2. The HKSAR Exercises a High Degree of Autonomy in Accordance with the Law

After the establishment of the HKSAR, the previous capitalist system and way of life remain unchanged in Hong Kong, and existing laws remain basically unchanged. Adhering to the law, the HKSAR protects the right of ownership of private property, maintains the status of Hong Kong as a free port and a separate customs territory, maintains independent finances, practices an independent taxation system, and formulates its own policies regarding trade, finance, education, science, culture, public health and sports. In accordance with the Basic Law of the HKSAR and the decision of the NPC Standing Committee on handling the laws previously practiced in Hong Kong, the laws previously in force in Hong Kong, that is, the common law, rules of equity, ordinances, subordinate legislation and customary law are maintained, except for any that contravene the Basic Law and are subject to any amendment by the legislature of the HKSAR. On this basis, the HKSAR exercises a high degree of autonomy, and fully exercises its administrative, legislative and independent judicial power, including that of final adjudication.

The chief executive of the HKSAR is the head of the Special Administrative Region. He/she represents the HKSAR and is accountable to both the Central People's Government and the HKSAR. The chief executive is also the head of the government of the Special Administrative Region, and exercises powers and functions conferred by the Basic Law, such as leading the government of the region and being responsible for the implementation of the Basic Law. While exercising his/her powers and functions, the chief executive shall implement the directives issued by the Central People's Government in respect of the relevant matters provided for in the Basic Law of the HKSAR. The government of the HKSAR is composed of permanent residents of Hong Kong in accordance with the relevant provisions of the Basic Law, with a Department of Administration, a Department of Finance, a Department of Justice, and various bureaus, divisions and commissions to exercise powers and functions such as formulating and implementing policies and conducting administrative affairs, as prescribed by the Basic Law. The HKSAR enjoys administrative power in a wide range of areas, including the economy, education, science, culture, sports, religion, social services, public order, and control of entry and exit of the region. In addition, the HKSAR conducts external affairs as authorized by the Central People's Government.

The Legislative Council of the HKSAR is the legislature of the HKSAR. It is formed by election, and exercises the following powers and functions in accordance with the Basic Law: enacting, amending or repealing laws in accordance with the provisions of the Basic Law and legal procedures; examining and approving budgets introduced by the government, and approving taxation and public expenditure, among others. The HKSAR enjoys legislative power in a wide range of areas, and is empowered to formulate laws relating to civil, criminal and commercial affairs, as well as judicial proceedings, for application in the region in accordance with the Basic Law. The laws drawn up by the Legislative Council of the HKSAR must be reported to the NPC Standing Committee for the record. If the NPC Standing Committee, after consulting the Committee for the Basic Law of the HKSAR, considers that any law enacted by the legislature of the region is not in conformity with the provisions of the Basic Law regarding affairs within the responsibility of the central leadership or regarding the relationship between the central leadership and the region, the Standing Committee may return the law in question but shall not amend it. Any law returned by the NPC Standing Committee is immediately invalidated.

The courts of the HKSAR at all levels are the judiciary of the region, exercising the judicial power of the region. After the establishment of the HKSAR, the Court of Final Appeal was established to exercise the power of final adjudication in the region. The judicial system previously practiced in Hong Kong is maintained except for those changes consequent upon the establishment of the Court of Final Appeal. The common law and relevant judicial principles and systems previously practiced in Hong Kong, including the principle of independent adjudication, the principle of following precedents, and the jury system, continue to apply. The courts of the HKSAR have no jurisdiction over acts of state such as defense and foreign affairs. They have jurisdiction over all civil and criminal cases in the region, except that the restrictions on their jurisdiction imposed by the legal system and principles previously in force in Hong Kong are maintained. When adjudicating cases, the courts of the HKSAR may refer to precedents of other common law jurisdictions, and the Court of Final Appeal may as required invite judges from other common law jurisdictions to sit in the Court of Final Appeal.

