When the Government went storming into the markets last Friday, it promised that this would be the exception rather than the rule. Financial Secretary Donald Tsang Yam-kuen laid down strict conditions governing further interventions. Officials insist that it is a 'one-off' policy to defend the currency rather than being aimed at supporting the stockmarket.
The danger is that what began as an exception is fast becoming a habit as the Monetary Authority gets a taste for market intervention, yesterday dominating activity on the Hang Seng Index for the third successive trading day. The pledge by Acting Financial Secretary Rafael Hui Si-yan that there was no question of seeking to 'prop up the market at any particular level' seemed forgotten as government buying pushed the index up and up.
To be fair, there is method in this since the aim is to inflict massive losses on speculators when their August future contracts expire, and deter them from renewing their attack. That goal overlooks the cost of such repeated interventions, not least the estimated $6.4 billion already spent from the reserves: $100 for everybody in Hong Kong.
Far from stabilising the situation, the current approach scares off investors who fear that the markets no longer reflect the true economic situation. Worse still is the harm done to Hong Kong's international image. It would be tragic if Hong Kong became a model for market intervention, whatever the motive.
It is not too late to reverse the damage. The first step is for the Government to recognise that it must stop meddling in the free market, and to desist for doing so.