Speculative Monster Still Roams the Asian Landscape

On the surface, it’s hard to understand why Donald Tsang, Hong Kong’s respected financial secretary, is not smiling. The regional economic landscape in Asia looks less battered every day, and there is a whiff of financial reform in the air. But the Harvard-educated Tsang, in the U.S. for a round of talks with investors and some image-polishing for Hong Kong, is still raising red flags about the dangers of rapacious Western speculative funds on smaller, vulnerable economies. He is among the most prominent Asian leaders to argue that there is an untamed monster loose on the world stage in the form of speculative dollars looking to make a score against a less-than-perfect currency or stock market.

Tsang believes the potency of that monster is underappreciated by the most powerful nations (the only ones, as fate would have it, with the global clout to deflect speculative excesses). Predicts Tsang: “Two or three years from now, we will face the same thing again--sitting around the table, beating our chests, singing the same tune, talking about the same tragic stories.” There is precedent. In 1927, American triumphalists of that age were proclaiming “a new era without depressions,” as the financial newspaper Barrons then put it. Five years later the gross national product of America had fallen 60% and the value of American stocks had shrunk to 1/10 of their peak 1929 worth. So, listening to this 55-year-old policy wonk talk about Hong Kong’s own brush with catastrophe is like listening to some octogenerian survivor of America’s own Great Crash.

Last summer, Tsang helped orchestrate a sneak counterattack against speculative fund groups that were sucking huge profits out of Hong Kong’s economy. He essentially used Hong Kong’s monetary reserves to buy stocks on the Hong Kong market, shoring it up to discourage speculative raiders from betting on a continued slide in stock prices and the Hong Kong currency. Tsang believes that large speculative funds are a great contemporary financial Leviathan still out there gathering new force and threatening to reduce economic life to a Hobbesian state--solitary, nasty, brutish. “What’s worrying to me is the free flow of capital occurring in the dark,” he says. Tsang and other globalization revisionists would require the same degree of public disclosure for so-called hedge funds as is required of public mutual funds. “Flow’s important, that’s a lifeblood. But flows totally in the dark, not knowing what they’re carrying--viruses or carcinogens into the national economic system, we have no idea--that’s what’s worrying.” Tsang’s critics believe he is just making excuses for seriously flawed Asian economies that deserve to be attacked in order to shape them up. He agrees that Hong Kong has its problems, notably wildly inflated real estate and asset prices, not to mention the wariness caused by China’s takeover. But he insists that speculative attacks can cripple any economy, except those as huge as Japan’s or the United States’ or the European Union’s: “The question is whether we want the same problem to repeat itself again and again and again . . . And the problem will emerge again; it will. But not in Hong Kong . . . people know we will play dirty at times.” But he’d prefer to see more international intervention to prevent chaos. Why not simply let the international markets sort out these problems without intervention? “Yes, the markets will smooth things out,” he replied, “but in the process they will smother some markets and overturn countries. It will change your politics overnight--good governments, bad governments alike. Is this the kind of world we want? There is no perfect economy on earth. No economy reaches a state of totally balanced equilibrium.”

Tsang is right: Without new international ways of monitoring speculative waves, the efforts of all national economies to clean up their own internal acts simply with better banking systems and more disclosure won’t be enough to ward off another regional, if not world, crash. Tsang wishes the International Monetary Fund, the obvious world banker of last resort, were not so dysfunctionally underfunded: “Once a financial crisis starts, IMF passes the hat around [to contributing governments], but that starts the problem, because then everyone wants to leave the boat [of the troubled economy].”

But if America, the world leader, is opposed, or even indifferent, to his line of thought, how far will Tsang and like-minded reformers get? “Not very,” he snapped. “The tragedy is that international efforts may degenerate into regional efforts, and regional efforts may degenerate into individual national efforts. This means everyone for himself.” His is a scary, perhaps even econometrically neurotic vision--but what if Donald Tsang, the Hobbesian pessimist, is right? “There will always be some bubble, somewhere, or sign of underdevelopment in some other area, that will make you vulnerable to rumormongering by speculators that want to attack you.” For Tsang, the world is playing a self-destructive game of greed roulette.

Times contributing editor Tom Plate’s columns run Wednesdays. The full Tsang interview can be found at https://www.asiamedia.ucla.edu.