III. Comprehensive Progress Made in Various Undertakings in the HKSAR

Since the establishment of the HKSAR, the government of the Special Administrative Region has, with energetic support from the central government and the mainland, rallied people of all walks of life in Hong Kong, worked hard and overcome difficulties, made full use of the advantage of the policy of "one country, two systems," maintained overall social, economic and political stability, promoted the development of all undertakings and made new achievements one after another

-HKSAR residents' fundamental rights and freedoms are fully protected. Hong Kong residents enjoy basic rights and freedoms in accordance with the law, which are under the full protection of the Constitution, the Basic Law and the local laws. The Constitution and the Basic Law safeguard the HKSAR residents' fundamental rights and freedoms at the constitutional level. The HKSAR provides further protection to residents' rights and freedoms by enacting the Sex Discrimination Ordinance, Race Discrimination Ordinance, Personal Data (Privacy) Ordinance, Independent Police Complaints Council (IPCC) Ordinance, Minimum Wage Ordinance and other ordinances. A multitude of organs, including the Equal Opportunity Commission, Office of the Privacy Commissioner for Personal Data, Office of the Ombudsman, Legal Aid Department, Independent Police Complaints Council, Legal Aid Services Council, Women's Commission and Commission on Poverty, have been set up by the HKSAR government to help promote and protect HKSAR residents' fundamental rights and freedoms.In addition, the Basic Law explicitly stipulates that Chinese citizens who are residents of the HKSAR shall be entitled to participation in the management of state affairs according to law. In accordance with the assigned number of seats and the selection method specified by the NPC, the Chinese citizens among the HKSAR residents elect deputies of the region to the NPC to participate in the work of China's supreme organ of state power. The HKSAR has held in succession four such elections and 36 deputies were elected each time by the broadly representative Conference for Electing Deputies of the HKSAR to the NPC. The Chinese People's Political Consultative Conference (CPPCC) always values the participation of Hong Kong compatriots. Aside from specially inviting Hong Kong personages, other CPPCC groups also include representatives from Hong Kong. The 12th CPPCC National Committee had a 124-member Hong Kong group, and 16 other CPPCC groups had 82 members from Hong Kong.

-The democratic political system has been steadily promoted. Before the return of Hong Kong to China in 1997, the United Kingdom designated governors to enforce colonial rule over Hong Kong for more than 150 years. Since 1997, the HKSAR government and the legislature have been composed of local residents. The chief executive of the HKSAR is appointed by the Central People's Government on the basis of the results of elections or consultations held locally; the legislature of the HKSAR is established by elections. The Basic Law of the HKSAR explicitly stipulates that the chief executive and all the members of the Legislative Council must be elected by universal suffrage, making universal suffrage a legal objective. Since the establishment of the HKSAR, the central government and the HKSAR government have unswervingly and steadily promoted Hong Kong's democratic political system, featuring the election methods for the chief executive and the Legislative Council, according to the Basic Law and relevant decisions of the NPC Standing Committee.

The election of the chief executive of the HKSAR has become increasingly democratic. Candidates for the first chief executive were elected by a 400-member Selection Committee, while candidates for the second, third and fourth chief executives were elected by the Election Committee, the membership of which in the meantime had grown from 800 to 1,200. Members of the Election Committee came from the four major sectors of "industry, commerce and finance," "the professions," "labor, social services, religious and other sectors" and "members of the Legislative Council, representatives of district boards and Heung Yee Kuk, HKSAR deputies to the NPC, and representatives of HKSAR members of the National Committee of the CPPCC" in equal proportions. Such a composition is an expression of equal participation and broad representativeness.

The election of the Legislative Council is becoming more and more direct. The first Legislative Council formed in 1998 had 20 members elected directly by geographical constituencies, 30 members by functional constituencies, and ten members by the Election Committee. The second Legislative Council formed in 2000 had 24 members elected directly by geographical constituencies, 30 members by functional constituencies, and six members by the Election Committee. The third and fourth Legislative Councils formed respectively in 2004 and 2008 both had 30 members elected directly by geographical constituencies, and 30 members by functional constituencies. The membership of the fifth Legislative Council elected in 2012 expanded to 70, including 35 members elected directly by geographical constituencies and 35 members by functional constituencies. The additional five members elected by functional constituencies were nominated by district boards, and elected by voters who had enjoyed no right to vote under functional constituencies.

The timetable has been set for universal suffrage. The 31st Session of the Standing Committee of the Tenth NPC made a decision on December 29, 2007 "that the election of the fifth chief executive of the HKSAR in 2017 may be implemented by the method of universal suffrage; that after the chief executive is selected by universal suffrage, the election of the Legislative Council of the HKSAR may be implemented by the method of electing all the members by universal suffrage," thus setting a timetable for the selection of the chief executive and all members of the Legislative Council by universal suffrage. From December 4, 2013 to May 3, 2014, the HKSAR government initiated a five-month public consultation on the election of the chief executive in 2017 and that of the Legislative Council in 2016, starting the relevant procedures for introducing universal suffrage.

