implementing fully and faithfully the provisions of the joint declaration and the basic law. my second point is that notwithstanding our commitment, there is no lack of sceptics who doubt that the chinese government would abide by the basic law and fulfil its commitments after 1997. this brings to mind those sceptics who doubted china ’ s commitment to the open door policy and the economic reform which china initiated in late 1979. such critics thought that the problems faced by china in the reform process were so huge that we were doomed to fail. they also doubted how our economic reform could square with china ’ s socialist economy. today, you and i can both see that these critics have been proven wrong. between 1979 and 1995, china ’ s gdp has increased by an average of 9. 9 % every year and the standard of living has improved significantly. the economic and monetary conditions and the legal and institutional reform of our financial sector have made progress beyond the expectations of many. china ’ s foreign reserves reached a record high of us $ 90. 7 billion in early august 1996. the critics are right in pointing out that china is a vast country, with a large population of over 1. 2 billion people. it is natural that in the implementation of our reform we could run into difficulties of one sort or another. at times we need to adjust our pace a bit to resolve those problems but there is no question that china is firmly resolved to continuing with economic reform. equally, china remains firmly and totally committed to maintaining the prosperity and stability of hong kong, in accordance with the provisions of the joint declaration and the basic law. i am sure that the facts and events will demonstrate that the sceptics will once again be proven to be wrong. ladies and gentlemen, let me now proceed to outline first the legal and policy framework and then the seven basic principles governing the monetary relationship between the mainland of china and hong kong. finally, i will describe china ’ s policy on hong kong ’ s participation in international and regional financial institutions and forums. the legal and policy framework according to the joint declaration and the basic law, hong kong will enjoy autonomy in all areas other than foreign affairs and defence matters. the key provisions on the monetary and financial sides provide that : the government of the hong kong special administrative region shall provide an appropriate economic and legal environment for the maintenance of its status as an international financial centre. hong kong shall, on its own, formulate monetary and financial policies, safeguard the free operation of financial

that will each develop with its own characteristics. hong kong in international monetary relations apart from these seven principles, it is also important for hong kong as an international financial centre to continue to develop its international monetary relations and participate in the activities of international and regional financial institutions, central bank forums etc. there are therefore provisions in the joint declaration and the basic law that hong kong may, on its own, maintain and develop financial relations and conclude and implement agreements with other countries, regions and relevant international organisations, using the name of “ hong kong, china ”. some international financial organisations restrict their membership to sovereign states. in those cases, where negotiations are held on matters involving hong kong, the chinese government would normally consult hong kong and include its representatives in the chinese delegation. when entering into international financial agreements which may involve hong kong, the chinese government will first seek the views of hong kong before deciding whether such agreements will apply to it. taken together, these provisions will enable hong kong to continue and also develop its current international monetary relationship. prospects for hong kong after 1997 i believe hong kong will remain prosperous and stable after 1997. why? this is because : first, the strong economic fundamentals of hong kong and the entrepreneurial and management skills of the people of hong kong are the basis for its continued prosperity and stability. secondly, the basic law has provided a legal safeguard for the maintenance of the prosperity and stability of hong kong. thirdly, the economic development of the mainland has created excellent conditions for hong kong ’ s continued prosperity and stability. as pointed out by china ’ s vicepremier zhu rongji at his meeting on 29 may this year with senior officials of four main financial regulators and institutions from hong kong including the hong kong monetary authority - china is confident in hong kong ’ s maintaining prosperity and stability and its status as an international financial centre after 1997 because we have full confidence in the economic development of china. as hong kong will continue its role as an international financial centre, it will become the most important funding centre for china and very likely for the asian region as a whole. with the ongoing reform and open - door policy, the mainland of china has achieved sustained and strong economic growth. our target for economic growth in 1996 is 8 % but it could exceed 9 %. inflation should be within the range of 7 to 8 % for 1996. the mainland of china ’ s growth will obviously benefit hong kong ’ s economy tremendously as we are its largest trading partner. the mainland of china