11 September 2018

To Yiu-ming: HK's Fiscal Reserve Soon to Be in Hands of Beijing!

HK's Fiscal Reserve Soon to Be in Hands of Beijing!
Translated by HKCT, written by To Yiu-ming
Original: https://www.rfa.org/cantonese/commentaries/tym/com-09062018095716.html?encoding=traditional 

The astronomical fiscal reserve of the SAR government has done little to solve our social problems. As bad as that may be, it is merely a reflection of the perversion that is our political system. Yet if this humongous sum of taxpayers’ money were to be handed over to the state-owned enterprises, unexplained and unchecked, that would assail our tradition of insulating SAR’s finances from the Mainland government, further ruining Hong Kong’s high degree of autonomy.

Financial Secretary Paul Chan recently revealed in a blog that the HKMA is talking to Chinese state-owned enterprises (SOEs) on investing in their overseas projects that yields stable returns as stockholders with part of Hong Kong’s trillion dollar fiscal reserves.

Ay, there’s the rub: Is such investment profitable? SOEs have a monopoly in their domestic market, and hence is fairly sheltered from failure. Investing in their shares when they come are justifiable if the price is right and the purchase well communicated. Yet what is proposed is significantly different: we only know that the investment will be into SOEs’ overseas projects, with no idea of what it entails. We do not even know which SOEs are involved, or the projects in question.

To be frank, profitable projects have no difficulty seeking capital investment. Risky projects would naturally yearn for SAR’s investment, yet should we really let patriotism cloud business acumen?

The next problem lies in the means of investment. The SAR Government is hoping to buy stock and wait for dividends. Unlike the Government’s current investment purchases, such as shares, foreign currency and bonds, which are all highly fungible. But for the Government to hold stock of a specific company is much riskier, and the stockholders’ rights is completely at the mercy of the company’s constitution, organization, and legal systems. In such cases, there is no guarantee of great dividends even if the company were to make great profits. 

The third problem lies in the nature of such investment. SOEs are hefty investors abroad; so of their projects are controversial, to say the least, involving the sales of arms or copyright infringements. Even if these projects were to yield great profits, the SAR government should still keep the moral dimension in mind. Not to mention, with the US-China trade war going on, the SAR Government ought to stay out of it and refrain from all commercial activities the US see as unfair trade practices; it might be even wiser to keep one’s distance from SOEs, so as to protect our status as a customs-free area.

Perhaps to the FS, it is within the HKMA’s own purview to manage its own investment portfolio. HKMA may choose SOEs as it chooses stocks and bonds. These actions are unworthy of a detailed account on the FS’ blog. Yet the three questions I have raised above are of great importance. Mishandling our investment and we suffer losses, or worse, find ourselves caught in the crossfire of the current trade war. With this in mind, how can the SAR’s clandestine practices bring assurance to anyone?

Of course, the bigger question lies in our fiscal reserve trickling into the hands of Mainland SOEs. What’s to follow? handing our reserve to the government or Guangdong or even the national development bank for them to manage like Macau did? With the decision-making process hidden from view, Hongkongers have no way of knowing where our fiscal reserve and the HKMA’s profit is spent. We may even end up with the Central Government taking over Hong Kong’s reserve, only to provide the SAR with an annual return of 4%. 

Now, of course, these worse case scenarios still require the consent of HKMA and the SAR Government, but since when was the last time the SAR Government ever said no to Beijing?