-The HKSAR has maintained steady economic growth. From 1997 to 2013, Hong Kong's Gross Regional Product (GRP) grew by 3.4 percent annually in real terms, and its per-capita GRP increased by a total of 39.3 percent calculated in US dollar. According to the 2013 statistics of the International Monetary Fund (IMF), Hong Kong's GRP and per-capita GRP, respectively, ranked the 35th and 7th in the world, as calculated by purchasing power parity.

Hong Kong has maintained and enhanced its status as an international financial, trade and shipping center. As an important international banking center, Hong Kong boasts the world's sixth-largest securities market and fifth-largest foreign exchange market. Hong Kong ranks high in various lists of international financial centers. As the world's ninth-largest trading economy, Hong Kong has regular trading ties with almost every country and region in the world. Hong Kong is one of the world's largest container shipping ports and fourth-largest ship-registration center. The Hong Kong International Airport is one of the world's busiest. Its air freight volume has led the world for many years, and its passenger transport volume ranks fifth.

Hong Kong's robust industries have been strengthened even further. Trade and logistics, tourism, finance, and professional services and support services for industry and commerce continue to play an important role as Hong Kong's four pillar industries. In 2012, these four sectors employed 47.2 percent of Hong Kong's total working population, and their added value accounted for 58 percent of Hong Kong's total GRP. Hong Kong also focuses on the cultivation and development of the cultural and creative, innovation and technology, testing and certification, and environmental protection industries.

Hong Kong has maintained a sound business environment, and is generally recognized as one of the world's freest economies. For many years, it has ranked high in the World Bank's evaluation of business environments of 185 economies. In its World Investment Report 2013, the United Nations Conference on Trade and Development (UNCTAD) ranked Hong Kong the third in the world in attracting foreign direct investment (FDI). For many years, Hong Kong has been listed among the world's most competitive economies by the World Competitiveness Yearbook compiled by the International Institute for Management Development based in Lausanne, Switzerland.

-Social programs have been further enhanced. Hong Kong leads the Asia-Pacific region in education, as the HKSAR government continues to increase its investment in education, the biggest government expenditure item. During the 2014-2015 fiscal year, the HKSAR government's current budgetary spending on education reached HK$75.37 billion. Since the 2008-2009 school year, Hong Kong has implemented 12-year free education in public schools. The University of Hong Kong and the Hong Kong University of Science and Technology are among Asia's top-ten universities, according to the Times Higher Education Asian University Rankings 2013. The University of Hong Kong was the 43rd according to the World University Rankings 2013-2014. Hong Kong continues to rank high in the global test of the Program for International Student Assessment (PISA) 2012, which reflects the quality of primary education.

Hong Kong continues to provide quality medical and health care services. During the 2014-2015 fiscal year, the HKSAR government's budget for expenditure on medical and health care is HK$52.4 billion, accounting for 17 percent of the government's recurrent expenditure. All Hong Kong residents enjoy equal access to affordable public medical services. By the end of 2012, Hong Kong had more than 35,500 beds in various medical institutions. The infant mortality rate dropped from 4 per thousand in 1997 to 1.6 per thousand in 2013, which is among the world's lowest. In 2013, the life expectancy of Hong Kong's male and female residents was 80.9 years and 86.6 years, respectively, which are among the world's highest.

Cultural and sports activities are flourishing in Hong Kong, where the Chinese and foreign cultures intermingle. The HKSAR government encourages the diverse development of Hong Kong's culture and promotes cultural exchanges. Four unique Hong Kong cultural events were added to the third batch of the State-level Non-material Cultural Heritage List, namely, Yu Lan Ghost Festival, Tai Hang fire dragon dance, Tai O dragon boat parade, and Cheung Chau Jiao Festival. Hong Kong hosted the equestrian events of the Beijing 2008 Olympic Games, and the fifth East Asian Games in 2009. Hong Kong athletes have excelled themselves in events such as windsurfing, table tennis, cycling and martial arts during the Olympics, World Championships and Asian Championships.

Hong Kong's social security service has been continuously improved. During the fiscal year 2014-2015 the HKSAR government's budget for social welfare reached HK$61.9 billion, 3.03 times as compared with the HK$20.4 billion during the fiscal year 1997-1998. Hong Kong has put in place a multilayer and diversified social security and welfare service system. Hong Kong has more than 400 social service agencies, and the number of registered social workers has increased from 8,300 at the end of 1998 to more than 18,000 today. The HKSAR government actively promotes the construction of public housing, moves low-wage residents into public housing, and provides financial aid to those who purchase housing units. Around half of Hong Kong's residents live in housing provided or funded by the government. Among them, more than 2 million live in rented public housing, and over 1 million have purchased housing units with government financial aid..

