Hong Kong pays the price for a heady two decades
Hong Kong Chief Secretary Donald Tsang's warning that the territory was threatened with the worst economic crisis since the Korean War, must have stirred some memories among certain grandfathers in the territory, and across the Pearl River delta in Macau.
The United Nations-imposed embargo on the export of strategic goods to China in 1951 brought severe privation for most, but an opportunity for some. Tough young men organised smuggling trails across the Chinese border in Macau to run gasoline, rubber and other supplies, amid not a little gun play. It was a very lucrative trade. Gold shipped to and from what was then a Portuguese enclave tended to vanish. It is said that the first recorded case of hijacking occurred when a missing flying boat was found minus its cargo of bullion, and the pilot with a bullet in his head.
Much of the money that was made around that time laid the foundations for several casinos, at least one Hong Kong stockbroking house, and a number of real estate dynasties.
In the intervening years, Hong Kong has reinvented itself several times, moving from entrepot port to leading manufacturer and exporter, and becoming one of the world's premier banking and financial centres.
It was merely coincidental that a decline set in immediately after the British left. Hong Kong roared out of the Asian currency crisis with the accelerator flat to the boards, driving the Hang Seng index up to a peak of 18,290 in March 2000. Since then it has been all sweat and tears, but thankfully no blood.
It is hard to believe these are the worst of times for the most energetic place on earth. It has seen off the riots of the late 1960s, the global oil rises of the early seventies, which ushered in the biggest shares crash ever, as well as the near collapse of the currency in 1983.
Certainly things are tough. Fabulous wealth creation was engendered over the better part of 20 years, during which the cost of money was under the rate of inflation, making property buying a one-way bet. The real estate collapse has left many homeowners with negative equity, and unemployment continues to climb. The stock market has almost halved in value.
Now there is talk that HSBC's board of governors will be discussing a wage freeze when it meets at the end of the month. The last time the bank resorted to this was probably in 1974, when I was financial editor of the South China Morning Post. The bank effectively owned the newspaper in those days, and the staff did not get their annual two-month Lunar New Year bonus. Since most journalists traditionally spent their wages on beer, they found it tough to pay their tax bills, and some fled town.
It is easy to blame the SAR government for the present-day malaise, which is largely a function of external factors beyond its control. With 20-20 hindsight there were two dumb decisions. One was to erect Hong Kong's future on pillars of silicon by turning the place into a cyberport, and the other was the planned Disney theme park. The implosion of the IT industry crippled the first ambition, although Richard Li's Pacific Century CyberWorks is ploughing ahead with a much slimmed down version, and terrorism has sadly cast a shadow over the second.
There has belatedly been a panicky push to raise the poor standard of English in Hong Kong. With nearly 90 cents in the GDP dollar dependent on servicing tourism and the international business community, this had been ignored too long. Those of us who had warned about inadequate English skills, were dismissed as Colonel Blimps.
Inevitably, in hard times a chorus goes up to scrap the HK$7.80 peg to the US dollar, which has held for 19 years. People forget that the most determined attempts by hedge funds to smash the peg have been on the upside, with speculators convinced the currency was undervalued. On two occasions Hong Kong was obliged to slash interest rates to near zero to fend off hot money. This is just another cycle. The monetary authorities do not have a clue where they would re-peg the dollar, and talk of substituting a basket of currencies for the link seems to have been around since Moses. An Asian monetary union would make more sense.
If this really is the worst loss of business confidence for 50 years, the prospect of making money is mouthwatering. There has never been an opportunity to buy Hong Kong assets at such a huge discount to valuation. The grandsons and granddaughters who are heirs to the fortunes made during the bleak Korean War may already be making their move.