Why do some countries have concern
where their currency trades relative to others? Why do they usually want their
currency higher rather than lower? The most apparent reasons are a) national prestige
b) to be able to purchase other countries goods at attractive prices c) debt repayment
increases as the indigenous currency drops in relationship to others d) currency
rises and exports are no long competitive.
These reasons are pretty obvious, but there are others
that are harder to fathom. Hong Kong established their peg in 1983
at a rate that has held all these years, 7.8 to the U. S. dollar. Why do they
continue to maintain the "peg" when their stock market is already down
substantially, interest rates climbing skyward and the value of real estate in
the former colony dropping like a lead weight. Although currency values are more
perception than reality, it is obvious that the value of a currency is a function
of the future economic viability of an economy. With other currencies in the region
imploded, it is obvious that Hong Kong will suffer a substantial competitive disadvantage
for a period of time as their neighbors seek to export their way out of a financial
HORNS OF A DILEMA
Knowing that it will cause them substantial pain,
why then do they insist on holding the peg. Part of Hong Kong's strategy is holding
the currency within its current trading band is an automatic system, which raises
interest rates as long as the currency is being attacked. This practice in theory
is rather interesting, the higher the interest rate an investor can get in Hong
Kong, the more likely it is that he will invest there. This brings a flow of hard
currency into the system simultaneously with it being attacked. This seems to
be the ultimate game of chicken with the stacks being automatically raised and
lowered as the game progresses. It would appear that the Hong Kong
Government is the "House" in one of the biggest crap games in global
This of course makes it more expensive to pay off
loans within the Colony. The alternative though is the additional problem that
Hong Kong developers owe significant amounts of money to offshore lenders
that will be more expensive to repay if they Hong Kong Dollars was allowed to
float. The Wall Street Journal on January 27, 1998 simplified the answer, a)
a credible monetary policy, b) low inflation c) predictable exchange rate d) enhancement
of trade because of the predictable exchange rate e) low interest rates.
These are the elements that Hong Kong believed would aid them in building an empire.
Government officials wanted to do it from a credible position and although currencies
in the region fluctuated throughout the pegged years, there was never such an
abrupt and catastrophic experience as we have seen of late with panic and collapse
Independent Strategy a London financial consulting
firm, predicts China will devalue the yuan by 30% to 40% within 18 months. When
it does, the Hong Kong dollar-U.S. dollar peg is doomed and serious damage will
have occurred to one of the pillars of the global financial system. () While I agree totally with the statement, I wonder
why they think it is going to take that long. So, currency speculators, after
cleaning up in the rest of the region have turned their eyes toward Hong Kong,
which had stood tall while all else around them had collapsed. Stock markets elsewhere
had lost everything that they had gained in the last decade and every currency
in the region including Singapore's was feeling large doses of pain. As the stock
market bears and the currency vultures turned their attention to Hong Kong, even
Taiwan succumbed, with their enormous foreign currency reserves; now the pack-descended
en mass determining to bring Hong Kong
to its knees as well.
The logic was inescapable, hadn't Taiwan given in
when they still held all of the financial cards? Obviously, the considerations
were market oriented. If all of their neighbors had devalued, Taiwan's products
would have been at an enormous competitive disadvantage. Competition had reached
a stage why many of the nations could produce products of equivalent quality in
mass production. When it came time to give quotes to buyers, variations were registered
in fractions of a cent. Currency levels had become critical and Taiwan's was now
hopelessly out of sync. Logic dictated a change of venue and change they did.
SHARKS SAW SOMETHING IN THE WATER THAT LOOKED GOOD TO EAT, THEY WENT AFTER IT,
BUT IN THIS DOG EAT DOG WORLD, YOU CAN NEVER BE SURE OF WHOSE GOING TO BE THE
The horde when they descended on Hong Kong smelled
blood, but they did not stop to analyze the differences between the two regions.
