星期二, 5月 24, 2005

Strengthening the currency board system --- HKMA responds to U.S. interest rate rise

The Monetary Authority(MA) is modifying the HK$'s currency peg. A ceiling of 7.75 to the US $ will be assured, with a lower limit of 7.85 to ensure symmetry, phased in over a five-week period start from this Monday.

I think this action will remove uncertainty of the extent to which the exchange rate may strengthen. It may lead to reduce the use of the HK$ as a vehicle by speculators speculating on revaluation of the Chinese Renminbi (Renmin Yuan).

However, following the MA's decision of widening the trading band for HK$ and consequent outflow of "hot money" from HK was the announcement by the local leading banks of 0.5% rise in interest prime rate.

The immediate effect of such move was that the gap of interest discrepancy between HK and US was narrowed. Some economists said the move could strengthen the operation of the currency board system through the normal operation of foreign exchange markets.

Off course, I observe that the move probably leads to the cooling of the property market immediately and the inflationary spiral will be checked. Can you see why?

Copyright Reserved by tcwong©

星期五, 5月 20, 2005

Property Right; Transaction costs; Coase Theorem & Diaoyu Island

Geographically, the Diao Yu Islands lie 410 kilometres from Japan's Okinawa Islands, but only about 300 kilometres from the Chinese mainland and less than 100 kilometres northeast from the Taiwan.

Diao Yu Islands are "rich" in terms of their adjacent waters with plenty of marine resources and mineral oil patches underwater. There are plenty of resources to be potentially exploited around there.

Property rights are the rules that govern the right of uses and its terms of ownership transfers of a resource. The sovereignty (ownership) of Diaoyu Islands belongs to China. The Japanese Government has no right to occupy the Islands. It is illegal. However, the cost of enforcing the property right of Diaoyu Islands is pretty high, and such cost constitutes one of the transaction costs. The transaction costs may be prohibitively huge.

In economics, we have the Coase Theorem which states that regardless of the initial assignment of property rights, the equilibrium is identical and efficient through the market operation ---- provided that property rights are well-defined and transaction costs are negligible.
According to such theorem, the assignments of rights does not affect the efficient allocation of resources BUT affect wealth distribution. Whoever has the right will gain and whoever has to buy the right may lose. Which party bears the loss is reciprocal depending on the assignment of rights.

If the property rights are not well-defined, non-price competition will be likely the result and leading to dissaption of rent. That is the scrambling competition will go on until the marginal cost of the scrambling equals to the potential marginal benefit obtained from getting such resources. Dissaption of rent implies wastage of resources. Therefore, it is not always a efficient practice of "non-price competition" ---- through violence or other measures.

There is a huge amount of evidences indicating that Diao Yu Islands in the East China Sea have long been Chinese territories. It is a fact the Islands constituted an entity with China's other territories. According to the United Nations Convention of the Law of the Sea, the geographical scope of a country includes the islands, waters, and other natural stretches of lands (terrains) that constitute a geographical, economic and political entity. Therefore, I think it is inevitable for our Chinese Government to pay such cost of enforcing our solemn sovereignty of Chinese territories.

Regrettably, the Japanese Government shows her greediness by use the name "Senkaku Islands(尖閣列島)" instead of Diao Yu Islands. They never recognize China has sovereignty over these uninhabited isles and even turned a blind eye to the Japanese right-wingers' visit to the islands.

What a shame to Japan! Japan should finally pay the price for her aggressive behaviour!

Copyright Reserved by tcwong©

Reference Link:

星期一, 5月 16, 2005

Concepts of "Public goods" & "Private goods" as inspired by the "Bun Festival" held in Cheung Chau

People flocked to the Cheung Chau Island for the Bun Festival, which is held to commemorate those who died in a plague in the 19th century. The festival is dedicated to driving away evil spirits. A street parade was also held on Sunday, 15 May .

This year, the annual Bun Festival organizers in Cheung Chau have decided to revive the tradition of racing up giant bun tower ---- holding the Bun Scrambling Competition. The competition was once banned after the collapse of a bun tower in 1978.

(a) The ritual and the activities thus organized are referred to "public goods" in economics. Why?

(b) The sweet lucky buns were supposed to cure all illnesses. These buns are referred to "private goods" in economics. Why?

Copyright Reserved by tcwong©

星期五, 5月 06, 2005

Deeply moved by Lien Chan & Soong's visit to the mainland

My Poem
There are five thousand growth rings
packed in the great buttress of Chinese nation.
Just a matter-of-course, she's in her full bloom.
Against any aggression, she resolves to stand firm.
After any devastation, she revives to live strong.
In silence, no more slogans would be heard
but only the tender accents of love.
In the rainbow of peace,

the blue melts into red
and the red melts into blue.
How spectacular the dance of a dragon

and its immortal legend!
The grandeur of
my Middle Kingdom!

Copyright Reserved by tcwong©

It is a big event in the year 2005 particularly in this century calling for rationality, democracy and dialogue. I see the ray of hope of reconciliation between the two brother parties CCP and KMT*.

I think it is a very successful beginning on the road to reconciliation between them. This visit has a profound meaning and its historical significance even though Lien claimed that the tour serves the simple purposes of blood ties and finding ethical and cultural roots in Mainland. Of course, the main purpose of the Lien's tour is to promote an end to cross-strait hostilities and seek closer cross-strait economic ties.

It is actually "a journey of peace" as quoted by Hu Jintao.

This historical visit is not only beneficial to the Taiwanese but also to Hong Kong people and the whole Chinese nation as well. It will be even beneficial to the whole human kind for the world peace thus be maintained. Actually It is very crucial for such peaceful environment be created and maintained so that the further economic development of the cross-strait economies can be ensured.

We, including Hong Kong people, should try every effort to ease the tension of the cross-strait relationship and contributes to our nation.

As a matter of fact, the immediate positive impact of the visit on the economy has been shown as the Taiwan stock prices closed a bit higher yesterday. We actually have shown a great expectation for the reconciliation between Taipei and Beijing. The reconciliation will also be beneficial to Hong Kong in the long run instead of at the expense of the interest of Hong Kong people, I think.

We need no wars. We need peace and stable livelihood.

Flash Cartoon Sharing: The Island of Hope (和平搭橋之旅)


* note: CCP = Chinese Communist Party, & KMT = Kuomingtang.