Soothing pronouncements do Hong Kong's financial services chief no favours
Prof Chan Ka-keung sticks to the script by parroting Beijing's official line after the recent devaluation of the yuan, but risks eroding his own credibility in the process
“I do not expect Beijing to devalue to the yuan substantially in the near future as that may create more problems than help the mainland economy.”
Prof Chan Ka-keung,
Secretary for Financial Services,
SCMP, August 21
The interesting thing about the public utterances of our financial services chief is that you can predict them in detail and be assured that you will have them right almost word for word when he makes them.
Here we have a sudden 3 per cent drop in the yuan/US dollar exchange rate after four months in which this exchange rate was effectively frozen and the People’s Bank of China wishes us to believe that all is well, there will be no further sudden movements and the rate will once again (again?) be market determined.
It is what all central banks that monkey about with their currency’s exchange rates would like you to believe after a bout of monkeying and it is almost never true. It more often signals confusion, panic and desperate hope that things will stick this time.
But count on Professor Chan to parrot the line he has been given from Beijing. To hear him explain it you would think there is a hi-tech mission control room somewhere in Beijing, which calmly and rationally assesses what is best for the yuan. The technicians then adjust the on-screen parameters to keep it on course.
Hah! The more likely comparison is with a flood control team desperately throwing sandbags in one breach while already watching the water break through somewhere else and nothing but blacker storm clouds on the horizon.
I suppose Prof Chan has some immediate interest in that he values the accolade of Leading Offshore Yuan Centre and claims it for Hong Kong.
We shall leave aside that we are offshore mostly in the sense that a narrow channel of water still separates Hong Kong Island from Kowloon. It is all China’s sovereign territory, let us remember, and our autonomous status lasts only another 32 years. In the senior government ranks, Prof Chan demonstrates that it is already sacrificed.
Of more importance, that 3 per cent devaluation has revealed as delusion any ambition on Beijing’s part to have the yuan accorded the status of a fully grown-up currency by inclusion in the International Monetary Fund’s Special Drawing Rights basket. The IMF has been very polite about it, done all it can to save face for Beijing, but it It is not in prospect now.
And offshore centre never meant much anyway. Our banking system in Hong Kong holds just under 1 trillion yuan (HK$1.21 trillion) in deposits but almost all of it was placed there in earlier hopes of speculative profit on yuan strength against the US dollar.
The same holds true of trade finance in yuan. Many exporters to China were happy to accept payment in yuan while seeing some prospect of an extra turn in conversion back to US dollars, the mainland’s only real currency of foreign trade. This has ended. The track on yuan deposits in Hong Kong will now go down.
Most of all, I think Prof Chan does neither himself nor Hong Kong any favours in these circumstances by making soothing pronouncements. He has no crystal ball and the odds are so strongly against him that he erodes his own credibility at a time when he may need to preserve it for crises at home.
In fact, government officials who have oversight of financial markets should never make pronouncements on the future direction of share prices and exchange rates. They are meant to speak with the monetary policies they adopt and the regulatory stance they maintain. In public they do best to stick to “Good Morning” and “Good Afternoon”.
I recognise that this can make life rather frustrating for journalists looking for copy, but I still recommend to Prof Chan the practices of the famously close-mouthed president Calvin Coolidge of the United States.
He was once approached by an attractive young reporter who said, “I’ve taken a bet that I can get you to say more than three words.”
“You lose,” Coolidge told her.
Try it, Prof Chan, when tempted next time to read the predictable script from Beijing, and you may find you win.