Hong Kong had become a service-oriented economy and was farming out production
elsewhere. They were the users not the manufacturers and as such, the higher their
currency could be pegged against those of their suppliers, the greater the profit
they could make. That argument although unassailable is mere child's play in comparison
to the fact that Hong Kong's treasury is awash with foreign currency and they
have made the pledge to hold one dollar of foreign currency reserves for every dollar of their own currency
that is outstanding.
Thus, an interesting conundrum has developed, attacking
the Hong Kong dollar would only cause there to be a diminishing supply but would
have no effect at all upon the peg. (On the other hand there is more here than
meets the eye and we shall address it later). Moreover, have you heard about face.
As we are well aware, face must be maintained in this region with near religious
zeal. How do you think that China would feel, only a short time after subverting
Hong Kong, the currency collapsed? We
believe that this would not be an acceptable occurrence and I trust this would
make them evil spirited. Thus, it would seem that if push came to shove they would
throw their immense reserves into the battle and create a currency buffer that
would become virtually impenetrable to currency speculators.
They could defend the Hong Kong dollar and their
own until the cows came home and not have to look back. Face is important, but
is it everything. It is hard for Westerners to understand the Oriental mind and
no amount of analysis is going to differentiate where sound economic practices
begin and face ends. Moreover, power doesn't make right and showing machismo doesn't
put money in your pocket. Moreover, while it now makes sense for the Hong Kong
currency to be re-pegged at a lower rate, the ultimate devaluation will probably
take place at a time that the inscrutable Chinese can look at the world and say,
this was a decision that we made based on our own economic consideration, not
upon what was happening in the rest of the region.
THERE IS MORE TO THE STORY THAN YOU CAN ON SEE ON THE SURFACE
Why does it occur that when speculators sell Hong
Kong dollars they decrease the float? When a sale of currency is made it is the
same thing a the brokers requirement to deliver stock on settlement day. If a
speculator sell something he doesnt own, delivery still must be made. If
infinite Hong Kong Dollars were sold short, infinite deliveries of those dollars
would have to be made to the purchasers. Infinite Hong Kong Dollars obviously
do not exist and therefore, the float of dollars diminishes as short sales take
As the float contracts, lender's ability to make
new loans or even maintain loans outstanding, contracts as well. Thus, if enough
currency traders simultaneously attacked the Hong Kong dollar, theoretically,
there would be no dollars left in circulation and all loans made by the banks
in that currency would have to be called. There is no way that China or anyone
else could save Hong Kong under that scenario, but the Government could change
the rules midstream. Malaysia did just that by virtually changing their currency
from freely trading to blocked. While this wouldn't be cricket, not that many
people play cricket anymore.
The ex-colony is rife with rumor and the hoards descend
upon whatever bank or retail business that is rumored to be in trouble redeeming
their cash or buying their merchandise before the predicted demise occurs. In
spite of the Hong Kong Dollar holding firm, the reality is, the economy has slowed,
and there now is unemployment, something unheard of in the past.
China has been shoveling its issues onto the Hong
Kong Stock Exchange, with "red chips" () or H-shares now achieving 10% of the markets weighting
in the Hang Seng Index. Thus, Hong Kong Stock Exchange is beginning to resemble
Shanghai more and more every day, while historic companies making up the index
in August only traded 24% of their market cap against a
more normal 60%. Real Estate has fallen precipitously
and the stock market is hovering only slightly above its lows for the last year. Tourism is down substantially and everything is becoming a
little frayed at the seams.
With financial pressure on all sides, Hong Kong is
not a universe unto itself, it may be better to turn and run and come back to
fight again another day. Eventually,
either because they are forced to do it by additional attacks on their currency
or they do it because the Hong Kong dollar has become substantially overvalued
relative to neighboring currencies, Hong Kong will devalue. They are too smart
not to and the alternatives are most unpleasant. This unavoidable devaluation
will come in the very near future. Most
illustrative of this is the fact that the
largest investment bank in Hong Kong, Peregrine Investment Holdings shut its doors,
signaling to the global community that the king was no longer wearing any clothes.
