For years Hong Kong officials have publically endorsed the idea of 'big market, small government'. Now Leung Chun-ying is preparing to ditch this hands-off line. In an interview this week with Xinhua, the incoming chief executive promised a more interventionist stance. He thinks Hong Kong has too much market, and too little government. In one way, C.Y.'s candour is refreshing. By abandoning the old free market rhetoric and pledging a bigger economic role for the government, he is only coming clean about a behind-the-scenes policy that our officials adopted years ago. American think tanks might like to dub the city the world's freest economy, but local residents know better. Government in Hong Kong is neither small, nor hands-off. On the contrary, the government is expanding, and its tentacles extend into a whole range of unlikely economic sectors. 'For my five budgets, I have increased government expenditure by nearly 70 per cent,' boasted Financial Secretary John Tsang in February. 'This exceeds GDP growth of 21 per cent for the same period.' In fact, as this chart lifted from the latest budget shows, government spending has been growing faster than the city's economy ever since the late 1990s, long before Tsang became financial secretary. As a result, by 2015 government spending is forecast to make up 22 per cent of our economy, up from less than 16 per cent as recently as 2007. But ever-increasing revenue and expenditure growth is only one aspect of the government's tightening grip on Hong Kong's economy. A quick glance down the list of government statutory bodies and investment holdings reveals an astonishing array of business interests. The government sells us our water. It owns and operates our railways. It runs the airport. It even owns the city's theme parks, via controlling stakes in both Ocean Park and Hong Kong Disneyland. The government hosts business conventions through the Trade Development Council. It dabbles in stocks and shares via its stake in Hong Kong Exchanges and Clearing. It sells insurance through the Hong Kong Export Credit Insurance Corporation. And it structures asset-backed securities through the Hong Kong Mortgage Corporation. And of course the government is the dominant player in the city's all-important property market. As monopoly owner of all land in Hong Kong, it controls the market's supply of building plots. And it is by far the city's biggest landlord, renting out around half of all the homes in the city. Lately, the government has also gone into property development in a big way. Its controlling stake in the MTRC and its ownership of the Urban Renewal Authority make it one of the largest developers of private residential and retail premises in the city. It owns and operates dozens of shopping centres through the Housing Authority. And its Hong Kong Science & Technology Parks Corporation develops and manages industrial estates. By no stretch of the imagination can you describe that degree of participation in the economy as 'small government'. But although in one way C.Y.'s openness about the government's interventionist leanings may come as a breath of fresh air, in another way it is deeply disturbing. Whenever the government allocates public money to a favourite project or sector, there is an opportunity cost involved. The question should not be whether the capital generates a return, but whether it could have made a better return if invested elsewhere. The trouble is that history proves government officials are lousy at allocating capital. That's not surprising. Their priority is to boost their own power and influence, not make the best economic return. If governments want to allocate resources efficiently they should butt out and let the market do the job. The role of government should not be to go into business in its own right, as Hong Kong's is doing. That just crowds out private enterprise and discourages the innovation that creates wealth. Instead, the job of government should be to provide fair and competent market regulation. Rather than get involved in the market, it should confine itself to setting the boundaries within which the market operates. Private enterprise will do the rest. Contrary to what C.Y. says, Hong Kong's big problem is not too little government but far, far too much.