The financial services industry is the pearl of Hong Kong.
Joseph Yam, chief executive of the Hong Kong Monetary Authority
speaks to China Daily reporter about its future:
Q: What's your opinion on the mainland's investment of foreign
reserves into Blackstone?
A: That is good. Foreign reserves are important in keeping the
stability of the country's currency, but we don't need too much.
Foreign reserves belong to the public, and we should use them to
make good investments. Hong Kong is quite conservative in investing
our foreign reserves as we have an open market that has drawn many
international investors. We only invest in the stock market and
bond market to ensure the fluidity. But the market in the mainland
is not so open. As the mainland has such a big reserve, to use a
small part for long-term investment is a wise decision.
Q: What's the influence of opening up the RMB business on Hong
Kong's economy?
A: Many mainland visitors use RMB when they visit Hong Kong. The
money needed to return to the mainland's financial system. That was
the initial factor to prompt us to establish a channel to ensure
the money returned to the mainland in a well-regulated channel. So
the banks in Hong Kong began to develop their RMB business in
deposits, visas and converting. This is quite a conservative
beginning. But our monetary authorities now have another long-term
strategy. Our country has become the fourth biggest economy in the
world. From a long-term view, RMB will become completely
convertible and become a major currency within a region and will be
reserved. As the international financial center of the country,
Hong Kong should be well prepared in this aspect. We hope to
strengthen the capacity of Hong Kong's financial system in dealing
with RMB business. I hope we can publish RMB bonds in the third
quarter. We will also develop some infrastructure in the sector,
such as an instant RMB payment system.
Q: How can the monetary authority strike a balance between
effective supervision and maintaining a free financial market?
A: That is not easy. It has been stipulated clearly in the Basic
Law that Hong Kong will maintain a capitalistic free market
economy. But there is a paradox in this free economy. It is
advantageous in being efficient, and interacting between the supply
and the demand. But a free market could also become a freely
manipulated market, as the lesson from the 1998 financial crisis
shows. So the government, including the monetary authority, has to
be cautious in supervising the market. We have to act if there is
manipulation. So our basic standing is to rely on a free market,
but remaining cautious to prevent it from being a freely
manipulated market. To maintain a balance between supervision and
freedom is not easy. And we are trying to maintain such a balance
by having discussions with the market players. For instance, we
introduced a new capital agreement this year. The monetary
authority and the market have established a partnership with mutual
understanding.
Q: What's the exchange and cooperation like between the
financial sectors of Hong Kong and the mainland under the framework
of CEPA?
A: There are two financial systems under the "one country, two
systems" model. They differ from each other in many ways. But there
is competition as well as cooperation. We hope the mainland can
lower the thresholds in the financial sector, so more Hong Kong
financial institutes can go to the mainland to provide effective
financial services. We are glad that Premier Wen Jiabao spoke at
the national financial conference this year and addressed the issue
that the financial cooperation between the mainland and Hong Kong
would be further promoted. Hong Kong's role as an international
financial center will be further consolidated.
Q: Hong Kong plays a big role in complementing the financial
market on the mainland. Is there any specific advice to facilitate
the complementary role?
A: There are five pieces of advice. First, the Hong Kong
financial institutes should enter the mainland to provide quality
service. Second, mainland investors and fundraisers come to Hong
Kong for investment. Third, Hong Kong's financial tools enter the
mainland market. Fourth, Hong Kong should enhance its capacity in
RMB business. Fifth, the fluidity of funds needs market
infrastructure to ensure its safe and effective distribution. We
should link the Hong Kong financial infrastructure with that of the
mainland, to ensure effective fluidity of the fund.
Q: What's the influence of the appreciation of RMB to the linked
currency system in Hong Kong?
A: Hong Kong has adopted the linked currency system so as to
make the HK dollar pegged to the US dollar since October 15, 1983.
Hong Kong has an export-oriented economy, and we have a big trade
volume. Therefore, a linked currency system is very important to
Hong Kong. Studies on Hong Kong's economic fluctuation show that
compared with RMB, the US dollar has more influence on the HK
dollar. Also, RMB now is not a freely convertible currency, and
could not be reserved. This is a major technique obstacle that
could not be solved in a short term.
Q: How do you reflect on the Asian financial crisis?
A: A free market should not be a freely manipulated market. We
felt bad when the crisis happened in 1997 and 1998.
I have been working in the government for many years, and I
always worshipped a free market. We felt so proud that Hong Kong
boosted the world's freest economic system. Many people have set
Hong Kong as a good example. But suddenly the free market brought
us such a big trouble as well as risk. It has come to an edge that
the whole financial system could be manipulated and collapse as
other Asian economics did. It was not a pleasant thing for a free
market disciple to choose to intervene in the market. But the
market is realistic, and money-making is the sole right thing. We
made HK$100 billion after we reacted to the international
speculative fund. And we strengthened our financial system after
the crisis, including the currency system, banking system, and the
stock market. They were successful. The market and the people now
have high confidence in our linked currency system. The biggest
lesson that the financial crisis taught us is to think about the
potential harm while we are still in a safe situation.
Q: There was comment that under the financial crisis, Hong Kong
changed its status of a free economy under the pressure from the
central government? Have you heard of it?
A: They are definitely wrong. The financial crisis had nothing
to do with the return to the motherland. We made a lot of effort
before 1997 to counter the possible influence on the market caused
by the return. And the return has been so smoothly arranged.
Actually Hong Kong now enjoys a higher degree of freedom than it
did before 1997. Prior to 1997, we had to telegraph the British
government to ask their permission and advice for many things. But
after 1997, we haven't had to do that. The Hong Kong people
completely govern Hong Kong.
(China Daily June 23, 2007)