This particularly came particularly as a blow to
China because Peregrine was the principal underwriter for their issues listed
on the Hong Kong Stock Exchange. Using extremely poor judgement, Peregrine made
the boo boo of lending a substantial part of its capital to PT Steady Safe, an
Indonesian taxi and bus company. The allure of having one of Suharto's daughters
as a major stockholder was their undoing. PT's collapse ended its dream of turning the small company
into a major builder of toll roads and ferries. Peregrine and Steady Safe literally
tanked simultaneously when the financial hole in the Hong Kong investment bank's
balance sheet could no longer be closed. Peregrine was a Chinese window in Hong
Kong and although repeated attempts were made to get the Bank of China
to bail them out, the efforts were of no avail.
A young man by the name of John Lee was head of risk
control at Peregrine. It would seem that having such a distinguished title he
would have analyzed the risks of investing such a substantial portion of the firms
capital into an Indonesian Taxi Company. Peregrine was different than other Hong
Kong Investment Bankers, and it was due to that significant difference that Peregrine
was able to capture such a high a percentage of the business written in the former
colony. You see, when Peregrine bid on a transaction, they, opposed to their competitors
commitments, agreed to take the whole deal (bought deals) whether or not they
could place it.
CHICKENS COME HOME TO ROOST
This certainly was of great value for companies trying
to raise money. They did not have to wait to see if the broker was successful
to be certain of receiving the agreed upon payment. However, this was their Achilles
Heel and the reason that Peregrine was left with a portfolio of $1.1 billion of
mostly remnants of parts of deals they couldnt get rid of when it collapsed.
All investment bankers maintain a portfolio of their deals from time to time.
What made Peregrine so different was that most other global banking firms, would
get rid of the trash and keep the blue chips, Peregrine did exactly the opposite,
it got rid of its quality merchandise and kept paper that was literally worthless.
Thus, they were left with this worst of all economic scenarios. The deals that
are unsaleable are obviously the ones that no one wants and usually with good
reason. Thus the remaining portfolio has become all but worthless.
But back to John Lee, if he were indeed the head
of credit risk management, was he asleep at the switch? Not so, he
says, in answers to a series of questions raised by the Wall Street Journal, January
23, 1998, he stated, I did not know about the Steady Safe deal and I did
not approve it. Well if John Lee didnt do it, could it have been Andre
Lee, a Korean American youngster that had taken over the bond department in 1994
and proceeded to rack up $38 billion in placements during his watch. According
to John Lee, his namesake was able, by buying bits and pieces over time to build
up large positions without alarming or even perhaps notifying other departments.
Andre Lee has hired counsel who has indicated that he wont be talking to
anyone. We do not believe that this will remain the case.
I KNOW YOU
ARE NOT GOING TO BELIEVE THIS BUT I PUT ALL THE MONEY INTO THAT INDONESIAN COMPANY,
In spite of the fact that obviously someone internally
dropped the credit ball, It would seem that the $300 million financial hole that
Steady Safe created in Peregrines balance sheet would have been a small
price to pay for China to keep their window open and avoid the closure of what
was Hong Kong's most prestigious investment bank. Now China will be forced to
pay a much more substantial price to keep both their country's currency and Hong
Kong's from devaluation. These people are not mindless, they were committed to
keeping the peg, and government officials were well aware of the price differential
of holding the peg with Peregrine alive and the price they would have to pay with
it dead. This is a simple mathematical formula, and obviously the powers that
be in adding up the numbers found it far cheaper to let Peregrine die.
THESE THE SAME PEOPLE THAT BOUGHT ALL OF THE UKRANIAN DEBT AS WELL?
It isn't only China and Hong Kong that are in big
time trouble over the Peregrine failure. Probably the most successful business
that the investment bank had going for it was the repackaging of Thai and Indonesian
debt for resale to South Korean and Japanese Banks that were looking for high
yields. Well, even if the companies are still in business you can bet you last
farthing that they aren't going to be able to pay back that debt with the drop
in their currencies. As the Peregrine
story unfolds we anxiously await the list of their customers of that debt so that
we can predict where the next shoe will drop but in the meantime we can let you
in on a not so secret, First Chicago NBD gave those folks a ton of money.
