CNBC Transcript: Carrie Lam, Chief Executive of Hong Kong

Below is the transcript of an exclusive CNBC interview with Carrie Lam, Chief Executive of Hong Kong. The interview was first broadcast on CNBC’s Squawk Box Asia on 11 July 2018.

All references must be sourced to a “CNBC Interview’.

Interviewed by CNBC’s Bernie Lo

BERNIE (B): Well since we're here at the Rise Conference this year, this all about creativity, innovation start-ups etc. What's your take away here, having spent a little bit of time here today. Are we in a good shape in Hong Kong in terms of innovation?

CARRIE (C): I think so. I find it very promising about Hong Kong’s innovation technology and that's why since taking office on the 1st of July last year, if you ask me I attend a lot of these technology events, conferences, competitions and so on because I really want to grow this sector which I feel has a lot of potential. So for Rise Conference like this which is the first time in Asia, it does bring to Hong Kong they said 15000 people from 100 countries and several hundred startups. So this helps us to sort of immediately raise Hong Kong’s profile in the technology sector and also allows our local startups to have a lot more opportunities to interact with overseas startups. So it is this sort of event which I never refuse whenever I get an invitation, I try to come.

B: How do we get, you know, because everybody comes in from 100 countries and then they leave at the end of four days, how do we get those people to want to stay, to want to invest, to want to put down some roots and tap the talent we have here because that’s a problem we have in Hong Kong is people associate us, and have for decades, with property and banking, banking and property in no particular order.

C: I'm pleased to say that perception about Hong Kong is slightly changing, I have read some newspaper reports interviewing tech companies overseas and in the mainland and they normally would also say that well, we are finding Hong Kong being quite serious about innovation technology. So to answer question to attract people to really come and work with us in Hong Kong, you'll need policies, you'll need promotion. So on policies, we have rolled out really one after another in terms of policies- giving more research funding, creating our own government venture capital to invest in startups, building a second science park in Hong Kong, providing a tax incentive for our expenditure by private corporations, implement a tech talent admissions scheme and so on and so on. So we will continue to press ahead with these policies. Promotion requires my time and involvement. As I said I've been going to a lot of conferences and seminars both locally and overseas to talk about Hong Kong's prospects for innovation technology.

B: You recently really did something to shake up a longstanding industry, that is really the root of a lot of people's misgivings and discontent, and that’s the cost of living property prices, by introducing new rules, essentially a vacancy penalty, a vacancy tax. And it’s really caused activity to pick up in the market. Number one, why did it take so long to arrive at this seemingly simple solution? How far are you going to go with it? It's not a one shot deal, there more to come.

C: Well, all the things that I have done on housing, and I will continue to do, stem from my philosophy about housing and also land. I think housing is not a simple commodity because we are so in short supply of land. So the government has a role to play in providing housing, decent housing and affordable housing for the people of Hong Kong. So if housing is such a precious commodity right now because of the shortage, it doesn't seem right for people to have built this new flats and don't put them into the market. So what we have done is really to encourage, incentivize them to put them into the market because if you don't, then you'll have to pay a hefty special rates for that.

B: We've gotten so used to Hong Kong to having a substantial part of our personal wealth as private citizens tied up in property. How do you navigate that delicate balance to make sure that those in the business of developing property, release property on to the market a timely fashion without hurting the secondary market and shaving down people's paper wealth in their own assets. How do you navigate that? It is very delicate.

C: It's very delicate. And also when I say that I have a new philosophy for housing, I also adhere to the free market principle because Hong Kong is the freest economy in the world and has a highly competitive economy. So I'm not going to compromise that by going into other more stringent measures of regulating price in the private sector. But I can do more in a public sector for families in Hong Kong who could not afford a private flat then we could make a public flat for sale more affordable to these families. So one is I'm going to find more land, build more subsidized flats for sale. And two weeks ago, I announced a new pricing policy for subsidized sales flats in Hong Kong and the prices in future will be delinked from the market prices and linked to the affordability in terms of the income of the families. So this will give Hong Kong households better assurance that in time to come they will be able to buy because the government prices will not be sort of affected by the market, by the property market prices.

B: Carrie, every student, of course, in Hong Kong growing up here and going through the school system learns that Hong Kong is a, well they learn a French word very early on in their education- that’s entrepôt, how we are a reshipment, a trans-shipment center. A lot of manufacturing disappeared a long time ago and basically we act as a middle person or a transit point. The world right now is in uncharted territory when it comes to all these trade tensions started by a certain individual who will go unnamed in our conversation. What effect are we seeing here and could it cause a lot of irreparable damage to Hong Kong?

C: Well Hong Kong is still a very important trading partner. We are the world's number seven in terms of our trading volume and we are still doing a lot of re-exports. So mainland Chinese exports for example going to that particular country, a certain percentage routed through Hong Kong and vice versa so any trade war sanctions, additional tariff will hurt us. But if the damage is confined just to the trade side, then our assessment is its damage on Hong Kong overall economy is modest. It will still hurt, but modest. But if this trade war spills into investment confidence and other things, then not only Hong Kong, the whole world will suffer. That's why I agree with a lot of people saying that there is no winner in any trade war.

B: A lot of people worry that the world, the global trading system and the rules that were so diligently put in place through the World Trade Organization mechanism over the years is slowly being chiseled away because of the politics of the day. How do you read the situation? And what impact do you see on us here?

C: Well of course, at the moment the external situation is pretty volatile, very fluid. Hong Kong, we will continue to vigilantly monitor the situation and take the necessary measures but I think this is really not good for the world. It's not just about the trade. We have also seen similar things on the climate change side which is very very unsettling.

B: Finally Carrie, there are a couple of large projects that are going to vastly increase Hong Kong's utility, if I can use that, it sounds like a kind of clinical way of saying it, but basically Hong Kong's ability to connect to the rest of the world, and the high-speed rail link. There are legal challenges still being mounted. Number one, is September still on target a hundred percent in your mind and the bridge, almost ready to go or just waiting for the 'OK' and the greenlight? When are we going to benefit from these? And what is it going to do for Hong Kong?

C: Well these two important pieces of cross-boundary infrastructure- the Hong Kong-Zhuhai-Macau Bridge, and the Guangzhou-Shenzhen-Hong Kong High Speed. Well, as you said, enhance Hong Kong's connectivity to the mainland cities. I am very confident and very optimistic we will be able to open both pieces of infrastructure within the next few months. There are of course are legal challenges as far as the high speed train is concerned, but Hong Kong prides itself on the rule of law, so we would tackle those in our usual manner.

B: Thank you very much.

END

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