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Maintaining Investor Confidence

Discussions on constitutional development in Hong Kong remain heated, despite the National People's Congress Standing Committee's announcement in April which laid out the parameters within which we can work towards change. People from all walks of life show little sign of starting calm, rational and pragmatic discussions. With the September Legislative Council election drawing closer, constitutional development is expected to remain at the forefront of political debate and for some time.

However, we cannot go on like this forever; something needs to be done. As I wrote in last month's column, various sectors should try to build a consensus through sincere dialogue, now that the direction for Hong Kong's constitutional development has been identified. With Hong Kong's long-term stability and prosperity in mind, we must not and should not waste time and energy on unnecessary confrontation.

Political alarm bells

Last month, international credit rating agency Standard & Poor's rang the alarm over the outlook of Hong Kong by keeping its domestic currency rating for the territory "negative." S&P explained this was due to the political uncertainties in Hong Kong. It also cited the public's dissatisfaction with the pace at which democracy was developing and that the September Legco election might affect some important government policies -- such as reducing the budget and taxation reform.

Two other rating agencies, Moody's and Fitch Ratings, also expressed concerns about political reform in Hong Kong, although they did not downgrade their ratings. The former even pointed out that conflicts between democratic parties and the government would weaken investor confidence in the years ahead.

What should we do now that the alarm bells have been sounded? On the one hand, I think, various sectors of the community should set aside their preconceived notions and confrontational attitude. Instead, they should start constructive dialogue to ensure the prosperity and stability of Hong Kong. On the other hand, the government needs to explain clearly to rating agencies the situation in Hong Kong to avoid weakening investor confidence in the territory.

During a recent Legco meeting, I put forward an idea to the Chief Executive that the Financial Secretary and other bureau heads must enhance their communication with these rating agencies, especially before and after the publication of rating reports. Not only should they reflect that the local economy, employment, deflation and the budget have improved, they should also explain clearly the relationship between democratic parties and the government.

For instance, democratic parties have different political views to those of the government, but they still support the government in some policy areas, such as the "Individual Visit Scheme" and CEPA. By demonstrating that political instability is unlikely as democratic parties support the government in certain areas, this will avoid conjuring up an overly negative image of Hong Kong.

I say this not because I want to speak well of someone, but because I want to protect Hong Kong's overall interests by clarifying the real situation to these rating agencies. We all hope they will not misunderstand certain events in Hong Kong and weaken investor confidence.

Support and confidence

With regards to investor confidence, I also want to mention the issue of government bonds. Chinese Premier Wen Jiabao pledged that the Central Government would show its support for the SAR Government by purchasing part of the upcoming HK$20 billion worth of Hong Kong bonds. I believe that many people, like me, welcome such an announcement, which reflects the active support of the Central Government for Hong Kong again. This, in turn, will consolidate investor confidence in the economy.

While being grateful for such support, I feel that the Central Government may consider allowing members of the public to purchase the bonds first, and only buy if they are under-subscribed. One of the objectives of issuing government bonds is to encourage local citizens to buy as many as possible to haul the distance between citizens and the administration closer. It could raise their identity and confidence in Hong Kong and the administration. Moreover, as current interest rates are low, bonds are an attractive option for investors looking to put their money to work. Take the over-subscription of the Hong Kong Link bonds as an example. I believe that the general public will be able to snap up all the bonds issued. As such, it may not be necessary for the state to support Hong Kong.

Purchasing HKSAR Government bonds is one of the many examples of the Central Government's support for Hong Kong. I believe the Central Government and Hong Kong people have a common belief in that Hong Kong's stability and prosperity must be maintained. As such, I hope that various sectors can set aside preconceived notions and work together to pave the way forward for Hong Kong's future development in a peaceful and rational manner. Only then will we be able to avoid unnecessary disputes which may dampen investor confidence.

If you have any comments or proposals on my views, please send them to me directly at, Legislative Council Building, 8 Jackson Road, Central, Hong Kong.
Or email me at tpc@jamestien.com. Tel. 2500 1013, Fax 2368 5292.