But it doesn't end there, Peregrine will go down
as one of economic history's most startling events; the folks that run the company
are former executives with Citibank and they were underwriting counterparty
risk. Effectively what this means is that when Peregrine sold Korean and Japanese
customers baht and rupiah denominated debt, in order to clinch the deal, Peregrine
assumed the foreign-exchange risk.
In reality, there could well exist hundreds of millions
of dollars of losses within Peregrine due to the collapse of these currencies.
Peregrine will not be able to make those losses good and therefore the entire
weight of the transaction will fall upon the Japanese and Korean Bank Investors.
Until the collapse of Peregrine, there would have been no need to write down the
currency loss attached to the transaction because that was not the investor banks
problem and it undoubtedly carried off balance sheet as a form of derivative.
With the demise of the insurer, the loss now comes home to roast. However, you
can bet you last farthing that these losses are covered up, that is until the
results of the investigation in Peregrines demise is concluded, and that may well
be sometime in the 21st century. However, the losses are real and act
as just another time bomb, ticking merrily away and ready to explode at the most
in appropriate time for the highly exposed Japanese Banking System.
IT RAINS IT POURS
But even that isn't the end of the story, more often
than not Peregrine would get a major bank to front its currency guarantees for
a fee. What this amount will be and who are the unlucky banks that are going to
get stuck, we will soon hear about as the game of musical chair sorts out the
losers for all to see... Furthermore,
Peregrine gave all of its fortunate patrons the opportunity to purchase millions
of dollars worth of its floating-rate notes and commercial paper so that Peregrine
could add to its huge portfolio of Asian Junk bonds. Now friends, these bonds
were called junk bonds before the country's economies collapsed, we are no longer
sure of what category that you would place junk debt that was now bankrupt. I
guess you would call it a write-off.
This story is going to play out like a grade "B"
movie and we believe that it will be one of the great economic calamities of all
time. We already are aware
that Kongbang Peregrine Securities Co., the 44% owned Korean affiliate of Peregrine
Investments Holding Ltd. was purchasing debt securities of the parent as fast
they could be printed by the in-house press. They had bought over $20 million
of the worthless paper when the press was ordered shut down along with the rest
of the Hong Kong operation. Furthermore, the company purchased in excess of $700
million in Indonesian bonds as recently as October of 1997.
Price Waterhouse was brought in to unravel he Peregrine
mess and soon found out that its currency guarantees were much more extensive
than previously believed with over 2000 trades having 300 counterparties. Pity
the poor Thai and Indonesian companies that had the foresight to insure their
currency exposure and yet went to the wrong shop to get the job done. It appears
that most if not all of these transactions will become invalidated because of
Peregrines demise and a substantial number of entities that could have weathered
Asias problems will now disappear from the landscape in spite of having
the foresight to hedge their bets. I guess you could say that they made the mistake
of going to the wrong bookie.
COUNTY HEARD FROM
As the regulatory process proceeded with the speed
of a stalactite growing in the desert, Commerzbank of Germany put the screws to
everyone by filling a lawsuit against just about everyone in sight charging that
these lovable people had taken $41.2 million of the banks money almost simultaneously
with closing their doors. In order to get everyones attention at an early
date, the bank is saying that the directors are responsible and wants discover
on the matter commenced as soon as possible. It seems that a number of people
are already coming to the conclusion that the powers that be, just dont
want the seamy details of what went on to come out into the open and the Hong
Kong Society of Accountants are already into investigating the liquidators, Price
Waterhouse. Now that Commerzbank has lead the charge, everyone else will be soon
joining in with writs and discovery, thus indefinitely prolonging the transparency
that they were seeking.
