Caixin
Jun 19, 2019 02:11 PM
OPINION

Chan: Business as Usual in Hong Kong

Photo: IC Photo
Photo: IC Photo

The government announced on Saturday it would suspend the legislative amendment exercise for the Fugitive Offenders Ordinance and the Mutual Legal Assistance in Criminal Matters Ordinance. On the basis of no time limit and an open attitude, we shall restart our communication with all sectors, do more explanation work and listen to different views of society. We will consolidate the comments and report to the Legislative Council Panel on Security before we decide on the next step forward. We hope that this arrangement can help relieve the tension in the community and provide time and room for rational dialogue and discussion among all parties.

When the atmosphere in the community becomes tense, economic and livelihood matters are inevitably affected. Due to this connection, I have been closely monitoring every aspect of our financial system with colleagues from relevant departments to ensure its smooth and efficient operation.

Firstly, regarding the foreign exchange and currency market, the Hong Kong Interbank Offered Rate (HIBOR) has been increasing in the past few days, but the overall operation of the market is in order. While the One-Month HIBOR has increased 60 basis points to 2.6% when compared with early June, the rate is now coming down from the peak. The increase of HIBOR is led by seasonal factors, for example banks usually prefer to boost liquidity towards the end of the half-year in June. In response to the increase of the Hong Kong dollar (HKD) interest, the HKD exchange rate is generally strong recently, from the level of HK$7.84 to $1 earlier to HK$7.81 in the last two to three days. This is mainly because the narrowed interest rate gap between HKD and U.S. dollar (USD) makes it less attractive to sell HKD for USD in carry trade. The Hong Kong currency is trading flat against USD, hence pushing up the HKD exchange rate.

In fact, when the HKD interest rates rise nearly to the level of USD, it will attract the buying of HKD which in turn strengthen HKD exchange rate. On the other hand, the rate will be weakened if the interest rates of HKD are lower than that of USD. This is in line with the automatic interest rate adjustment mechanism under the Linked Exchange Rate System (LERS).

Indeed, there is nothing to worry about the capacity of our banking system in meeting liquidity requirements. According to the regulatory requirements of the Hong Kong Monetary Authority (HKMA), banks of Hong Kong have set up proper mechanisms to manage liquidity risk. The banking system of Hong Kong has adequate capital and ample liquidity. As and when necessary, banks can make use of Exchange Fund paper which amounts to HK$1 trillion in total to receive sufficient liquidity from HKMA. HKMA will keep a close watch on the market situation to ensure the efficient operation of the Hong Kong currency market and maintain the stability of HKD exchange rates according to LERS.

On securities and futures markets, both have been running smoothly and orderly so far. The exchange, clearing and settlement under the Hong Kong Clearing and Exchanges Ltd. have been properly conducted. The Securities and Futures Commission has all along been supervising the liquidity of its accredited funds and further reinforced market supervision to ensure that such funds are managed under a fair and orderly mechanism to serve the best interest of investors.

As regards the land and property market, due to blockage of public access to the Central Government Office (CGO) last week, the closing date of a tendering site has to be extended, taking into account safety concerns for those submitting tendering documents to the CGO. We will announce the new closing date for the tender this week. And for another tendered commercial site in Kai Tak, since the buyer failed to pay the balance of the premium before the due date according to the Conditions of Sale requirements, the deposit previously paid by the buyer was wholly forfeited to the Lands Department. The department also reserves the right to claim for recovery or compensation as a result. There are diverse analyses and speculation regarding the tenderer’s decision to abandon the purchase and no unanimous conclusion can be drawn. Nonetheless, we believe that market demand for land is still huge and we shall arrange the re-tendering exercise as soon as possible.

To conclude, although the external situation continues to be unclear and tension has risen in the community, the Hong Kong economy and financial market are still healthy and in order. We shall continue to monitor the market situation and equip ourselves for potential financial risks, so as to provide a stable and reliable financial environment for our citizens and enterprises.

Paul Chan Mo-po is the financial secretary of the Hong Kong Special Administrative Region. The Chinese version of this article was originally published (link in Chinese) on Sunday.

Contact editor Yang Ge (geyang@caixin.com)

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