Confidence no pie in the sky in Hong Kong

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By Hong Liang (China Daily)
Updated: 2009-03-24 07:46

It's always nice to hear someone influential saying good things about my home town, especially when it's facing the toughest economic challenge since the outbreak of the Asian financial crisis in 1997.

The latest words of encouragement came from Steve Forbes, editor-in-chief of Forbes magazine, who was quoted in the South China Morning Post as saying Hong Kong is in a better position to handle the financial crisis than most other places in Asia.

Like many of us, Forbes' confidence in Hong Kong lies in the strength of its banking system, which has gone through major reforms since the last crisis in 1997, enabling it to withstand the onslaught of the financial tsunami without much help from the government this time round.

Of course, Hong Kong has taken a hard hit in the form of negative GDP growth, in expanding budgetary deficit, depreciating asset values, dwindling exports and rising unemployment. But it is seen by economists at home and abroad to have fared better than many other economies in the region and elsewhere in the world.

Despite some jitters in the capital market, largely induced by false rumors, Hong Kong people have remained confident about the integrity of banks and other financial institutions. Drawing on the experience of the Asian financial crisis, the Monetary Authority of Hong Kong has required banks to keep a cushion in a required capital-to-asset ratio of 8 percent.

After the outbreak of the credit crisis in the United States last year, the Hong Kong government introduced a flexible arrangement giving banks the choice to reduce the capital adequacy cushion rather than constricting lending and/or selling assets.

But no bank is known to have found the need to make that choice, because they had already kept a higher than required capital adequacy ratio and demand for fresh loans from the corporate sector has declined.

The resilience of the Hong Kong banking sector, befitting its status as an international financial center, is underlined by the core value of self-reliance, which has enabled Hong Kong people to overcome different economic crises which, in the past, brought numerous bigger and seemingly stronger economies to their knees.

When asked to comment on the prospect of the US Republican Party, which lost both the presidency and control of the house, Forbes, who ran twice for the US presidential office, suggested his party go "back to basic principles", including "creating an environment where people have a chance to do their own thing, start their own businesses, keep more of what they earn."

If these words sound familiar, it's because they describe a principle that has been guiding the Hong Kong economy in the past six decades, if not longer.

The name ascribed to this principle has changed a number of times from "laisser-faire" in the '50s and '60s to "positive non-interventionism" in the '70s and '90s. Under its latest title "big market, small government," the principle continues to emphasize limiting the role of the government to one of facilitator rather than active player in the economy.

The Hong Kong government has performed its self-prescribed role consistently and admirably.

That has always been the source of Hong Kong people's confidence even in the worst of times.

E-mail: jamesleung@chinadaily.com.cn