The Hang Seng has risen 18% in the last two weeks when all other markets have fallen. This is witness to the massive reserves this city has built up, but in the last fortnight they have spent 13% of them.
The excuse for this departure from its "free" market philosphy is the technical nature of the attack by speculators, who sell HK dollars to trigger an automatic interest rate rise, under currency board rules, which depresses stock, on which they have already taken out short options. The government is to introduce rules to close off this possibility.
However it is now in a position that even with the end of the short market for August, people can calculate they will get through all their reserves in a year, if they have to do this towards the end of every month.
So the concern is that without support now the market will crash 1000 to 3000 points (on 7800 approx) .
It is unlikely that the authorities had predicted the timing of the Russian crash but it also seems to me unlikely that they would have tried some intervention without a policy framework approved by the Communist Party of China.
There is a rationality of course in trying to avoid a monetary crisis which is a vicious circle amplifying lack of confidence in the ability to settle chains of payments. So far retail investors, according to the Financial Times, have not switched out of HK dollars. The fear is that the government will not allow interest rates to rise to defend the present peg.
Generally as I have made clear, I am interested in HK because of the relative robustness within world capitalism of a government without private ownership of property, and with a hitherto successful system of defending the currency against speculators, the absence of a national debt, and the ability to spend government surplus in counter-cyclical activity.
Although Hong Kong is not socialist, I think it would be progressive if it could continue to be able to maintain its currency without being at the whim of mobile international finance. What is rational is that the productive economy is what matters. If it loses, I would hope that Chinese countries (PRC, HK and Taiwan) still have some optimism about an ability to resist all the negative effects of neo-liberalism.
One detail that is not favourable to my case frankly, (my friends' case) is that the report says the Hong Kong exchange is vulnerable to this particular type of speculators attack because the market is "property-dominated". Does this perhaps mean leasehold?
Chris Burford