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Following is a transcript of the Q&A session given by the Financial Secretary, Mr. Donald Tsang, at a press briefing at Central Government Offices this (Friday) afternoon:

Reporter: Mr Tsang, you sound a bit like Mahathir Mohamad. He made very similar comments last September here in Hong Kong, blaming speculators, blaming rumours, when in fact a lot of the market was sensing some vulnerability in the Malaysian system. How do you answer to ...like that?

Financial Secretary: I do not want to comment on Dr. Mahathir's statement here or his activities. What I wish to say is this: Hong Kong market is open. We pride ourselves to maintain a very open market and we pride ourselves not to intervene in the market. We are dealing with very exceptional circumstances. My colleagues and I have been asking ourselves very critical questions over the past few days when these currency attacks took place and these double play in the market took place. We have asked ourselves whether we are, as an administration, corrupt, unstructured and full of impediments. The answer is objectively not. We have asked ourselves whether we have been running our budget imprudently, continuously running into deficit all through the years. The answer is no. We have asked ourselves whether a corporate community have been squandering the cash or borrowing illiberally to the extent there are running major deficits in the current account balance of payment. The answer is no. We also asked ourselves whether we have been adjusting rapidly to the situation that we see in the rest of Asia. The answer is clearly yes. Our asset markets, for instance the property market, has been halved during the last seven months. And of course our stock market and stock value, equity value has been more than halved during the last few months. So adjustment has taken place very rapidly and we are reacting very sensibly. But what we have seen is very exceptional; exceptional measures, exceptional attacks on Hong Kong dollars, which are not consistent with the market adjustments which would be expected. So we are taking this action in a very limited fashion. There are clear signs from our point of view that these speculative attacks on the currency are aimed at making speedy profits in the futures market and this is what we believe we should do. I think it's a responsible government looking at the community at large who has been suffering from unnecessary interest rate height. It is important that we have to do something to restore investors' confidence in this market. Otherwise it would be unnecessary volatility, unnecessary hardship.

Reporter: Mr Tsang, can you give us some scale, some idea of the scale of the intervention which took place today, in both cash and futures markets?

Financial Secretary: Quite clearly in market activities of this kind I cannot divulge the level of intervention, but the whole purpose of the intervention is to hurt the speculators and we have ample resources to do that. As soon as the speculators leave the Hong Kong dollars alone, we would not intervene in the securities market and we will try to exit as orderly as possible.

Reporter: Given the whole problem here, how do you make the distinction, how do you define what is speculation and what is ordinary trading activity?

Financial Secretary: There are ways of doing it. I do not need to elaborate. We can discuss it quietly in another session. But quite clearly this has been rumour for a long time. We have not taken any action at all. This was certainly what the market suspected in October last year. This was what the market has suspected again earlier this year during another round of attack. But only during the recent episodes, we have reasons to believe that this double play was quite clearly taking place and it is, to us, not reflective of the market sentiment but purely for speculative games.

Reporter: In terms of selling US dollars to buy Hong Kong dollars, what sort of buying has the Government been doing? And are you prepared to keep on using this ...?

Financial Secretary: Quite clearly I won't be able to divulge details of market operations here, but we have ample resources in our exchange fund to deal with speculation of this kind. But as long as the conditions which I have mentioned are complied with we are going to intervene. These conditions are very strict and very narrowly defined. They are, that the Hong Kong dollars under stress and there are persistent attacks on the Hong Kong dollar. At the same time there are signs that there are speculators doing a double play both on the currency market and the futures market. Only under those very strict conditions that we are going to intervene in the market.

Reporter: ...speculators....

Financial Secretary: I have mentioned in the statement that there are hedge funds working through various Hong Kong finance houses. And I must emphasize one point. Our commitment, our commitment, to the currency board system is paramount, is unchanged. But what we are dealing with is very exceptional circumstances that we have deployed upon exchange reserves to deal with very specific attacks on the Hong Kong dollar through a very unconventional means. And we are not going to abandon the system. I also indicate that we have total resolve and we are going to go through all motions in order to defend the linked exchange rate. It is from our point of view very important to maintain our economic activities in Hong Kong and ensure our economic recovery.

Reporter: Which were the markets that you really intervened, equity, futures, currency, or all of them?

Financial Secretary: As I said, we intervened both in the cash and the futures market.

Transcript of Financial Secretary's press briefing (Chinese)

End/Friday, August 14, 1998

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