(CNS) -- The Hong Kong Special Administrative Region (HKSAR) under the Framework of “One Country, Two Systems” is closely connected to the Chinese mainland and also extensively connected to the world. The city, known as the world's freest economy, has long played an important role as a bridge between the mainland and the world, and has developed to a leading international financial center, relying on its unique advantages of sound financial system and sound legal system.

Nowadays, the world's economic center is shifting from west to east at an accelerated pace in the context of global changes. Challenged by the complex and volatile external environment and uncertainties, how should Hong Kong plough the waves to maintain its competitiveness as an international financial center? The first president of the Hong Kong Monetary Authority and an unofficial member of the Executive Council of the HKSAR, Mr. Joseph Yam Chi-kwong, accepted anexclusive interview “W.E. Talk” with the China News Service to give an in-depth explanation of this issue.

Here are excerpts from the interview:

CNS: Under the impact of the changing international environment and the Covid-19 pandemic, what are the possible financial risks faced by Hong Kong?

Mr. Yam: Hong Kong's financial system has been sophisticated and strengthened over a long period of time, and has good genes to manage risks well. Although I have been in retirement for many years, I am still confident about this. This tradition of being prepared for danger has been passed down to today, and Hong Kong is well prepared for financial risks.

I’m not worried about the uncertainty in the global economynow and the impact of Covid-19 pandemic, as it is normal for the financial market to fluctuate with the ups and downs of the economy. Hong Kong's financial regulators conduct regular stress tests on the financial system at a very high coefficient. Although Hong Kong has taken more conservative anti-pandemic measures than other places, it is justified to do so, and I think the impact is temporary.

The world today is undergoing major changes unseen in a century. In the international financial arena, the U.S. has a strong influence, and a complex situation may arise if it tries to control China's development from the financial aspect. I believe that the financial regulators in both the Chinese mainland and Hong Kong will keep alert and analyze possible events and thus get prepared.

I think there is less chance of an extreme situation. First, China and the United States are the world's two largest economies and they will not be completely "decoupled" in economy, especially in the financial area. Wall Street investment banks have developed a lot of business in the Chinese mainland and also hold a lot of votes, so they are highly influential on relevant decision makers in the United States. Second, the United States is the world's largest debtor, while the Chinese mainland together with Hong Kong is the largest creditor.Therefore, it is not reasonable for the former to “sanction” the latter by financial means; if so, it will make other creditors wary and lead to a significant reduction in U.S. influence in the international financial area.

CNS: What are the lessons from “The Battle to Defend Hong Kong’s Financial Stability” in 1998?

Mr. Yam: Before the return of HK to China, the Monetary Authority had already made a lot of preparations for safeguarding financial security and monetary stability, including the introduction of the "New Accounting Arrangement" in 1988 and the "Real Time Gross Settlement " in 1996, so that the Monetary Authority was able to control the monetary base. The years 1997 and 1998 were a test for us. The financial crisis at that time was not caused by anything wrong with Hong Kong itself, but by the failure of Southeast Asian countries to manage the risks of debt in the context of financial globalization.

Speculators took advantage of Hong Kong's belief in the free market philosophy to manipulate the market which was thus reduced to a market that could be freely manipulated. In the face of this disappointment, it was necessary to bring order out of chaos, so we decided to intervene in the stock market in a high profile to prevent them from making money by manipulation. When they attempted to push the stocks down, we bought them. This was actually a very brutal approach, but we had no alternative except to fightback.

At the time, despite the veiled criticism of some Western financiers, this approach later was still recognized by these people. Although Hong Kong is a free economy relying on the market, it should not be ignored that there are times when the market fails. Preventing market failure requires regulation and even intervention and involvement in the market. When the regulator sees the need for this, for example, when the failure is against the public interest or affects monetary and financial stability, the actions mentioned above should be taken. I have learnt therefrom that the market isnot absolutely infallible.