On Hong Kong’s Exchange Fund: An SCMP Letter to the Editor


There was a syntactically small but politically large notation decision in the SCMP’s recent interview with Norman Chan Tak-lam. Either the editors, the reporter, or Mr Chan himself decided to express the figure of HK$2.7 trillion in the Exchange Fund as a rounded up figure of HK$3 trillion. When playing with such large numbers, it is easy to round off a decimals and as a syntax issue it can be forgiven. Yet this rounded off decimal offers a window into the scale of numbers involved in the fiscal mismanagement that feeds the ever-growing Hong Kong Exchange Fund.

It is equivalent to approximately 15% of what we might expect of Hong Kong’s GDP in 2014 1, which is also seven and a half times what will be spent on the Hospital Authority this year 2, four times more than the Education Bureau’s budget 3, or two and half times the last estimate for a third runway 4.

Looking at the Exchange Fund in these comparative terms also offers a window for an international perspective. The Fund is 125% larger than the expected 2014 GDP of Hong Kong5. From an international perspective, Hong Kong’s foreign reserves are larger than any other polity in the world aside from Libya6. Singapore sits at 93% and Switzerland 83%. The IMF thinks 20-30% of GDP as foreign reserve offers ample caution7, and the world average for countries with data sits at just 23%.

Mr. Chan might earnestly believe he needs every penny – and more, always more – but he would seem to be almost alone in having such relative wealth at his disposal. It is a political choice of the SAR government to continue letting him plan Hong Kong’s financial future around what appears to be baseline expectations of the financial equivalent of a zombie apocalypse. Hong Kong is being rung through an imaginary crisis or indulging in the post-traumatic fevers from crisis past.

If Mr. Chan cannot think of a reasonable stopping point for the growth of the Fund, then public or LegCo must do it for him. I would propose that 100% of GDP as foreign reserves is more than sufficient as a target. This would retain Hong Kong’s top international position in regards to foreign reserves while providing needed relief from the budgetary mismanagement of the past few years. Just how much money would that free up? HK$545 billion. That’s equivalent to seven Education Bureau budgets, twelve Hospital Authority budgets, or four more runways. Learning from our current mistakes, it would be wise to turn a deaf ear on those like Mr. Chan who insist we spend it all in one place.

  1. This number is derived from taking the Q1 GDP and multiplying by four.
  2. HK$44.4 billion.
  3. HK$76.8 billion
  4. HK$136 billion.
  5. The average of 2014 Q1 (HK$517.8 billion) and 2013 Q4 (HK$560.1 billion) multiplied by four = HK$2.2 trillion
  6. Data taken from 2013 World Bank data, foreign reserves divided by GDP
  7. See Jeane and Rancière, 2006

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