Riding the wind of rebirth

“Because of these characteristics, even though the Hong Kong Monetary Authority has adopted much stricter regulatory measures than Mexico, the Hong Kong financial market is still very vulnerable to the impact of speculative ‘hot money’,” Li Laosan said.

"The situation is still very serious," the old man said. "What are your thoughts? Do you have any countermeasures?"

“Yes,” Li Laosan said. “Behind us is the world’s most populous, fastest-growing, and most demanding market. Relying on the increasing prosperity of our motherland, as long as we adopt flexible and clever strategies, leverage our strengths and avoid our weaknesses, and turn disadvantages into advantages, we can find a path to high-quality development in a changing world full of both opportunities and challenges.”

"We need to solve the problems one by one. The Hong Kong British authorities abolished the linked exchange rate system, which helped stabilize the financial system, and promoted high-risk stock and futures trading. These two moves were terrible. We can fully utilize our relatively strong economic strength to actively participate in them. We can rebuild the part of the system they abandoned through economic means, and use the foreign exchange control capabilities of non-financial institutions to achieve balance and stability. We should also actively participate in high-risk stock and futures trading, and use hedging and other risk-mitigation measures to achieve balance and stability in the same way."

"Won't that harm your interests?" The old man was somewhat skeptical of Li Laosan's motives.

"No, if handled properly, we will not only not suffer losses, but on the contrary, we can also gain considerable benefits from it."

"We can understand it this way: Hong Kong Island will definitely reap considerable benefits from the peaceful rise of the motherland in the next twenty years. In other words, the next twenty years are a major cycle of economic prosperity in our view. In this major cycle, the bulls who are optimistic about development and the bears who are pessimistic about development will ultimately be the bulls."

"This is the general trend. As long as we grasp this point, even if the bears seem to have the upper hand in the short term, the final result will be a victory for the bulls."

"Besides, as long as we have enough chips, we can snatch food from the tiger's mouth." Speaking of his expertise, Li Laosan was so confident that a smile appeared on his face: "We can even take action before the short sellers start shorting, take a share of the profits from them, and weaken their strength in advance."

"In Hong Kong Island?" The old man looked at Li Laosan in disbelief. Everyone was thinking about defense, but this kid actually wanted to attack!

However, such tactics are quite common in the history of warfare. Cutting off enemy supply lines, attacking enemy granaries, and seizing enemy supplies were all common tricks used in early guerrilla warfare and counter-mopping-up operations. But defending Hong Kong Island is a positional war, and using guerrilla tactics might be somewhat inappropriate.

“Of course it can’t be Hong Kong Island,” Li Laosan said. “But we can do that in other financial markets outside of Hong Kong Island.”

"Let's get back to Hong Kong Island and continue from where we left off," the old man said.

"What I just mentioned is that we can leverage Hong Kong Island's well-developed private and non-bank financial institutions to achieve the balance that has been lacking in policy. In addition, we can also leverage domestic capital, with mainland banks taking on an important role, especially those that have already established branches in Hong Kong Island. They can strengthen their responsibilities and participate more in Hong Kong Island's financial industry."

"There are precedents for this. For example, the Bank of China Group, as the third note-issuing bank in Hong Kong Island in 1994, weakened and offset the negative impact caused by the British Hong Kong financial authorities in terms of the issuance and control of the Hong Kong dollar, thus enhancing its status and influence in the Hong Kong Island financial sector." "At the beginning of this year, it also officially assumed the chairmanship of the Hong Kong Island Association of Banks. This is both an act of sovereignty and a demonstration of China's confidence in maintaining Hong Kong Island's status as an international financial center."

"We believe that the Bank of China Group should assume more social responsibility in stabilizing Hong Kong's financial market and ensuring a smooth transition and long-term prosperity for Hong Kong. To a considerable extent, it should be able to counterbalance or even replace the role of the Hong Kong British financial authorities, so that the government can take the initiative and act with ease when formulating and implementing monetary and financial policies."

"Regarding the issue of 'public sentiment,' such as high-welfare 'retirement pensions,' which significantly increase pensions for the elderly, unemployment benefits, and civil servant salaries, we should expand our publicity efforts, make our stance clear, strengthen cooperation with the Hong Kong British authorities, and let the public know the harm that such short-sighted measures will bring to Hong Kong Island's finances."

"We must also make sure to publicize the financial deficits caused by the huge investments in airports, subways, and docks, so that citizens are aware of the consequences."

"But no matter how well we publicize this financial hole, in the end, we still have to put in real money to fill it," the old man said.

“Yes, this initial investment of HK$1270 billion will ultimately be filled with real money,” Li Laosan said. “But as long as it is not all invested by the future SAR government through fiscal allocations, it will not affect the overall fiscal situation.”

“We can attract investors who are optimistic about Hong Kong’s future economy to invest in these projects by introducing long-term strategic investments, subcontracting project business, or even issuing ‘infrastructure bonds’. This will undoubtedly greatly alleviate future fiscal pressure and benefit all parties.”

"Zhou Zhi once told me a story about the Zheng Guo Canal. Infrastructure construction has a huge impact on overall strength. The initial investment is huge, but the long-term benefits are also considerable. As long as some of the long-term benefits are given up, a considerable portion of the pressure from concentrated investment in the near term can be offset."

"These measures will undoubtedly send a message to the outside world, demonstrating our confidence and determination to maintain and enhance Hong Kong's status as an international financial center, and restoring the confidence of investors around the world in Hong Kong."

"In addition, we must vigorously promote the economic achievements of the mainland in recent years, actively carry out WTO negotiations, and continue to promote our efforts to deepen market mechanisms so that investors can be aware of them."

"We must make Hong Kong Island a major channel for foreign investment into the mainland, a major gateway for mainland goods to reach the world, and a major window for commodity and currency settlement. Relying on the prosperity of the motherland, we should make Hong Kong Island's financial industry prosper again."

"Although Hong Kong Island now faces many and strong competitors, after its return to China, it will surely become an international financial center for China's external economic development and will have greater development potential."

"With the overall economic strength and enormous economic potential of the mainland as its backing and support, Hong Kong Island's ability to withstand financial risks as an international financial center will be even stronger." (End of Chapter)