As the mess slowly began to unravel it was soon apparent
that the Indonesian Companies with whom Peregrine was doing business were doing
easily as much off the balance sheet as they were on. It now turns out that Peregrine
alone had over $9 billion in derivatives written with Indonesian Companies and
the popular notion that original number of $80 billion of debt run up by Indonesian
Companies will pale in comparison with definitive amount that will come out when
the wash is finished. We are convinced that this amount is so large, that banks
in both the United States and Japan will suffer repercussions from it lasting
decades. And even worse, some of these companies may have been affiliated with
Suharto interests and thus may lose their licenses to pillage freely.
Many lenders who had been sanguine about getting
their money back are now looking at a much different situation as everyone affiliated
with the former government is running for cover. What happens now is that some
of those financial institutions that were so sanguine about ultimately getting
their money back because they knew that if push came to shove the
government would step in, are now, we believe, permanently out of luck. We are convinced that unless a massive
cover-up takes place, enormous dislocations will take place in the near future.
PARTY HEARD FROM
Just as everyone was finishing digesting demise of
Peregrine, C A Pacific Securities was shuttered by authorities. Knowing that this
coming so rapidly on the heels of Peregrine, it could likely set off a panic,
the government announced a substantial increase in the compensation fund for investors.
Worse yet, because of series of rather strange complaints were lodged with Hong
Kong Police Department by no less than 1,300 people complaining about weird goings
on in their accounts. As the word spread that C A Pacific was using customer cash
accounts to prop up their own stocks on margin, this caused a major withdrawal
of funds from all of the other stockbrokers in the colony. Part of this problem
stems from a lack of cohesive legislation governing borrowings in the securities
industry from all sources.
HAVE AN IDEA, LETS BLAME THE AMERICANS!
the new masters to be, of the Far East determined that the best ploy when
you don't know what is going to happen next is to first muddy the waters and then
blame everyone in sight for your own problems. Setting the stage for a devaluation
in China and the creation of either a new peg or a freely floating Hong Kong dollar,
Beijing took off after the United States for purposely generating the miseries
that infected the orient. They went on to indicate that a nefarious economic plot
was behind all these economic catastrophes and that it was a move by the United
States to gain substantially more power over the region.
FORCED LABOR CAMPS IN THIS WAR
Taking a gold leaf from the Malaysian book of blame,
China announced in its "People's Daily Newspaper" on January 6, 1998
that, "By giving help it is forcing East Asia into submission, promoting
the U. S. economic and political model and easing East Asia's threat to the U.
S. economy. The article's tenor indicated that with substantial fanfare that the
United States was attempting to force the Pacific Rim into submission in an economic
war far more devious than what the Japanese had visited upon the region in earlier
In this instance, the United States was economically
devastating the region while hiding behind their agent, the International Monetary
Fund. China further indicated that the only reason that the United States was
willing to help at all was the fact that the situation had become so grim that
their was concern among American bureaucrats that without assisting Asia, the
United States would suffer from the economic chaos it had wrought as well. Chinese
authorities went on to state that the United States had allowed Thailand to sink,
but when the contagion spread to Indonesia, Americans became concerned that it
too would be drawn into the morass.
JOB WOULD HAVE HAD SECOND THOUGHTS ABOUT THIS
And the plagues continued to manifest themselves
in the colony. For New Years, Hong Kongs most festive holiday, one
traditionally in which chicken is usually served at every family diner; this year
will have pig because of the bird flu which has already taken a number
of lives. People see that as just another omen of what the coming year is likely
to bring and instead of the year of the Tiger, they are calling it the year of
the pig. Even the usually upbeat, Tung Chee-hwa, Hong Kongs Chinese administrator
said, The present situation will, I am afraid, continue for some time.
