How Beijing and Hong Kong sent billionaire George Soros packing the last time he attacked Asian markets
The history of how George Soros has affected currencies and economies in Asia is remembered with some bitterness
History doesn’t repeat itself, but it does rhyme, the American humourist Mark Twain is often quoted as saying.
So when billionaire investor George Soros said last week that a hard-landing in the Chinese economy was “unavoidable” and that he was shorting Asian currencies, the country’s central bankers could be forgiven if they recalled the poetic justice of a hard-won financial battle 18 years ago, when Hong Kong was the battlefield and Soros was defeated.
In 1998, Soros, whose aggressive currency trades were blamed for destroying the Thai and Malaysian economies in the Asian financial crisis a year earlier, turned his attention to attacking Hong Kong markets. On that occasion, Hong Kong, backed by Beijing, faced him with an unprecedented HK$118 billion stock-buying spree to prop up stock prices and defend the currency peg in August 1998.
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“Today’s situation has some similarities to then,” said Shen Jianguang, the chief economist with Mizuho Securities Asia in Hong Kong. “It’s hard to attack the yuan, but it’s possible to attack the Hong Kong markets.”
The Hong Kong dollar is pegged to the greenback, but it’s also viewed as a proxy of the yuan and the Chinese economy. With bets on a weaker yuan growing, the Hong Kong currency and stock markets have already witnessed turbulence, while Beijing is engaging in a war of words with Soros.
“A big brother like Soros will have a lot of followers when he says something, but it will be another matter when people are asked to put money down to follow his bet...”
On the surface, 18 years on, China has little reason to fear Soros – its economic size is now 10 times that of 1998 when Zhu Rongji (朱鎔基), then premier, pledged repeatedly that China would not let the yuan follow other Asian currencies in weakening. The country’s foreign exchange reserves, despite recent outflows, are still the world’s largest at US$3.3 trillion, 20 times the level of 18 years ago.