In 1997, an invisible storm crept over Asia. The financial giant lurks in the undercurrent, with eyes as sharp as a knife, aiming at Hong Kong, the pearl of the Orient. Before the eyes of the world are in focus, a financial battle has quietly unfolded on the streets of the city. The heart of the market, the Hong Kong dollar, became the target of their sniping.
With the start of the financial war, Hong Kong's stock and foreign exchange markets have become battlefields. International speculators and the Hong Kong government are fighting wits and courage in this smokeless war. The central government has paid close attention to the wrestling and dispatched financial guardians to protect Hong Kong with strong support.
The Hong Kong government will not back down, and has declared that it will use all means to respond forcefully and do its best to safeguard the prosperity and stability of the city. In this chaotic game, there is only one iron rule - winner takes all. Will it be the triumphant return of international speculators, or will Hong Kong hold its ground and win? Behind the financial turmoil, what kind of complex financial schemes and political whirlpools are hidden, which is speculative and unknowable.
Defending and Counter-Attacking: The Battle of Hong Kong
In 1997, Hong Kong was at a crossroads, with the imminent return of political sovereignty on the one hand, and a fragile moment of financial turmoil sweeping through Asia on the other. Against this backdrop, a campaign to destabilize Asia's financial center is quietly unfolding.
International financial speculators, among whom the Quantum Fund, led by George Soros, have been particularly active, and their attacks on currencies and financial markets have rapidly escalated. On August 5, Hong Kong's financial market was suddenly sold off by a huge amount of money, and a number of investment banks and hedge funds in Europe and the United States joined forces to launch an attack on the Hong Kong dollar, solemnly launching a large-scale selling operation involving billions of Hong Kong dollars.
The market reacted strongly to the collective selling, and both the stock price and the exchange rate were hit hard. In addition, nearly a dozen investment banks and hedge funds in Europe and the United States sold Hong Kong dollar and HSI futures in the Hong Kong market in a short period of time, with the Quantum Fund playing a major role in the operation, followed by Robertson's Tiger Fund.
In the two consecutive days of sell-off, the Hong Kong stock market and the Hang Seng Index futures market have been severely impacted, the Hang Seng Index has fallen sharply, and the market value has evaporated tens of billions of Hong Kong dollars, and Hong Kong's financial market is under great pressure. However, the sniping did not make the Hong Kong government lose its cool.
In the face of the crisis, the government reacted quickly, understanding the importance of stabilizing the exchange rate and the impact on the stock market, and showed decisiveness in its response. The Hong Kong authorities opted for a conventional but effective defensive measure of raising interest rates, and when the Hang Seng Index fell below 6,500 points, the HKMA did not hesitate to raise interest rates.
Higher interest rates mean higher costs for speculation, making it less easy for speculators to realize. Although this approach is risky, it actually shows the Hong Kong government's belief in protecting the financial market.
The Hong Kong government, under the guidance of the HKMA, has actively entered the market and started to buy stocks and futures contracts, and has demonstrated its firm stance on protecting the exchange rate of the Hong Kong dollar and ensuring the stability of the financial market.
Another strategy is for the HKMA to buy a large amount of Hong Kong dollars in the foreign exchange market, which in this way will reabsorb the large amount of Hong Kong dollars thrown out by speculators, preventing further depreciation of the currency. On August 13, then-Financial Secretary Donald Tsang made a tough statement that Hong Kong was not an ATM for international speculators, a statement that boosted market confidence.
Just when the market atmosphere has stabilized slightly, Hong Kong has encountered new challenges. August 28 is the delivery and settlement day of HSI futures, and international speculators took advantage of this opportunity to launch a new round of offensive in an attempt to turn around at the last moment.
However, after a full day of fierce tug-of-war, the Hong Kong government once again proved its ability to cope with the crisis, not only did the market stabilize, but the HSI futures finally settled at 7,851 points.
The support of the central forces: a firm backing
At this juncture, the staunch support of the central government has become a key variable in Hong Kong's financial defense. As the most concrete and far-reaching support measure, the two deputy governors of the People's Bank of China arrived in Hong Kong in person with foreign exchange reserves of up to US$144.9 billion, which was of far-reaching significance in this special period at that time.
During this period, all Chinese-funded institutions in Hong Kong have also received clear instructions from the Central Government to fully support the SAR Government's market intervention. This strategy not only boosts the market's confidence in the government's ability to withstand the financial crisis, but also provides additional support for the SAR government's market operations.
The support of Chinese institutions at this critical moment has undoubtedly provided valuable support and help for Hong Kong to resist external financial pressure.
Market Front: The climax of the showdown
The HKMA has not only methodically intervened in the foreign exchange market during the crisis, but has also adopted a multi-pronged strategy in the stock and futures markets. In the sell-off, foreign exchange reserves were passively used to stabilize the market, and the Hong Kong government stopped further declines in stock prices by buying large quantities of stocks and futures contracts.
This is part of the strategy to prevent speculators from profiting from short-term actions, and fully demonstrates the HKMA's accurate judgment and rapid response to market dynamics. With the intervention of the Hong Kong government and the HKMA, the panic in the market has eased. The HKMA's purchase of Hong Kong dollars was accompanied by a reduction in the amount of treasury to lower the interest rate of the banking system.
