Reading Tea Leaves


We live in an uncertain world so it is unwise to be too dogmatic, especially about political matters. As former British Prime Minister Harold Wilson once said “a week in politics is a long time”, and our chief executive election is still 10 months away.

Nonetheless as the race has clearly already started, I think we are entitled to speculate a little. The first banker is that, short of hell freezing over, incumbent Leung Chun Ying will seek a second term. His agenda and mindset are based on a full ten year programme and he hasn’t made much secret of it. Already some heavyweight political voices are starting to say two terms is logical. In the circumstances, he must be regarded as a short-priced favourite.

The next two obvious candidates are chief secretary Carrie Lam and financial secretary John Tsang. Lam has said she won’t run and intends to retire. Though some commentators have speculated otherwise, I am inclined to take her at her word. The only thing that might change her mind is if Beijing concluded Leung should not have another term, and persuaded Lam to perform her patriotic duty. She would not take part in a seriously contested election just to make up the numbers, nor stay on as chief secretary.

Tsang obviously does want the job, and has dropped a few public hints about how he might play things differently, by openly supporting the Hong Kong football team when it played against the national squad, and celebrating the knockout success of local boxer Rex Tso. His recent budget attracted some pan democratic votes. He won’t stay as FS, and is unlikely to be persuaded to accept “promotion” to CS. As with Lam, it’s a case of “CE or nothing”.

Other names trotted out by the chattering classes include LegCo President Tsang Yok Sing, former financial secretary Antony Leung, and former security secretary Regina Ip. Tsang may be too cerebral for a job requiring street-fighting skills, perhaps more of a kingmaker behind the scenes or as interim chief if Leung “fell under a bus” as the saying goes. Antony at one time seemed a shoo-in to succeed C H Tung, but Lexusgate did for him, and with one chief secretary already in jail and a former chief executive before the courts a Leung candidacy might create the wrong impression. Ip clearly is interested and almost made the ballot last time when the wheels started to fall off the Henry Tang bus. There could indeed be a role for her, if only to give CY some competition.

I think we can forget the idea of a Tang comeback, which just leaves us with one dark horse, Rita Fan who some think could (and should?) have run last time out.

What sort of event could put the cat among the pigeons and up-end all the betting? Almost by definition these are the “unknown unknowns” made famous by former US defence secretary Donald Rumsfield. Such a possibility can’t be ruled out. After all, who could have foreseen in 2012 that a basement would finish Tang’s once promising career. It might be safer to stick with a known unknown and my personal favourite in this category is what might happen to the local property market.

Current price levels are still absurdly high despite having dropped around 10 per cent from last autumn’s peak. But how far could they drop before the market hits bottom? Some of the banks are forecasting a further fall of 20 per cent, making one third off in total. Such a decline would be painful for many but probably just about bearable. The banks, for example, have been holding the line on mortgages at around half of assessed market value so they should escape serious damage. But some of our developers have been offering extra loans to buyers to bring the total advance up to 80 or even 90 per cent or more. If those purchasers started to walk away in large numbers then the property companies would feel the pinch.

But you know Hong Kong, we always overshoot, what if the total price drop was more like 50 per cent. At that point there would be a serious negative wealth effect which could spill over to the whole economy.

Interestingly, this is one area where our chief executive and financial secretary might have slightly different views. Tsang has twice speculated about dropping the special stamp duty measures if the market stabilises or drops substantially. On each occasion Leung has been quick to emphasise the need to stay the course.

One thing is certain, whoever holds the top post from July next year: he or she will sorely need a better cabinet than the sorry bunch we have at the moment. Far too many bring to mind Benjamin Disraeli’s description of the government team as “a range of exhausted volcanoes”.


 
Mike Rowse
email: mike@rowse.com.hk