THE Government's intervention in the stock and futures markets and the Yangtze floods were the focus of editorial comments in the Chinese papers last week.
The papers were split over the wisdom of the unprecedented intervention. Hong Kong Economic Journal said the Government had embarked on a path of intervention in order to protect the fixed exchange rate between the Hong Kong and US dollars.
It noted that since the financial crisis began in July last year, the Government had intervened in the property, foreign exchange, stock and futures markets. Hong Kong's financial management philosophy had changed completely and the Hong Kong Monetary Authority was behaving more and more like a central bank.
The paper said the speculators' attacks sprang from loopholes in the currency board system. The proper method to stop those attacks should be to plug those loopholes. By using public money to blatantly intervene in the stock market, the Government had stripped the futures market of its hedging function. A better way of preventing speculators from exploiting the futures market would be to raise the deposit of a futures contract.
The paper said the Government's role should be to maintain order in the market. It had now confused its role by directly taking part in buying and selling. The Government's gradual abandonment of the non-interventionist philosophy needed to be watched closely, it said.
Oriental Daily said what the Government gained now by intervening in the market might be lost over the long term because it had sowed the seeds of misfortune. First, the artificial intervention meant the stock market would take longer to bottom out. Besides, the depth of speculators' pockets was unknown; they might return after amassing a bigger arsenal.
If the Exchange Fund's reserves had to be used like sandbags thrown into the Yangtze to prevent flooding, then it would only delay Hong Kong's economic recovery. Using the Exchange Fund to beat off speculators only treated the symptoms of Hong Kong's problems, not their root causes. While the intervention was well-intentioned, changing the rules of a free market would inflict irreparable damage to Hong Kong's reputation among international investors.