged in my election manifesto I think I have done all that I could have done to engage legislative council members and politicians from across the political spectrum. I have responded very positively to some of the suggestions they made, for example attending legislative council meetings more frequently for them to ask questions or to grill me on some of the topical issues and also inviting some of them to join the government boards and communities. But coming back to the bi-election, I just wanted made it very clear that we will conduct these elections in an open, fair and transparent manner being supervised not by the government by an independent Electoral Affairs Commission.

BL: You have made yourself very available. You have made yourself available to the legislature as you've promised time and time again for questions. What I have seen recently is the issue over our new secretary of justice and those technicalities regarding her personal assets. Some of the language and some of the some of the tone within the legislature is not something that we're accustomed to. It's almost as if the Pan Democrats have found a scandal and they're not letting go of it. This is the sense that a lot of us in Hong Kong get.

Carrie Lam: Well, I have been a civil servant and a politician for over 30 years. Especially in recent years I have had that sort of observation and experience that you have just described. So maybe I personally am more accustomed to that sort of attacks and languages but I just want to make a plea: If we want really talented people to come and to join the political team we have to be somewhat more inclusive because they are not used to that sort of scrutiny. Not that they should not be scrutinized but they are just not used to it. So a little bit of accommodation and tolerance is what I've been appealing for.

BL: You have tremendous tolerance for the job is all I can say. This whole colocation issue, and just for the vast majority of our audience that doesn't understand it it's basically mainland authorities for ease of access into China and to integrate into the Chinese high speed rail network there will be immigration personnel placed who will enforce mainland law in a certain small section of the high speed rail terminal. Why has that issue gone on and on and on and it won't go away. Why is that when the vast majority of Hong Kong people are for colocation and want this thing to go ahead?

Carrie Lam: Like you, I was trying to find out the reason why there was this sort of resistance because it just makes common sense if Hong Kong's 26 kilometer of the high speed rail wants to tap into this massive network of high speed trains in the mainland, we have to have colocation. Otherwise you have to get off the train or cross the border and then find another train it just doesn't make sense. So I came to the conclusion and as I said in Legislative Council a few days ago that perhaps that reflects a sort of a lack of full understanding of the constitutional regime that we are now living in and there's a very strong a adherence to your own system. Our own system is of course something being guaranteed under the Basic Law, which is the common law system. But at the same time we have a constitutional order called One Country Two Systems.

So we now have the highest authority in this central government to make this decision for us to give the legal basis and I think it is a very solid legal basis to support colocation that is to regard a certain area within the West Kowloon station as if it is mainland control area. So whoever steps into that area right before boarding the high speed train will have to go through the mainland customs immigration quarantine procedures. I think that is a very firm basis and very credible arrangement.

This sort of lack of understanding that's why I also pledge that perhaps in the coming years as the chief executive I should try to bridge that gap in understanding and help the two sides especially the two legal sectors to better understand each other.

BL: Over the weekend financial secretary Paul Chan kind of gave us a teaser. It sounds like very happy news because it was a very busy land sales year in 2017. We're going to have a very nice budget surplus this year. A lot of us who have aging parents and aging in-laws, we're very happy to hear the FS talk about the need to spend and invest in the future especially for those who built Hong Kong, the elderly and something that has not been addressed in recent years because we've been so self-absorbed with building flats, building accommodation for people. We have forgotten that home dynamics, the cultural dynamics have changed and no longer do two or three generations live under one roof.

Carrie Lam: Bernie, that's not true. In the last five years, four and half of which I was the Chief Secretary and the chairperson of a commission on poverty, in those four-five years we have actually rolled out a lot of social support programs. As a result of that the recurrent, that is annual expenditure on a social welfare program in Hong Kong, has grown by 71 percent.

BL: So the spending is there.

Carrie Lam: The spending is there, the programs are there, elderly people's needs are now getting Old Age Allowance. And in the middle of this year we are going to enhance that Old Age Allowance to more than 3,400 dollars a month.

