Hong Kong reveals key share stakes

THE HONG KONG government has finally announced how much it spent in August when it burst into the stock market - it snapped up shares costing HK$118bn (pounds 9bn).

A new company formed to handle the government's newly acquired share portfolio also revealed yesterday the extent of the stake it has in all the 33 stocks which make up the blue-chip Hang Seng Index.

The disclosure shows that it owns more than 10 per cent of three companies, including the British-controlled Swire Pacific, in which it has a stake of over 12 per cent. The smallest holding is 2.5 per cent. The government now owns between 5 and 8 per cent of almost all Hong Kong's biggest public companies.

The other companies in which the government has substantial holdings are Cheung Kong Holdings (over 10 per cent), the diversified property conglomerate led by tycoon Li Ka-shing. There is also a near-12 per cent stake in New World Development, another property company.

The 8.8 per cent stake in HSBC Holdings, which owns the Midland and Hongkong and Shanghai banks, has already been disclosed under London stock exchange rules.

Chinese state-controlled companies such as China Telecom, Citic Pacific and China Resource Enterprises are now in the unusual position of having both the Chinese and Hong Kong governments as shareholders, effectively meaning that they fall outside the modest local requirement of a minimum 25 per cent of the shares available for the general public.

In an era of privatisation, the government's share buying has led to a form of back door nationalisation. The recent rally in Hong Kong shares has earned the government a handsome profit on many investments. Cheung Kong shares have risen about 50 per cent, while New World shares have almost doubled in value. The government, however, stoutly denies that the intervention was designed to make quick profits on the market.

Sir Ti Liang Yang, the chairman of the government's new shareholding company, called the Exchange Fund Investment Ltd, repeated yesterday that the government's ultimate aim was to dispose of the shares without disrupting the market.

However, last week Sir Donald Tsang, the financial secretary, said the government was looking at a plan to hold some of its massive fiscal reserves in equities. This implies more or less permanent government intervention in the local stock market.

Before the new company was set up it was suggested that the government intended to exempt itself from rules which require disclosure of holdings in public companies exceeding 10 per cent. Although the government has taken its time to comply, Sir Ti Liang said yesterday that it would comply with the rules in future.

The government maintains that its intervention was needed to prevent speculative attacks on the Hong Kong dollar and pressure on interest rates. But the move has been controversial, earning criticism from such influential people as Alan Greenspan, the chairman of the US Federal Reserve.