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Hong Kong Monetary Authority (HKMA)

HKMA definition of 'loss' poses a lot of questions

PUBLISHED : Wednesday, 30 April, 2008, 12:00am
UPDATED : Wednesday, 30 April, 2008, 12:00am

'Exchange Fund posts HK$14.6b quarterly loss'

SCMP headline, April 29

Loss? What loss? Does someone mean to tell me that Hong Kong Monetary Authority boss Joseph Yam Chi-kwong decided to go for a punt on the market with our money and came away the poorer by a net HK$14.6 billion on the subsequent margin call?

Or did the HKMA, perhaps, report the market value of its portfolio of Hong Kong stocks, which was acquired 10 years ago, on the basis of share prices prevailing on March 31 and these happened to be lower than on December 31?

Hmmm ... now which of these might it be? Assuming, only assuming, that it is the second, might we not drop that loaded word 'loss' and say rather that there was a diminution in the market value of long-term investment holdings?

And might we also not tell a certain columnist that he has now ended enough sentences with question marks and it's about time to stop?

The interesting thing about this 'loss', which is no loss for the HKMA, is that the government might have had to treat it as a loss for revenue purposes except that last year, with exquisite timing, it changed its accounting procedures.

Previously, it had told Mr Yam to calculate each fiscal year how much the market value of the Exchange Fund's entire portfolio had risen over the year and then pay out to the financial secretary a proportion of that increase equal to the proportion of the government's direct deposits with the Exchange Fund.

This booking practice was adopted in 1999 because the financial secretary at the time, a certain Donald, didn't think he was making enough money from the fund. He took the risk, of course, that the overall market value of the fund might fall rather than rise but, fortunately for him, it never did so since he adopted the practice.

It was enough of a risk, however, to make the International Monetary Fund frown. The IMF conducts a regular review of our economy and fiscal position and late in 2006 it said that we might not have to hold quite such large foreign reserves if we adopted more conservative accounting for investment earnings.

We took that advice and, it seems, just in time. The public purse now takes its share of the Exchange Fund's investment earnings on the basis of a six-year average of change in market value. This makes the use of the word 'loss' to describe a three-month change in market value distinctly odd.

But I am now going to cheat and break my pledge not to put more question marks in this column. I am doing it because I wonder if there isn't an element of cheating in the new booking practice.

Does it mean, Joe, that you could pay out investment earnings twice, first as a proportion of a yearly gain in market value and then as a proportion of a six-year average gain when you are actually showing a diminution in value on a yearly basis?

'Last year, Hong Kong's gifts and premium exports rose 2% to $166.4 billion.'

Government news release, April 29

Let me explain what I can. Gifts and premium means fridge magnets and key chains while 2 per cent is a pretty poor growth rate.

What I cannot explain is how some government shill thought us so stupid as to fall for this big one that last year we exported HK$166.4 billion worth of fridge magnets and key chains when the total value of all our merchandise exports was only HK$109 billion.

What is actually meant here, of course, is that manufacturers on the mainland shipped out that much of this low-end plastic rubbish and did it through Hong Kong, deliberately misnaming these goods as re-exports so that they could book the profit here and thus cheat the mainland taxman.

But how much of such crud do we actually produce in Hong Kong itself? Well, make a circle of your thumb and forefinger and read what you see.

What a delight to know, however, that one of the people who fell for this whopper was Financial Secretary John Tsang Chun-wah, who opened the Trade Development Council's annual Gift and Premium Fair on Monday declaring that 'we have the experience, the know-how and the connections to stage events'.

Yes, Sir, we do indeed have experience from the era, years ago, when we too manufactured plastic rubbish. We also have the know-how. That's the same thing as experience. And we undoubtedly have the connections. Just go to the airport and look at the arrivals and departures board.

But what we don't have, Mr Tsang, are vast tracts of land for big new exhibition centres, certainly not in the way that Guangdong, or even Macau, makes such land available for what is fast becoming a huge surfeit of glitzy (and mostly empty) show palaces in the delta.

Let's hope furthermore that we are not possessed of their willingness to lose billions of dollars in trying to prove in this silly way that they have arrived. If that is how you are minded, Sir, could you please turn your job over to someone who understands that it's my money you're playing with?