HORSE OF A DIFFERENT COLOR
Almost in the same breath, but playing to a different
audience, on January 16, 1998, Dai Xianglong, Governor of the Chinas Central
Bank announced the imposition of American Style banking on that country. A trimming
down of the fat in the system by decreasing the number of provincial offices,
a decreasing role for local bureaucrats and therefore less chance for cronyism,
the addition of international asset classification for loans and stepped up right-offs
on uncollectable bad debt. Furthermore, the government would give more autonomy
to the four state-run commercial banks by allowing them great flexibility within
pre-set perimeters. It is interesting that for public consumption, the Untied
States is the Devil Incarnate and is using every power at its disposal to subject
the global economics, yet the Chinese seem to think behind closed doors that this
system is for them. Maybe they want to share in economically subjugating the world.
While Hong Kong is copying American banking practices,
in terms of their legal system, politically, they seem to be heading North towards
China. China, long a proponent of the old saw that if you are well connected,
you can do no wrong, seems to have brought that branch of cronyism to its former
colony. Politically connected Sally Aw a newspaper publisher in Hong Kong, illegally
inflated the circulation figures for her daily, and in spite of the fact that
three of her underlings were prosecuted for fraud, she took a walk thanks to some
very influential friends in Beijing. Simultaneously,
Mainland Chinas New China News Agency (Xinhua)
blatantly violated Hong Kongs long standing privacy statutes. They
joined Sally in getting preferential treatment in Hong Kong Courts.
THE NEW SYSTEM, EVERYONE OBEYS THE LAW, THAT IS EVERYONE EXCEPT US
The people who saw relatively little change since
the Chinese takeover became restive and although Chinese bureaucrats urged calm,
the people were not particularly assuaged. The new Solicitor General, Daniel R.
Fung, naturally indicated that, I would not accept that there
has been an erosion in the legal system.
Other voices did not agree, Martin Lee offered a contrary view when he
said, The fairest conclusion one can draw is that the government has no
respect for the rule of law, if today you can treat Xinhua more favorably than
others, does that mean that tomorrow you can treat me less favorably?
Although this represents only a small leak in the dike, many fear that
putting a finger in to stop the leak wont do any long term good to the Colony.
This was only the beginning, on March 30th,
1998, the Hong Kong Government announced that they were introducing new legislation
that would exempt the government from many current laws. As more information leaked
out it seems that not only would the Hong Kong Government be exempt from much
legislation but also so would Chinese State bodies. this...signals the beginning
of the substitution of Hong Kongs rule of law with Beijings
rule of man. The potential from abuse and corruption in these circumstances is
enormous and indeed invited, stated Martin Lee, head of the Hong Kong Democratic
Party. Those who thought the former colony would be left to its own devices are
rapidly learning that this is not exactly what the Mainland had in mind.
JUST SEE WHAT HAPPENS WHEN WE PUSH THIS BUTTON DOWN HERE
But the Chinese were not quite done tinkering with
the system. In 1995 when the last Hong Kong vote was held under British Rule,
there were 2.7 million eligible voters out of a population of just under 7 million.
In first election under Chinese rule, that number had dropped to about 140,000
and the way in which the election was handled created more of an air of resignation
than apathy when only a small fraction of that number bothered to go to the polls.
Totally disenfranchising and frustrating the population was the bizarre method
of voting which divides the country for electoral purposes into three distinct
groups, the popular vote will elect 33% of those running, 17% will be chosen by
committee having no bearing on how any votes are cast and 50% will be elected
by corporations. Pro-democracy politician, Emily Lau indicated that the vote was
, It was a farce. Only a very small number of people had the right to vote.
So it was not really an election. It was just a process to entrench power in the
people already with a lot of vested interest and vast majority of Hong Kong people
have no say whatsoever.
Emily Lau did not finish just by knocking the Chinese
election system, she and another activist thought it would be a good idea to stick
it to the Chinese and they had a flower-presentation ceremony at the historic
clock tower landmark. They and their supporters laid chrysanthemums in front a
hastily constructed mausoleum in honor of all that had died in Tiananmen Square.
Emily, ever the orator stated, They have not died in vain. We will continue
to struggle for a democratic Hong Kong and a democratic China. We have some
fears about Emily disappearing sometime soon if she keeps taunting the Chinese.
As she herself has stated, it has happened before.
