Although helped by the Greenspan US interest rate reduction, this is a remarkable performance which has contributed to the rapid collapse of neo-liberalism/free market fundamentalism as an ideology. Coming on the day that the G7 are to announce a restructuring plan for the global financial system, it emphasises the contribution Hong Kong has made to rewriting the world script in the last few months.
I would like to remind people of the basis on which I have promoted a Hong Kong thread. I have emphasised that this is a capitalist economy.
I have been testing on this list an observation by a friend who is particularly interested in Hong Kong's land system in which freehold land ownership does not exist. This enables it to have no national debt, meaning that the landowning class and the financial capitalist class are small. Its other feature is a currency board, which initially forced it as a colony of British imperialism to build up a position of strength, and which it has then used to retain some degree of economic control in insulating the territory against the instability of free market global financial turmoil.
Hong Kong shows it is possible to make major inroads into capitalism by taking advantage of contradictions among the enemy even in financial matters, and weaken landowning capital and finance capital in temporary alliance with industrial capital.
With the aid of other correspondents, some highly critical, I have been testing the robustness of this proposition on LBO-talk significantly since before the major intervention by the Hong Kong authorities in their own stock exchange in August to defeat a complicated attack on the currency.
An article in the (London) Times of this Tuesday Oct 27th sums up the remarkable nature of this resilience, when the Hang Seng was at 9,778, then 47% above its low for the year. So now it is presumably 50% up.
The five year low was on August 14th at 6,660.
The commentary by the City Editor of the Times reads:
"Hong Kong shows how to speculate
The Hong Kong Government's spectacular intervention in its own stock market at the end of August can now be seen as a turning point for China's financial centre. The hedge funds, which had been spreading an unchecked plague from Bangkok to Moscow, were taken on and beaten.
Hong Kong could not avoid a sapping recession, as the plunge in retail sales illustrates. But it staved off financial collapse.
Speculators' dual manipulation of Hong Kong interest rates and the stock market, guaranteeing profits from others' losses, [how immoral! - CB] would eventually have caused so much pain that Hong Kong would have had to break its dollar link. China would surely then have felt obliged to devalue and would have made the Asian crash immeasurably worse.
If the West catches only a cold, rather than succumbing to Asian flu, we should be grateful to Sir Donald Tsang, Hong Kong's Financial Secretary, and to Joseph Yam, head of the monetary authority. They took an enormous risk [without the knowledge of the CPC??- CB] It paid off, making a big profit and sending the hedge funds slinking away. But it could have gone awfully wrong.
The enterprise looked doomed when events in Russia and Tokyo turned even worse and when falling Western markets looked likely to dash any hopes in the East. Only when the US dollar suddenly tumbled, taking the pressure off the Hong Kong dollar, was success sure.
Lessons should now be learnt. One is that courage pays. Maybe Hong Kong had no choice, but it dared to use all its strength.
The IMF and the G7 were too scared to use the might of the international community [!] to confront the power of speculation. They were too intellectually timid to see that such intervention was in the interests of free trade and open markets. If they had acted to stop the domino effect, South Korea and Indonesia would not lie in economic ruin and the West would not be under threat.
Concerted market purchases, especially of securities, can make a big contribution to avoiding collapses and are likely to be self financing [the Hong Kong authorities made 2 billion UK pounds profit] if an economy is soundly based. Such swift action can be much better than the usual IMF restructuring plan. To supplement the IMF's banking role, emerging countries require recycling funds and bigger international investment funds.
The embarrassing legacy of Hong Kong's Exchange Fund Investment, which owns nearly a tenth of a top multinational, suggests an exit route is needed too."
[End of Times City Editor commentary]
The publication of this just before today's G7 statement would suggest it was intending to be influential.
Chris Burford
London.