Fool no one

Hong Kong's calm toward the government's market intervention surprised me. The media celebrated the intervention, not criticized it. Many newspapers recommended readers follow suit -- buy HKEx, as the government had bought it and would probably buy more. Many people just could not resist the idea when a government official revealed that the purchase of HKEx was to prepare an alliance between the stock markets in Shanghai and Hong Kong.

When the stock market hit all-time high, we cared less about the West Kowloon project and democracy movements overseas than they used to. We asked fewer questions for the intervening government than we did in 1998, the last time the government intervened to defend our financial system. Indeed, we should have now asked more.

Last time, i mentioned that a discretionary intervention would cause more problems than a forced one. The government interfered our freedom of pricing, distorting the pricing function of market.

Many people believe that the financial sector is our future. That maintenance of Hong Kong's status of a global financial center is our top priority has become the consensus. If we are to strengthen our position, and if a cooperation with Shanghai is what it takes, the government officials' logics follows, we got to deal with Shanghai in the Shanghai way -- cooperation through government bureaucrats.

i believe this is illogical for three reasons.

First, the forming of any alliance between the Hong Kong and Shanghai exchanges is not necessarily beneficial. The alliance would deter competition between the two exchanges. It is through the rivalry race between each other that the two cities simultaneous improve the efficiency of fundraising and safeguarding of assets.

Second, even if the alliance is beneficial, an arragement among private sector is more appropriate. If Hong Kong serves its political role as a special administrative region to show capitalism for China, which is on its own way to opening up, we should show Shanghai how market works -- cooperation through private sector, not the other way around.

Above all, a government intervention is fixing an agenda that doesn't even exist all at. Free market is necessary for a sustained economic development. A ticket to economic evolution outweighs a trophy of the financial sector. If we were made to choose between the two, we'd better make no mistake.

Even though the financial sector is important to us, it doesn't mean that the government has to do anything on it. Free market will decide whether or not the financial sector will remain as important tomorrow. Any bureaucratic measure runs the risks misleading the economy.

It is amazing to see how easy it is for human beings predicting the future to overestimate the continuity of the present situation and underestimate the variables down the road. Every year, when the English football season ends, a survey is conducted to ask people to predict the champion for the next season. It almost always turns out that the most-hopeful team is exactly the champion for the past reason. The survey is pointless, useless in prediction.

Nobody knows which industry will be the most important two decades from now, as nobody knew in 1987 the financial sector would become what it is today.

Use the Hang Seng Index as a proxy to the Hong Kong economy. The index constituents are Hong Kong's largest listed companies, and composition of this elite class has changed dramatically over the past twenty years.

Out of the 33 index constituents in October 1987, only 16 have stayed since. More than a half has gone. Those faded stars included a cement company, an aircraft engineering company, a dairy company, television broadcaster and a pair of bus operators. Some of those having stayed have also changed their business focus. For instance, PCCW, formerly known as HK Telephone, operates not only telephone lines, as it used to, but also computer broadband, mobile phone networks and cable-television.

Yes, the Hong Kong economy has experienced "structural changes", as government officials put it. Since 1987, factories moved across the border, the property market collapsed and China boomed. Hong Kong economic structure has changed during that period. When didn't it?

However awkward it seemed for the past two decades, the preceding 20-year period, from 1967 through 1987, marked yet another long list of historic events. And the change of HSI constituents was just as dramatic. During that period, again, a total of 16 big boys dropped out from the then-32-constituent index. They included a beer brewer, a tram operator, a dock and a pair of cross-harbor ferry operators.

If half of the current index constituents will go in the next two decades, what are the new companies and what opportunities will they create? How will the current index constituents shift its business and how will new technology shape our economy?

Uncertainty is the only certainty there is. Free market doesn't provide perfect foresight either. But free market provides the flexibility and guidance for changes that government planning cannot.

Imagine the government in 1967 mistook beer brewery industry as the winner and devoted all resources to it. The government's favoritism would attract many school graduates into the bartender career. Hong Kong would have built an extended Lane Kwai Fong, and that's it.

Is the global financial center status the ultimate destination for every modern city? Not necessarily, Boston, the 19th-century financial center, has evolved to foster some of the world's best universities and technology research institutes. And the living standards there are among the world's best.

Now, it doesn't looks as catastrophic as the government suggests for Hong Kong to lose the status of global financial center. Let the market decide. By doing so, people preserve the freedom to price assets so that resources, capital and human, are directed to the best ends.

If Hong Kong strives for an even greater global financial center, the details for how it actually works require business minds and entrepreneurial guts from the private sector, not the government.

Hong Kong's future is anybody's imagination, but the road of planning is likely to lead to a dead end.

HSI Constituents in 1967
Allied Inv
China Light
China Provident
City Hotels
Dairy Farm
G I Cement
HK & China Gas
HK & S Hotels
HK Aircraft
HK Bank
HK Dock
HK Electric
HK Land
HK Realty 'A'
HK Telephone
HK Tramways
HK Wharf
HK Yaumati
Hutchison
Jar Matheson
Jar Securities
Kln Motor Bus
Lane Crawford 'A'
Nanyang
San Miguel
S-Sea Textile
Star Ferry
Swire Pacific 'A'
Tex Alliance
W Marden 'A'
W Maritime 'A'
Watsons

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