-Hong Kong's international exchanges and its international influence have further expanded. Hong Kong's international exchanges have been broadened. By June 2013, Hong Kong, as a member of a Chinese government delegation or in other appropriate capacities, had participated in 41 events held by inter-governmental international organizations, and joined 37 inter-governmental international organizations whose membership is not limited to sovereign states. As a member of a Chinese government delegation or in other appropriate capacities, Hong Kong has attended more than 1,400 international meetings; using the name of "Hong Kong, China" it has attended more than 20,000 international meetings not limited to states. It has also hosted or co-hosted more than 1,000 international meetings. The HKSAR has visa waiver agreements with 42 countries, and 150 countries or regions provide visa-free entry or grant visas upon arrival to HKSAR passports holders. Hong Kong has civil air transport agreements, agreements on avoidance of double taxation, agreements on investment promotion and protection, and agreements on criminal justice assistance with many countries. The HKSAR government has economic and trade offices in 11 places, such as Geneva, London, Tokyo, New York and Berlin. Six international organizations, including the European Commission, have representative offices in Hong Kong.

Outstanding Hong Kong professionals have taken important positions in international organizations. Supported by the central government, Chan Fung Fu-chun, former director of health of the HKSAR, was elected director-general of the World Health Organization (WHO) in November 2006, and was reelected in May 2012. She is the first Chinese to head an inter-government international organization since the founding of the United Nations. Shun Chi-ming, director of the Hong Kong Observatory, was elected president of the Commission for Aeronautical Meteorology of the World Meteorological Organization in February 2010.

IV. Efforts Made by the Central Government to Ensure the Prosperity and Development of the HKSAR

The central government has always given high priority to Hong Kong's economic development and improvement of its people's livelihood, and fully supported it in meeting various difficulties and challenges. It gives full play to its role in adopting and executing the national development strategy, and actively promotes exchanges and cooperation between Hong Kong and the mainland, thus providing solid backing for Hong Kong's prosperity and stability.

1. Supporting the HKSAR in Defusing Risks and Meeting Challenges

-Supporting Hong Kong in the fight against the Asian financial crisis. In 1997, the Asian financial crisis broke out, and spread rapidly around the region. Hong Kong was attacked by international speculative forces, its financial market was volatile, its dollar pegged exchange rate system came under attack, and its financial system faced a grave threat. Given these circumstances, the central government solemnly announced that it would safeguard the stability and prosperity of the HKSAR at all costs, strongly support the HKSAR government in protecting the pegged exchange rate system, and not depreciate the RMB. With this support from the central government, the HKSAR government took swift measures that ensured the stability of its financial system and the Hong Kong society.

-Supporting Hong Kong in the fight against SARS. In the first half of 2003, the SARS epidemic hit Hong Kong. It not only posed a threat to the lives and health of the Hong Kong people, but also dealt a blow to Hong Kong's economy that had not recovered from the Asian financial crisis, resulting in deflation, market slump and a high unemployment rate of 8.7 percent. To ensure the safety of life of the Hong Kong people and help the Hong Kong economy climb out of recession, the central government promptly lent a helping hand. Although the mainland also needed medical supplies in the fight against SARS, the central government provided a large quantity of free medical supplies to Hong Kong. The Chinese leaders also went to the hardest-hit areas and hospitals of Hong Kong to inspect local conditions and console victims. On June 29, the mainland and Hong Kong signed the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA), which outlines the steps that the mainland and Hong Kong should take in trade in goods and services, and trade and investment facilitation as well as the goals to be achieved. Later, the Individual Visit Scheme was introduced, allowing mainland residents to visit Hong Kong on their own. These measures helped Hong Kong overcome the SARS attack and boosted its economic growth.

-Supporting Hong Kong in the fight against the international financial crisis. When the international financial crisis broke out in the second half of 2008, the central government was highly concerned about its impact on Hong Kong. In December of that year, it introduced 14 policies to ensure economic and financial stability in Hong Kong. In January 2009, the central government launched more policies, including the signing of a RMB200 billion currency swap agreement by the People's Bank of China with the Hong Kong Monetary Authority. Later, when visiting Hong Kong, the Chinese leaders announced a number of policies to support Hong Kong's economic development, improve the local people's livelihood, and strengthen its exchanges and cooperation with the mainland. All these policies played a positive role in boosting confidence, strengthening capability to defuse risks and stimulating the economic recovery of Hong Kong.