This strategy aims to fundamentally stabilize the currency and reduce the level of volatility in the financial markets. Under the influence of this series of actions, the exchange rate began to show signs of stabilization, and the downward trend of the stock market was curbed. As the core battle against international speculators, the HKMA engaged in a seemingly close showdown with speculators in the market.
In particular, the HKMA's counter-attack strategy played a key role in the massive sell-off of Hong Kong dollar and HSI futures by speculators.
In addition, at the most critical moments in the market, such as the settlement day of HSI Futures, market volatility was skillfully controlled, from the initial speculators' selling offensive to the HKMA's follow-up buying action. In particular, when international speculators tried to push the market into chaos during the settlement period, the HKMA firmly maintained the stability and order of the market through orderly market intervention.
Unwavering: Policy and Decision-making
To enhance the flexibility of the Hong Kong dollar in the foreign exchange market, the Hong Kong Monetary Authority (HKMA) has adjusted the exchange rate quotation mechanism to reflect more realistic market supply and demand conditions. This adjustment helps to reduce the market's overreaction to exchange rate movements, thereby stabilizing financial conditions. This reform provides a more flexible adjustment space for the Hong Kong dollar, allowing the exchange rate to more accurately reflect market conditions.
At the same time, the use of foreign exchange reserves by the Hong Kong Monetary Authority (HKMA) to intervene in the market is key to maintaining exchange rate and financial stability. When international speculators tried to create market turmoil by selling large quantities of Hong Kong dollars, the PBOC used foreign exchange reserves to conduct counter-market operations in a timely manner, effectively maintaining the stability of the Hong Kong dollar exchange rate.
These market operations by the HKMA have effectively mitigated exchange rate fluctuations and mitigated the impact of the financial crisis on the economy. In terms of strengthening market supervision, the Hong Kong government has raised the level of supervision and strengthened investigation and punishment for possible market manipulation and illegal acts.
The regulators have severely cracked down on illegal trading behaviors, maintained the healthy operation of the stock market, and prevented the market order from being distorted due to malicious manipulation. Such strict regulatory measures provide the basic guarantee for fair and fair trading in the market.
In addition to this, the Hong Kong government also provides a stable environment for the market through other fiscal and monetary policies. For example, by injecting liquidity into the market to support the operation of the banking system, it ensures that the liquidity needs of the market are met. This measure lowers the cost of borrowing in the market, eases financial pressure, and supports the development of the real economy.
End of Campaign: Steady victory
In the 1998 financial turmoil, the Hong Kong Consulate suffered fierce market attacks, but in the end, the Hong Kong SAR government succeeded in stabilizing the already shaky financial market through a series of decisive market interventions.
These measures are not just market operations, they represent a strong will and belief in victory at the decision-making level, and have made an important contribution to the stability of the entire Asian financial market.
During several days of market manipulation, the Hong Kong Monetary Authority (HKMA) quickly used its foreign exchange reserves to buy Hong Kong dollars against the market, stabilizing the exchange rate. The stock market has also experienced a massive government-led buying campaign. The SAR government's action not only prevented the Hong Kong dollar and the stock market from falling further, but also demonstrated Hong Kong's ability and determination to maintain the stability of its financial markets.
After eight days of intense financial battles, the Hang Seng Index finally stood firm, proving that Hong Kong's response strategy in fending off financial turmoil is effective. The market crash that international speculators expected through malicious speculation did not happen. Instead, they were confronted with a solid line of defense against a series of market interventions, with the result that international speculators suffered a lot of money.
The financial battle is not only a test for Hong Kong's economic policymakers, but also for the synergy between the central and local governments in the face of external pressures. The central government's full support for Hong Kong has played a crucial role at a critical time, and together they have built a strong line of defence against the potentially more serious consequences of the financial turmoil.
In particular, the Deputy Governor of the People's Bank of China arrived in Hong Kong in time and said that he would support Hong Kong's financial stability at all costs, which stabilized market sentiment in a timely manner. Under the guidance of the Hong Kong government, the market gradually returned to order, and investor confidence was restored.
The stability of Hong Kong's financial markets is seen as part of the stability of financial markets in East Asia and the world, and this successful defensive battle not only bought time for Hong Kong, but also proved to the world the resilience and maturity of Hong Kong and China's financial system as a whole.
In the end, the eight-day financial street fighting was not only about intervening in the market and defending the currency, but also an important test of Hong Kong's stability as a major global financial center. Through a series of unwavering policies and decisions, the HKSAR Government has demonstrated its preparedness and capability in the face of the crisis, and has successfully maintained the confidence of local and global investors in Hong Kong's financial markets.
Resources:
"Hong Kong's Financial Crisis: A Contest with International Speculators" by Institute of Financial History
"Chronicle of the 1997 East Asian Financial Crisis" - Archives of the Hong Kong Monetary Authority
George Soros: Speculator or Financial Genius - Financial Review Magazine
"The Battle of the Foreign Exchange Market: The Inside Story of the Battle for the Hong Kong Dollar" - Asian Center for Financial Research