The new authoritarian government of Hong Kong is practicing a higher degree of state intervention than could have been imagined under British rule. Sir John James Cowperthwaite, the financial secretary who shaped Hong Kong's wide open financial policy of the 1960s, must be turning over in his grave as he sees his policies modeled after those of Adam Smith corrupted on the altar of expediency.
Hong Kong's Chief Executive Tung Chee-hwa, taking counsel from local and foreign business tycoons, has had the government buy up more blue chip shares than any other single holder of equity. As much as 10 percent of the market has been nationalized and overseas investors are beginning to look elsewhere.
Before going on a share-purchasing binge, akin to a sailor unloading his pockets the first night ashore at a Wanchai Suzie Wong bar, the government ordered a freeze on all land sales to prevent the property market from taking a node dive.
Or as one analyst put it "To help the big property developers from having to take reductions in the enormous profit margins they have traditionally enjoyed."
The moves were supposedly taken to protect Hong Kong's currency and ward off speculators, formerly known as foreign investors.
The fact of Brazil abandoning its tie to the U.S. dollar in mid-January in the face of intensive pressure, has led to new interest in the Hong Kong dollar, which is the leading Asian currency tied to the U.S. dollar to have survived.
China's pledge not to devalue the yuan is also under fresh examination following Brazil's decision to float the Real. China is bolstered by a massive foreign exchange reserve--US$145 billion, the world's largest.
Hong Kong's $88 billion in foreign currency reserves and its deserved high reputation for financial savvy give it protection against market pressures.
The Hong Kong economy today, as a matter of fact, looks suspiciously like Tong's old Orient Overseas Shipping Co. When things went wrong at Orient, Tung called on banks around the world who turned him down. Finally he was bailed out by Beijing, through an intermediary.
Recently Tung called in foreign advisers in the same pattern.
Will Beijing bail out Hong Kong by devaluing its currency? Will the Hong Kong dollar peg to the U.S. dollar be removed in the final act of intervention in a game plan that has worked for years?
I hate to say it but I think Hong Kong is heading for a fall.
It is suffocating from not only near-invisible pressure on the press, but also from corresponding lack openness in other areas. (4)