BL: What can we do though? What can we do to make sure that there's more of a seamless transition and it's not a lottery trying to find a place for an aging parent or a parent with memory care needs. I mean there are old age homes but as we advance and as we've discovered new science we've realized that Alzheimer's, dementia, memory care that's a specialty that's not just old age care per say.

Carrie Lam: I see a lot of potential in application of innovation and technology. That's why in my election manifesto and now my policy address I said that while we will continue to consolidate Hong Kong's financial services we will move into innovation and technology. And within this big area of innovation and technology I see Hong Kong possessing potential in biotechnology for example in finding new ways to prevent and cure dementia, long term care and using technology to help elderly who are unable to help themselves. So we'll continue to do that. But meanwhile we need to build, that's for sure. We need to build more quality elderly homes.

BL: What you're talking about of course is the wider issue of innovation something that you really want to make sure happens during your watch as Chief Executive. I mean last year the buzzword was Fintech. We're here today at the Asian Financial Forum sure we're talking about Fintech, you know, probably cryptocurrency but you and I can avoid that one we'll let them talk about it, but how does this all fit into the innovation? Do you have a better sense now a half year into the job about Hong Kong's ability to really innovate?

Carrie Lam: Not that I don't have a better sense because I'm learning so I do have a better sense but I'm full of optimism and confidence about Hong Kong growing into innovation and technology because we have very good research and development capacity in Hong Kong. You just look at our universities. Five of our universities are among the top 100. And many of them are distinguished professors. They are now winning awards and doing breakthroughs in the various things almost on a weekly basis. So what we now need to do is really to provide the right policies for advancing innovation technology, to put in more government money for research and development, to incentivize the corporations to also invest in innovation technology and to attract talent.

BL: Why is it that these things, all the things that are right with Hong Kong, get you know papered over or covered over by a lot of the negatives that the press tends to harp on nowadays? Like you know the subjugation of Hong Kong's rule of law to the PRC et cetera et cetera. I mean it's a daily affair now in the print media and in the broadcast media. Why has it gone that way? What do you think it is?

Carrie Lam: Oh I don't know but certainly what has hit the public domain is not the full picture that Hong Kong presents. So the government has a duty to really do more promotion both locally and overseas. That's why I welcome very much coming to CNBC to talk about Hong Kong's situation.

BL: This was a wonderful year. 2017 was a year when everybody grew, China surprised with this durability of the economy. Now one of the things that everybody is talking about is, we heard from David Lipton from the IMF here, the good times don't roll on, forget forever and enjoy it while it lasts because they never do. What would you say to that in the context of Hong Kong?

Carrie Lam: Well Hong Kong has a very good year. Last show of course we have not released a full year figure but the first three quarters has grown by three point nine percent which is almost double that of 2016, which was only a mere two percent. We always have to stay vigilant. We cannot be complacent especially for Hong Kong, which is a very open and externally oriented economy. So we are also reviewing our structures our regulatory regimes to ensure that we will stay on top of all of these issues. And if there are uncertainties arising then we fully prepare to deal with those uncertainties.

BL: Mrs. Lam, on a personal note the other day, and this is a story which has been working its way through the Hong Kong media for some time now, my wife who works for you is a long-time civil servant within SHK she said, you know I don't know if I can do this. If our CE says she only sleeps three, four, maybe five hours a day and that's the standard thing we're going to be held to I don't think I can survive this job. Can you say something to soothe her?

Carrie Lam: First is, I never impose my own standards on my colleagues. Secondly, I stress work-life balance. Whether I could do it well is another thing. But I always preach and stress a work-life balance especially for my colleagues with young families. But these days are better. I was referencing a very intense period when I was preparing my first policy address and you know because we have advanced a policy address by almost three months. So everything has to be done in a very intense manner. But I'm picking up my sleep. Thank you very much for your concern.

BL: You look like somebody who sleeps more than three hours a day. Carrie thank you very much for your time it's our pleasure.

END