Editorial | New HKMA chief may have to be politician as well as regulator

The timing was not accidental. The Hong Kong Monetary Authority (HKMA) announced the promotion of its most senior deputy to head the city’s de facto central bank this week as it disclosed a record investment return of HK$170.8 billion in the first half of the year. HKMA veteran Eddie Yue Wai-man will take over as chief executive from Norman Chan Tak-lam, who will retire after 10 years at the helm. As the most senior of the authority’s three deputies, Yue is directly responsible for running Hong Kong’s HK$4.137 trillion Exchange Fund, a war chest for maintaining the local currency’s peg to the US dollar. Just as there is nothing like success for a politician, so it is with record returns for a Hong Kong central banker. The timing was auspicious for Yue, as global capital markets staged a dramatic recovery in the first quarter of the year after a slump late in 2018.

He is the proverbial safe pair of hands, having been with the monetary body since it was set up in 1993. His expertise in financial markets will be invaluable, as is his role in steering Hong Kong to take part in strategic projects in the Greater Bay Area of 11 southern Chinese cities, including Hong Kong and Macau, and the nation’s Belt and Road Initiative of global infrastructure investments. Under his watch, the Exchange Fund has diversified into alternative investments, including private equity, real estate and infrastructure. But in his new role, the challenges Yue faces will not merely be technical, or about just making money.

As an open market, Hong Kong is exposed to the volatility of global market conditions. He will need to be alert to regional risks, especially those that are geopolitical, including the trade war between the United States and China. But his greatest challenge may be domestic as the city has become politically charged as never before. The HKMA was forced to introduce round after round of mortgage tightening in the past decade to stabilise the banking system and reduce banks’ exposure to bad housing loans. Local banks have, no doubt, weathered the global financial crisis well.

As a result of the tightening, the average ratio of mortgages to property value fell to 51 per cent, from 64 per cent in 2009. But the property bubble, coupled with the mortgage tightening, has turned Hong Kong into the world’s most unaffordable housing market. Poor living conditions and the inability of young people to get on the property ladder have helped generate widespread social discontent and malaise. The authority’s mandate as a bank regulator has also meant pushing property ownership further beyond the reach of many Hongkongers without heavy savings.

Yue has his work cut out for him. As the monetary authority’s third chief, he may need to be as much a politician as a central banker.