Vindication at last for Tsang's intervention
Last Tuesday, Canada's Fraser Institute once again ranked Hong Kong as the 'world's freest economy', a title that the former British colony has had for many years and that is also bestowed by other organisations, such as the Heritage Foundation in the US.
Chief Executive Donald Tsang Yam-kuen was invited to speak at a dinner that night, and he clearly relished the occasion. 'It's a rather eerie feeling: the world out there is facing an economic meltdown, starting with Lehman Brothers and the heavy government intervention in America, Japan and Europe on an enormous scale, that we should be talking about free trade and economic freedom,' he said.
No doubt, his mind was going over events that occurred almost exactly a decade ago, when, as financial secretary, he ordered a massive intervention in the stock market to counter hedge funds that were dumping Hong Kong dollars to drive up interest rates, and then profit by taking short positions on the market.
By using the Hong Kong Exchange Fund's holdings, the government was able to prop up the stock market and the speculators suffered huge losses. As he said at the time, if they come back, 'they'll be roasted'.
But that episode cost Hong Kong its reputation as a bastion of free enterprise, and Mr Tsang was the butt of much criticism. Alan Greenspan, then chairman of the US Federal Reserve, hit out at Hong Kong's buying spree, saying: 'I don't think it can succeed ... The consequence of doing that erodes some of the extraordinary credibility that the Hong Kong monetary authorities have achieved over the years.'
The Los Angeles Times castigated Hong Kong, saying: 'Perhaps no government action in the last year has done more to legitimise the increasingly widespread attacks on free markets than Hong Kong's unprecedented intervention in its stock market.' And the Heritage Foundation threatened to withhold from Hong Kong the coveted title of 'world's freest economy', suggesting that it may bestow the honour on Singapore instead. In the end, both the foundation and the Fraser Institute continued to recognise Hong Kong as the world's freest economy in 1998, as they have every year since then.
But clearly, this year, receiving that honour was especially meaningful for Mr Tsang. He did not excoriate the US Treasury or the Federal Reserve for deviating from the straight and narrow path of a free economy. Instead, he justified their actions (and his own a decade ago) by saying: 'Every government, every federal reserve bank, every central bank, has the right to intervene in the market when the market stops working.'
But, he added, this 'should be regarded as an exception' and must be set against 'firm criteria of normal market operations'.
Instead of being on the receiving end of critical comment, Mr Tsang found himself in the much more comfortable position of being able to dispense advice to the powers that be in the US, Europe and Japan. 'Those who are the regulators,' he said, 'should be acutely aware of the implications of what they are doing.'
And so, while regulators in North America are 'managing the crisis of the fallout' there, Hong Kong continues to adhere to 'free trade and a free market and the market flow ... We are not stopping the flow of funds and market transactions,' Mr Tsang said.
Revenge may be sweet but being proved right, even though it is 10 years later, must be even sweeter while watching one's erstwhile critics being forced to intervene even more massively in the market.
But Hong Kong and Mr Tsang cannot rest on their laurels. As the chief executive said: 'We understand that we must continue to practise what we preach ... We will continue to make every effort to 'walk the walk' of economic freedom in the years ahead, despite the turbulence that is happening around us.'
Frank Ching is a Hong Kong-based writer and commentator.
