Hong Kong's secret strength

[Chris Burford]

At 11:21 AM 7/31/98 -0500, Barkley wrote:

>Chris,
>     There was an attack on the HK $ last fall.  That was 
>the immediate precipitator of the one day 700+ drop of the 
>Dow-Jones Index, largest ever in absolute terms, but not in 
>relative terms.  The defense came through massive interest 
>rate hikes that were tanking the Hang Seng (actually it was 
>the latter that hurt global stock markets, FTSie got kicked 
>too, if I remember, as did Nikkei, DAX, and the rest).  
>Those were carried out largely on orders of the PRC 
>authorities and they also tanked real estate prices (that 
>is of the land lease prices).
>Barkley Rosser


OK. I was just going to give up and say we need more information when I
thought I would ring up my informant, mentor, supervisor, friend, or
comrade, and get further information. He is a quietly confident soft-spoken
Yorkshireman, and I am putting my money on him rather than on your sources,
which I suspect are secondary or tertiary readings of commentators,
admirable though the detail is that you bring to other debates.

BTW I do not want to have a go at Barkley as such, because I appreciate his
engagement but I think he demonstrates a much wider resistance to the
consideration of serious structural reform of the capitalist system that
would weaken the system significantly. Why this resistance? I suspect part
of it is the ideological pressure of the university system that makes it
safer to be worldly wise and somewhat cynical about the possibilities of
change rather than arguing a case that could be made to appear academically
ridiculous and throw one's position in the department in doubt. I have the
advantage in this debate of not being an economist. There are no penalties
for being stupid. 

On the other hand "serious" revolutionaries will not discuss reforms at all.

But, dear comrades and friends, my informant reminds me that the first
measure mentioned in the Communist Manifesto, as pretty generally
applicable in the most advanced countries, is 

the "Abolition of property in land and the application of all rents of land
to public purposes."

That is the system that is alive and well and healthy in the former
imperial and decidedly non-socialist colony of Hong Kong. 

It is far from impossible.

But least I argue from long forgotten holy script, let me go back to the
concrete reality of the exchanges.

Barkley reminds us of the fall in the Hang Seng and the shudder round the
world. (He will have to explain to me what tanking means) But he alleges
that massive interest rate rises were largely carried out on the orders of
the PRC authorities. What evidence does he have of this? 

My information is that the Hong Kong government has no power to set
interest rates. It does not even have a monetary policy committee as the
Bank of England has now. The interest rates are set by the market and the
rise in interest rates was the response of the market to the sudden drought
of good credit. It was not so much a defence as a self-regulatory system.

Furthermore speculators like Soros most certainly were gambling on the fall
of the Hong Kong dollar, but the Hong Kong government did absolutely
nothing to commit its massive reserves to support the exchange rate. There
was therefore no profit to be made (unlike the scenario when Soros
pocketted billions from the desperate actions of the British Conservative
Chancellor of the Exchequer, Lamont). They were getting their fingers
burned and they withdrew. Furthermore my informant suggests that it is
likely that the Hong Kong regime which has never interferred in exchange
rates in this way, probably advised the PRC not to interfere either, if
they needed any advising.

The reason therefore why the Hong Kong dollar and the economy is steady
when countries varying from Indonesia to Japan are buckling, is because of
the fundamentals. 
After all where are the reports of massive US and IMF aid and lengthy
negotiations as for these countries? 

Hong Kong for a city state of 6 billion has massive reserves of the order
of $30 billion (corrections gratefully received but I doubt if the order of
magnitude is wrong). Hong Kong does not run a national debt, (which
subsidises financiers). It runs a national surplus. Its revenues come very
substantially from the public ownership of land.

I checked information on the flexibility of the market in leases. The new
colonists in the 19th century had pressed for long leases, but the standard
was 75 years, rather than 100. At the time of the joint agreement with the
PRC (one country, two systems) the maximum length of leases was set at 50
years. Shorter leases have come in and licenses are possible that last for
as short a period as 3 years.  Further research I suspect would reveal a
considerable variety of measures. 

Furthermore all land is revalued every 2 years, and every time there is a
change of usage, the government gathers additional income. 

The admittedly unusual combination of social engineering with a vibrant
capitalist commodity economy was intensified when the post war Labour
government sent out Patrick Abercrombie in 1947 to a city that was then
around 1 1/4 million people. His town planning policy was highly
interventionist and among other things made provision for the development
of satellite towns. No doubt this degree of intervention was not completely
alien in a culture with a mandarin class and millenia of state power, and
the influx of 1/2 million more following the Chinese revolution in 1949
would have made government planning and obvious necessity.

Thus even this year the new governor has announced the building of 87
thousand dwellings a year. This is a massive countercyclical intervention
in the economy, when you compare the fact that the rate of new houses in
England with ten times the population is of the order of 150 thousand a
year only.


The fundamental point I have been making is robust and strategically very
important. Of course there is no one cause of a particular course of events
 and I am not ignoring the circumstantial reasons that have contributed to
Hong Kong as an economic centre, nor am I saying it will not be overtaken
by Shanghai in the 21st century. BUT this is a highly resilient city state,
which

a) does not subsidise financiers through a massive national debt

b) does not support a landowning class. 

c) is interventionist with land and social planning while not being
interventionist in other capitalist markets.

This means that on a global level there are excellent possibilities of
assisting campaigns to bring land and urban planning under more responsible
social control, and likewise with finance. 

These campaigns do not have to be led by communists. Nor do communists need
to talk about the nationalisation of land. Already in Britain because of
national planning restrictions in practice the bourgeois right to the
unfettered private ownership of land has been restricted. 

OK it is a fine convention to subject unfamiliar ideas to critical and
sceptical scrutiny, and no doubt more of this could be stimulating rather
than gently stifling. 

The point, remember,  is to change "it". 

Does no one think it worth drawing a few constructive connections out of
this??



Chris Burford

London