THE PARADE PASSES YOU BY
So far, the Chinese who were going to let well enough
alone seem to have taken away civil rights and the right to vote, pretty good
for the short time these fellas have been around. God only knows what the next
move will be. As the rights of Hong Kong Citizens are stripped, one at a time,
more people seeing the handwriting on the wall are buying one way tickets out
of town. Among the most controversial actions were restrictions the return
of children from Mainland China, repealing of labor laws passed under British
rule, restricting direct election and placing some China entities above the law.
Well, the election was held with An announced, huge
turnout, the people thrown out by Mainland bureaucrats were elected, promising
to halt the erosion of the Hong Kong Citizens rights. While many view this
as a startling victory for democracy in the former colony, we view it as a prelude
to disaster. The next move will be a legislative war over who is really running
things and the Colony will lose. This will ultimately lead to repressive tactics
by Chinese in order to maintain control. Although we applaud the courage of the
dissidents and we feel that they have only begun a long travel over a short road
and the best that can be garnered will be some sort of compromise.
And worse yet, the economy that had started to become
unraveled and the people who under strong economic conditions could have put up
with some government hanky panky under good conditions were not in the mood based
on what was going on economically. Retail sales dropped 18 percent in February
1998 alone and unemployment soared to a fifteen year high. The smog, which killed
tourism last year, is expected to do even worse this year with the bottom dropping
out of tourism with arrivals down over 20 percent in May. The budget is in chaos
because the Government was forced to suspend land sales because of the collapse
of the real estate market which is down 50 percent in just a few months and which
contributed a substantial amount of the collections.
Due to the fact that so much property is financed
through the Hong Kong banking system, fears have already been debated about its
ultimate demise. If anyone had any doubts as to the seriousness in which these
events were perceived, they only had to listen to Chinas designated hitter
to understand the facts. Tung Chee-hwa expressed his concern when he said, Property
prices have dropped heavily and if this situation continues it would certainly
jeopardize the financial and banking system.
The real estate collapse also means that instead
of a surplus of HK $10 billion which had been projected just a short time ago,
the actual numbers will come in at a deficit of around HK $21.4 billion. All in
all, things are not looking up for the colony, When the data was all in, the first
quarter of 1998 showed a contraction of 2 percent and government estimates looked
for more of the same to come. Government head, Tung Chee-hwa stated the obvious,
We fully understand that our economic situation now is very critical.
LET ME TEST THE "FENG SHUI"
For a truly Western Style economy such as Hong Kongs,
the people are zealots though when it comes to feng shui, the four
thousand year old art of predicting the future . Apparently everyone in the former
colony is on the lookout for good karma, but according to those revered in the
practice of feng shui, things have happened exactly the way they had been predicted.
Even Tung Chee-hwa was such a fervent advocate of the science that he would not
move into the British Governors home claiming that it had bad feng shui.
As a matter of fact he would not move anywhere until his own expert picked a place
that had good karma.
The banks in Hong Kong regularly issue feng shui
reports and as an example, Credit Lyonnais Securities Asia issued the following
just about the time when the British turned the colony over to China, People
will begin to express their dissatisfaction with the continued deterioration in
the local economy and living standards after the hand over. With so much
riding on these predictions, people have been asking when will things get better
and almost to a man, the feng shui has predicted that when the new airport opens,
things are sure to improve.
BY THE SEAT OF YOUR PANTS
When things looked like they couldnt get worse
because everything bad that could happen already did, a new disaster struck. With
great fanfare Hong Kong opened its new airport, the purported, eighth wonder of
the world located, on reclaimed land at Chek Lap. So sure were the locals that
the new airport would operate as advertised that they took the unusually steps
of removing the backup systems which normally would have been kept in place. Effectively,
Hong Kong virtually closed the airport that had served them well for so many years
and opened a new one simultaneously, the end result became a logistical nightmare.
