If Hong Kong wishes to remain competitive, it must defend its free-market traditions even as it is absorbed into the centrally planned Chinese economy, LGT Asset Management chief economist John Greenwood says. Mr Greenwood, the architect of the currency peg, said: 'I believe the Government cannot achieve competitiveness through monetary manipulation, or through indicative planning, or extensive involvement in the economy. 'The best policy is to maintain a pro-market, non-interventionist stance; one that has served Hong Kong so well in the past.' Since China's economy was opened up in the late 1970s, Hong Kong's industrial base has withered as factories moved to the mainland where labour costs were lower. Employment in manufacturing now accounts for 13 per cent of Hong Kong's workforce, against 46 per cent in 1980, while service employment has risen to 80 per cent from 47 per cent over the same period. Faced with the prospect of complete de-industrialisation over the next decade, some economists have argued for a devaluation of the Hong Kong dollar to make the territory more attractive for direct investment. It also has been suggested the Government play a greater role in nurturing industry. Mr Greenwood flatly rejected both arguments. 'We cannot adjust the competitiveness of the economy through monetary manipulation such as devaluing the currency,' he said. Devaluation, he said, would be futile in the long term as prices would, in time, adjust upwards to compensate. 'After a couple of years you would not notice any significant difference in the rate of change of inflation or the behaviour of the external accounts.' Neither should the Hong Kong Government take a more interventionist approach in order to raise the territory's competitiveness. 'I believe the best role of the Government is one confined to providing the rule of law, a regulatory framework and setting standards in such areas as health and education. 'It is inappropriate for the Government to pick particular industries and subsidise them.' Mr Greenwood blamed the economic and social problems faced by Japan and South Korea on their governments' passion for indicative planning, such as determining credit flows to favoured companies and controlling wages and the inflow of foreign capital. 'I don't believe that any of those kinds of policies, either in part or in whole, are transferable to Hong Kong because they inhibit innovation and entrepreneurship. 'I heartily endorse the paragraph in the Basic Law which calls for the Government's role in the Hong Kong economy to remain low,' he said.