The administration's move to increase its stake in the local bourse operator was aimed at elevating the status of Hong Kong an international financial center, the Secretary for Financial Services and the Treasury Chan Ka-keung insisted yesterday.
"We are not intervening," Chan said, reiterating what his boss, Financial Secretary John Tsang Chun-wah, noted a day earlier. Chan defended the decision in the wake of mounting criticism domestically and from overseas.
The Civic Party last night issued a statement saying the stock exchange's independence and public confidence in the capital market has been damaged.
The administration should reveal if it has fully evaluated the situation, and the standard of investment and operations, the party said, claiming there is a need for the government to clear doubts whether the government had been engaged in insider dealing.
Following criticism by Hong Kong Exchanges and Clearing (0388) independent non-executive director David Webb, the Wall Street Journal said in an editorial yesterday that the city is retreating into further government interference to cozy up to China's tightly controlled domestic exchanges.
"One benefit of private-sector ownership [like London or New York] is that it avoids conflicts of interest, of which Hong Kong now faces many," the paper suggested. The decision to increase its ownership stake is all the more puzzling - and ultimately damaging, it said.
Responding to a chorus of howls, Chan said the administration had not abandoned free market principles.
In an interview with The Standard and sister publication Sing Tao Daily, Chan said: "I don't think we have backed away from a free market theory [by being the single largest shareholder of HKEx], every government has different means of exerting its influence, the United States Federal Reserve is just such an example."
He said the initiative was in line with the "Action Agenda on China's 11th Five-Year Plan and the Development of Hong Kong."
"We need to exert our influence on different levels, both from the government and market practitioners, to ensure that development is smooth and match the motherland's growth," Chan said.
Referring to the delayed individual direct investment plan for mainlanders, Chan urged patience, assuring that the program is making smooth progress and it would not be long before it is launched. "With such a huge project, it would be not practical if people believe it could rolled be out in a very short time," he said.
The government is working closely with the mainland to improve liquidity flow across the border, Chan said, adding that the qualified domestic institutional investor program and the individual direct investment scheme are a part of the macro plan.
Speaking ahead of the Asian Financial Forum, which the government is hosting next week, Chan said Hong Kong had sound financial infrastructure and what the government needs to do is to "introduce more product types and services to attract asset management houses," to the city.
On Friday the government spent HK$2.4 billion increasing its stake in HKEx from 4.5 percent to 5.88 percent, buying 15.72 million new shares.