Officials were so sure that they had covered every
eventuality that it was not necessary to take the normal precautions of converting
flights gradually over a shakedown period to make sure that there were no glitches
in the system. Well, they were wrong, were they wrong. The new computer just plain
developed bugs and wouldnt cooperate no matter what technicians
tried to do. Cargo handling became impossible and goods could not be moved out
or into the new $20 billion facility. Escalators didnt work, toilets were
either backed up or in a constant state of overflowing and information displays
seemed to be written in Esperanto. This all had the compounded effect of creating
interminable flight delays.
Worse yet, an arriving Cathay Pacific Airways plane
from France fell victim to a malfunctioning automatic guidance docking system
and rammed into an air-bridge when it couldnt stop in time. Officials became
hysterical over the event and canceled the systems use, making it available only
manually. This action further backed up the long line of planes waiting to take
off and land. It then turned out that the foundation work for the airports
railroad was substantially inferior to the specifications and before you could
blink an eye, four people were arrested and officials were busily out testing
the concrete to see if the train was going to fall into the water.
Throwing oil on a smoldering fire occurred when tour operators, looking
at the airport as a way to make some money sold tickets to the populous for an
in depth review of the facility and they turned out by the thousands straining
what little was left of the airports amenities beyond reproach.
Much of the cargo that goes in and out of Hong Kong
is living, such as live seafood, fresh cut flowers and bull frogs, had to be sent
back to the old airport for handling and in the ordeal, much was lost. The passengers
fared almost as badly as the order of the day became hurry up and wait
as long lines appeared everywhere as 80,000 people wondered what to do next. As
for the future, the airports chief, Anthony Charter seemingly did not check
his "feng shui" and stated, operations were likely to suffer for
the foreseeable future and that imports ../../were likely to face 24-hour delays__148.css;.
Airports in Macao, Shenzhen and other Southern China were asked to help with the
arrivals and for the moment, bad karma abounds.
Naturally bureaucrats were searching furtively for
a fall guy and Hong Kong Air Cargo Terminals LTD (HACTL) obliged by opening their
mouths. You see, HACTL is the company that handles 80 percent of the air cargo
going in and out of the former colony. HACTL, after things started going wrong
at the airport, reasonably instituted a ban on almost all inbound and outbound
air freight traffic and has since indicated that full service could not be restored
until at least mid-August, and then, only by reopening the old airport for traffic
again. Upon hearing the news, Chau Tak-hay, the Secretary for Trade and Industry
stated, The company should be reprimanded. Im saying it without reservation,
I am very angry, As a citizen of Hong Kong, I feel like every other citizen, very
disappointed. And we can understand where Chau is coming from, Hong Kong
handles air cargo valued at HK$40 billion per month and you dont think that
this kind of slowdown isnt going to cause a real financial problem for a
place that already had its hands full, you are crazy.
Many of the problems could be chalked up to Hong
Kongs history of getting everything right for so long that the bureaucrats
in charge thought they were be bullet proof. In reality what they did was push
the airports envelope by opening it to early, in the first instance to accommodate
the one-year anniversary of Chinas takeover of the former British Colony
and in the second, for Clintons visit to the Pacific Rim. Hong Kong is being
to show some fraying around the edges.
With the news from all corners going from bad to
worse, the Hong Kong Government couldn't take it anymore and took a wad of the
Colony's reserves and sunk them into the stock market. We are not talking about
nickels and dimes here, were are talking about billions of dollars or hard currency
reserves. Albert Ho, in speaking for the Democratic Party put it best when he said that the
move was "unwise and unrealistic to attempt to manipulate the market, Hong
Kong is a free market and speculation is a part of life."
The Hong Kong Government defended its action indicating
that currency speculators were spreading vicious rumors about the Colony's economic
state of affairs, and indicated that in order to put a stop to the matter once
and for all, the government would purchase shares until the cows in order to punish
the perpetrators of these actions. However, unemployment figures released
almost simultaneously showed that people out of work rose to historic highs. A
public opinion poll also released at the same time showed that peoples patience
with the new regime was fraying and that confidence had sunk to a new low since
China began its administration.