Dignity amid tragedy provides crucial lesson

South China Morning Post  |  Sep 14, 2001

By Sin-ming Shaw

Crashing Into The Real World

Time Asia  |  Sep 10, 2001

By Sin-ming Shaw

Lower peg to boost economic recovery

South China Morning Post  |  Sep 1, 2001

By Sin-ming Shaw

Byline: Keeping the Hong Kong dollar `overvalued' will force our economy to stagnate, says Sin-ming Shaw

FINANCIAL SECRETARY Antony Leung Kam-chung said last week that the Hong Kong dollar's peg to its United States counterpart was one of the obstacles to economic recovery, but that changing it would result in undesirable currency speculation.

The South China Morning Post's Jake van der Kamp then took him to task for saying this in his column last Saturday, insisting that the peg is not an obstacle. On the contrary, he claims, a regime of free-floating exchange rates is detrimental to an "efficient economy" while the peg would enforce "needed disciplines" on the Government without which the bureaucrats would run amok in fiscal profligacy.

These gentlemen are two of the most seasoned veterans of Hong Kong's world-class financial community. I have high and equal respect for both, although I know Jake far better and have liberally picked his fertile brain about the state of the world over the past 20-odd years.

But on the question of the peg, both of them cannot be right. So who is wrong? Neither is entirely right, but Mr Leung enjoys a very clear edge.

Let's be careful with definitions. Our exchange system is not just any peg whereby the Government ensures, by hook or crook, that the rate stays pegged. Instead, ours is a currency board where the local unit is linked at the rate of 7.8 to a greenback. It is a system whereby the Government, if it sticks to the rules, has really only one important role to play: that is to issue a sovereign guarantee of convertibility of the banking reserves kept by the banking system at 7.8. Nothing much else.

A pegged rate - I use the term "peg" to mean "link" as that is what it is conventionally called - does not in any way eliminate "speculation" that it will change to a higher or lower rate. Anyone can try and does. Without it, a market cannot exist. Mr Leung errs on this point. He should know "speculation" as a term is largely meaningless in a free market. However, a pure currency board is essentially foolproof in defeating those who wish to "break" it deliberately. It does not require government fiddling. Indeed, intervention invites more speculation, not less.

It is important to understand that a currency-board rate promises only one thing: the fixed rate can stay at that level forever barring a cosmic disaster. It promises nothing else. In particular, it does not promise economic nirvana.

Jake is wrong to say a pegged rate imposes fiscal disciplines although a freely floating exchange regime provides a free hand to the Government to finance white elephants. Jake, what do you call Cyberport and Disneyland? Blue elephants? How would you describe Monetary Authority chief Joseph Yam Chi-kwong's $4 billion purchase of harbour-front office space in the name of supporting the currency while the whole of Hong Kong suffers? A white hyena? Incidentally, America enjoyed the largest fiscal surplus on record under Bill Clinton's presidency while its currency went up and down and up.

Argentina has a currency board pegging one peso to a dollar. It has enormous public debt and fiscal deficits, the sources of its economic crisis. But the exchange rate is still one peso to a dollar even as its high double-digit interest rates are killing the economy.

The tanking of the economy is the implicit price to pay for a pegged over-valued exchange rate, for all the economic adjustments must be borne by the real economy, and none by the exchange rate. In plain words, if you want a fixed rate, you can have it but be prepared to suffer very badly if the currency becomes grossly overvalued.

How much must the economy adjust? That depends on how overvalued the exchange rate is and how inflated the local assets and wages are? No one really knows until the adjustments run their course to reach some equilibrium. Anyone who claims to know when the adjustment should stop is either ignorant or bluffing. Usually both.

That was what the Hong Kong Government did in 1998 when it massively intervened in the share and property markets, by buying $118 billion in stocks and freezing government land sales, while claiming the adjustment was being overdone.

Had the officials not been so arrogant, panicky or ignorant and had instead allowed the market forces to work, Hong Kong would have found a far more solid footing from which to grow again.

Instead, we are forced to go through a slow Chinese water torture. Our economy will stagnate the way Japan has been for the past 11 years because Japan's ruling elite never had the courage to get the painful adjustment over with quickly. It still does not.

The worst consequence of the 1998 official intervention has been to create an "entitlement" culture in Hong Kong among those who suffer from "negative equity", whereby the current market value of their property is less than the outstanding mortgage. At no time in the entire history of Hong Kong prior to 1998 did carriers of negative equity lobby the Government to support the market in order to reduce their private losses. The 1998 incident marked a historic watershed. It sent a message to the public: we can and will override market forces if the paper losses of your assets become "too big". For this gross error, the community will pay dearly.

Mr Leung was entirely correct in saying the peg was an obstacle because he was stating a simple truth - our currency is overvalued. But Jake was also correct in saying that even if the rate is an obstacle, which he apparently does not believe is the case, the Financial Secretary should not be saying so publicly and loudly, as Mr Leung's position is no longer that of a private banker. As Hong Kong's highest official in charge of the monetary system, he is effectively the personification of the currency.

I should say emphatically, however, that if the Government decided to re-peg the local dollar to a lower level, which it should, it should do so overnight.

As usual, the Government is behind the public. "Everybody" knows the dollar is overvalued. Just look at the cross-border traffic. The people of Hong Kong are telling the world with their feet and their pockets. Keep the currency board by all means but lower the peg, now. By how much? Any number from 10 and 12 to a greenback would be fine. The lower the peg, the faster Hong Kong's economy will recover.

`What do you call Cyberport and Disneyland? Blue elephants?'

