RTHK "Letter to Hong Kong"
by Martin Lee
Broadcast on RTHK Radio 3 on 13 September 1998
Hong Kong is now at war. On the 14th of August, the Hong Kong government decided that it was necessary for the government to actually go into the financial markets and buy shares in order to support the Hang Seng Index.
So we are at war. The Hong Kong government went into the financial markets on the 14th of August and continued with this war all the way. When I rang a very senior government official on the evening of the 14th as to why the government was buying shares, I was told that the government wanted to start a war against foreign manipulators. I was told it would not be the Vietnam War that the Americans fought, which led to total defeat, and was a very long drawn war. But it would be swiftly won, like the Chinese-Vietnamese war. I then reminded this very senior civil servant that that was a Pyrrhic victory for China who lost more soldiers than the Vietnamese. "Ah," the senior official said, " but after that war, the Vietnamese troops never dared to go into Chinese soil again." Of course, we are not dealing with one single foreign manipulator. There were many of them. So how are we to know that the war can be swiftly won?
I have to say that that was the best public relations coup ever by this Administration, because they were able to get a lot of Hong Kong people to stand on their side to cover up their shortcomings. Now we know that the government has in fact many weapons in its arsenal. But the big question from everybody is this: why did the government take so long before they would produce their weapons?
Be that as it may, the moment they declared war on these foreign manipulators - I stress it has to be a foreign manipulator - then of course it would become very difficult for any local Chinese to go against the government. Because you would then be not only disloyal but some people may think you are a traitor. And indeed, those of us who believe in buying and selling in the markets have to be careful, because if you buy you are a faithful citizen of Hong Kong. But if you sell, you are siding with the enemies.
Those who listened to the debate on the 9th of September on this issue would be forgiven if they thought that the Boxers are here again. Some legislators were very unhappy with some of us who dared to speak against the government. It was therefore a surprise to me that when a colleague of mine, Fred Li, asked a question of the Financial Secretary a few days ago about the identity of our enemies - whether it was Mr. George Soros or somebody else - the surprising answer was, "Well, we don't really know. These manipulators are very clever. They use a lot of brokers, a lot of banks."
So now we know we have declared war on some enemy who will remain unknown. And at what price? I'm not just talking about the price of buying so many shares in Hong Kong. The government must have pumped in more than a hundred billion dollars during those two weeks. I am talking about a much heavier price - the damage to the international reputation of Hong Kong's free markets.
That was why our senior officials found it necessary to repeat time and again to the international community that we are not following the example of Malaysia by introducing foreign exchange controls. But why was it necessary for them to mention Malaysia? To the financial houses in New York or London is there much difference between what we are doing in Hong Kong and what Malaysia has been doing? They are going to lump all these Asian countries together.
We are proud to be the world's 5th largest financial market. We are proud that our financial markets are so free from restrictions. But now I'm afraid it's a thing of the past. It took us years to build up this reputation. But it took one day, or one decision, to ruin it.
The very clear message we have been sending out during these few weeks to the outside world is that you are welcome to these markets of ours only if you buy. But you are not welcome if you sell, particularly selling short in a major way. Are we therefore an international financial centre with Chinese characteristics? What I suppose is the $6 million question - or I should say the $100 billion question - is why did the government do this? It was totally out of character of Donald Tsang, Rafael Hui and Joseph Yam who prided themselves so far as being very conservative in their management of our monetary affairs. We are told that they notified the Chinese authorities having made up their own mind. Can anyone believe that Mr. C. H. Tung would have dared to approve of this decision without express endorsement from Beijing, nay, without having been told to do so? Of course I have no direct evidence that Beijing had a hand in this, but I think a lot of people in Hong Kong would really wonder whether our people in Hong Kong would dare declare war on foreign manipulators without any direction from Beijing.
What shall we do now? I think the government must put its house in order. The truth of the matter was that for many years the Hong Kong government wanted to make our markets very free so as to entice foreign investors to come and trade in a very big way. Suddenly, they woke up and found that they were doing too much business in Hong Kong that would pose a serious danger to the U.S. dollar. I can perfectly understand that. So they could of course tighten up the rules. But of course they can't do it in the middle of a game, which is what they have been doing recently. Tighten up by all means. But we must know that as we tighten up the rules we are going to discourage a lot of overseas investors from ever coming to Hong Kong again.
A lot of people have been saying to me quietly that they realize the government was totally wrong in entering into the markets like this. Of course, knowing the government, it will never admit to be wrong. We can only hope that the government will put its house in order as soon as possible. We, the Democratic Party, will help the government to pass any legislative amendments to our laws which are reasonable. Hopefully in the very near future the government can tell the whole world that they are not going to buy shares again in Hong Kong. Hopefully before too long, investors will come back to our markets knowing that the government would not buy shares again and knowing that they would not change the rules in the middle of the game.