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Hong Kong Monetary Authority (HKMA)

Backing through-train puts HKMA chief on track again

PUBLISHED : Monday, 15 October, 2007, 12:00am
UPDATED : Monday, 15 October, 2007, 12:00am

The head of the Hong Kong Monetary Authority, Joseph Yam Chi-kwong, has his job back. He strayed from it recently to lobby for closer links with mainland stock exchanges but all this has done is force him to focus on his traditional duties again.

Look in the first chart at the track of the HK dollar three-month interbank rate over the last month. It suddenly shot up and is now higher than the equivalent US dollar rate in London.

What Joe did by pushing for a window to allow mainland punters to invest in the Hong Kong stock market was to encourage all their local counterparts to jump into the market on the reasoning that mainland money would push it way up soon.

The inevitable result was a huge demand for money to buy stocks and it naturally exerted upward pressure on interest rates.

The mechanics of the linked exchange rate to the US dollar mean that Joe cannot do much about interest rates, however. What actually has him back in his day job is the resulting movements of the HK dollar exchange rate.

It is near the strong side of his convertibility undertaking against the US dollar. Since mid-2005 Joe has been obligated to keep the rate between HK$7.75 and HK$7.85 rather than just stronger than HK$7.80.

He has not had to intervene officially yet but it won't be long before he does so if this trend keeps up. The last time he intervened in a big way was in early 2004. He had to buy up HK$55 billion worth of foreign currency when speculators bet that yuan revaluation was imminent and the HK dollar would go with it.

Somehow I think that high up in those lofty offices in IFC II, not quite as much thought is devoted to Shanghai now as in the summer. The Eye is turned elsewhere.

'... implement the strategy recommended by the Hong Kong 2030 Study, which has been completed, to guide the long-term development of Hong Kong'

Donald Tsang Yam-kuen, Policy Agenda

A friend pointed it out to me. The chief executive has used the policy agenda - a wish list appended to the policy address - to stick a knife into his predecessor's big planning exercise, Hong Kong 2030. It has been 'completed', as in 'the Dodo bird has been completed'.

It came to life in 2001 and still had a stage of strategy formulation and public consultation to go before being put into action, although that stage was scheduled for four years ago.

We do have a Final Report Action Agenda, however. It's in the form of a brochure with lots of dreamy architects' drawings and photos of things like that crumbling old 'Blue House' in Wan Chai, which happens to be blue because the Water Department had a lot of blue paint in store a few years ago and didn't know what to do with it.

But that's a different story. Here is a taste of the brochure's text: 'We will implement a package of measures to promote heritage conservation; continue to protect our historical and cultural identity, value, character and sense of place; and enhance the surroundings of heritage features through implementation of area improvement plans (AIPs).'

Yep, you got it, lots of implementations of multi-pronged strategies in a holistic manner but not a whisper, not a peep, of anything so specific as that of the 2030 study that said the Lok Ma Chau Loop was unsuitable for development. The chief executive is beholden to his pals across the border to develop it. He said so in the policy address.

His approach to these things is more sophisticated. Instead of getting civil servants to draft a planning report he appoints the children of rich people to do it. He then gives them as much scope for 'study' as they want with the result that they come back with hundreds of recommendations.

Ten would be difficult. He would actually have to consider them. But hundreds can safely be ignored so long as the rich kids are properly thanked and told what a great service they have done for the community, which the chief executive has taken proper care to do.

And, to tell you the truth, I fully agree with this approach. You don't have to spend hundreds of millions of dollars this way, you don't waste the time of busy people in public consultations and you give rich kids something to keep them out of trouble. It's less cynical, too.