Sin-ming Shaw ( is a writer and private investor who was formerly a regional economist for Chase Manhattan Bank

Shocking lack of cultural values

South China Morning Post  |  Jun 1, 2001

By Sin-ming Shaw

Byline: The team set up to advise on the SAR's heritage has a duty to be practical rather than political, says Sin-ming Shaw

HONG KONG WAS once a vibrant haven for writers, scholars, musicians, opera singers and film-makers. No more. Now, Hong Kong has a growing reputation as overpriced, overpaid and under-skilled. There is also a widespread perception that the city has little "culture".

The Culture and Heritage Commission, set up last November, is supposed to advise the Government on funding priorities to "promote and develop culture and heritage" in Hong Kong.

Chairing the commission is Chang Hsin-kang, an engineer and the president of the City University of Hong Kong. No better person could have been chosen for the job, as Professor Chang is comfortable with scientific and literary pursuits. He is living proof that the late English scientist C. P. Snow was wrong to say the gulf between the sciences and humanities is too wide to bridge.

The Culture and Heritage Commission comprises six members from statutory bodies, such as the Arts Development Council, two from government, and 11 drawn from various professions, including jewellery designer Lo Kai-yin, architect Simon Kwan Sin-ming, and Lan Kwai Fong realtor Allan Zeman.

The commission has set for itself several goals that range from helping the economy to become more creative, developing Chinese culture and integrating different cultures, to building up national pride. A consultation paper was published in March and the deadline for public submissions has been extended 'til the end of this month.

Unfortunately, the closest the commission comes to telling us what it means by culture is: "Culture is about life." The commission's real agenda has turned out to be more concrete than "life." The commission bemoans the fact that Hong Kong is losing its economic edge due to insufficient creativity and its tendency "towards short-term interests and utilitarianism at the expense of spiritual pursuits". This begs the question whether making lots of money in a short time is justified as long as such endeavours are creative.

Who in Hong Kong is guilty of short-termism? Is it ordinary people who work their tails off just to pay exorbitant rents and mortgages, leaving them little time to be cultivated? Or those from privileged families, who have been educated at (but not necessarily graduated from) the world's best universities? Or could it be the Government, with its misguided land policy that has kept our cost structure high and so has erected a difficult hurdle for would-be artists?

Local university bookstores are a disgrace, being little more than stationery stores selling textbooks instead of treasure troves of great books. Why is this so? The reason is elementary: real estate is too expensive to be used to stockpile books, even at universities.

Property tycoons are coveted and honoured by China's top leaders, as well as by Hong Kong's ruling and intellectual elite, in a fashion no other society can imagine. Universities rush to confer honorary doctorates. They are Hong Kong's role models. The message to the young is that money is everything.

The real-estate business is privileged for two reasons. First, it is a sanctioned cartel, and second, it can create permanent symbols of excellence. Witness the cathedral at Rheims, France, and the gothic buildings at England's University of Cambridge.

With the exception of the I. M. Pei-designed Bank of China building - which is a modern gothic cathedral - and perhaps two other buildings, our famed harbourside and The Peak are littered with architectural trash erected by university honourees and incompetent officials. The Cultural Centre in Tsim Sha Tsui and the new Central Library in Causeway Bay are textbook examples of mindless bad taste and official irresponsibility.

If the people of Hong Kong are short sighted and too utilitarian, it is because the elite of this town teach them to be this way through public policies and private endeavours. In fact, the elite, more than the people, are badly in need of a cultural-development policy.

The commission could do Hong Kong a huge favour by not trying to attain the unrealistic goals in its consultation paper. Most of all, it should avoid political correctness, a curse to creativity and intellectual integrity. It should recommend that our universities each be given a one-off endowment to produce sufficient income to cover each year's projected expenditures - thereby cutting the financial umbilical cord to Government.

The money belongs to the community, and the community would gladly unshackle universities from politics. Universities have been conspicuous by their failure to contribute to Hong Kong's intellectual, artistic and "cultural" life, and have not participated actively as constructive critics of public policy - perhaps for fear of offending those who control their appointments and purse strings.

To encourage private donations, the commission should recommend that all donations be tax deductible at twice their value. That would meet the objections of those who complain the current measly tax deduction of 15 per cent is inadequate. A 30 per cent deduction comes close to what American donors get.

Professor Chang once wrote that competence in a language is a precondition for any creative thinking. Spot on. Chinese should mean Putonghua, not Cantonese. And children should be taught to master Putonghua by scrapping the current mother-tongue policy immediately.

All public-works construction should be open to competition. The Government's Architectural Services Department should only organise such competitions, not do design work.

The commission itself should abandon impossible goals, such as "strengthening social cohesion [and] building up the confidence and pride of people in China". To be proud of what? China's system of justice? Its heritage of Marxism-Leninism? The Communist Party has caused more social division than any other of the despotic rulers in China's long past.

The word "heritage" appears rarely in the commission's consultation paper, although it is at the core of any culture and should not just be about preserving buildings. Hong Kong has a joint heritage: Chinese and British. This has given Hong Kong its valuable uniqueness, which mainland Chinese wish they had. To emphasise the English lineage, which puts the rule of law above men, is apparently not quite fashionable these days. So the commission's omission was perhaps deliberate.

Lastly, the commission should make sure an English-degree holder vets its final report, so as to avoid babble.

The commission should stick to the less pretentious, and then it might do some real good for this community.

Sin-ming Shaw ( is an economist. He was previously a TV and film producer, as well as a visiting research scholar of Manchu history at Harvard University