HONG KONG (Feb 21): Hong Kong’s de facto central bank is bidding farewell to its chief after a decade, starting the search for a successor at a time when the city faces an outlook made uncertain by the slowing Chinese economy and the trade war with the U.S.
Norman Chan, who has been the Chief Executive of the Hong Kong Monetary Authority since 2009, will retire on Oct 1 at the end of his second five-year term, the government announced Thursday.
The HKMA’s main task is defending the city’s currency peg to the U.S. dollar, meaning the former British colony’s monetary policy is imported from Washington even as its status as a center for trading in China’s currency, the yuan, grows. Chan took office as Hong Kong was being buffeted by the global financial crisis, and leaves it amid increasing vulnerability due to record property prices and the protectionist threat to the open trade that the city thrives on.
“Norman has been leading the HKMA since 2009 and has worked tirelessly over the years to strengthen the city’s monetary and banking systems and promote Hong Kong’s position as an international financial centre in Asia,” Financial Secretary Paul Chan said in a statement. He will chair a selection panel to identify the next chief executive, the government said.
Chan, 64, is one of the world’s best-paid central bankers, despite his institution’s limited role in setting policy. He earned HK$10.8 million (US$1.4 million) in 2017, including HK$2.6 million in performance-linked variable pay and HK$1 million in benefits such as life insurance. His total remuneration was more than four times that of Bank of Japan Governor Haruhiko Kuroda’s, about 40% above Bank of England Governor Mark Carney’s and more than seven times that of the Federal Reserve chairman.
The HKMA chief has acted as a determined advocate of the Hong Kong dollar peg, once referencing his memories of long queues and empty shelves in supermarkets, due to currency instability. In 1983, the local currency slid sharply against the greenback as China and the U.K. negotiated Hong Kong’s return to mainland rule.
“On my way home from work I saw a long queue of people outside a large supermarket, waiting to snatch whatever goods they could for fear of further devaluation of the Hong Kong dollar,” Chan recalled in a blog post in 2013.
Calm was restored after the city pegged its currency to the greenback at a rate of about HK$7.80. During the 1997-98 Asian financial crisis, Hong Kong used US$15 billion of reserves to defend the link from a speculative attack. Throughout the years, Chan, along with other senior Hong Kong officials, repeatedly said the peg has served well as an anchor to the economy and is here to stay, even with the increasing importance of the yuan as a global currency.
“The Linked Exchange Rate System is entirely rule-based and there is no room for discretion on how the HKMA manages the exchange rate,” said Ines Lam, an economist at CLSA Ltd. “There is more human input in the financial regulation sphere but overall, we expect a continuation in policy with Mr. Chan’s retirement.”
Hong Kong’s borrowing costs also move in lockstep with those of the Fed. As a result, the ultra-low interest rates in the past decade have sent Hong Kong housing prices to levels so high that they’re now the least affordable in the world.
Soon after taking office, Chan oversaw measures attempting to quell the city’s red hot property market. He introduced more stringent stress tests on home buyers and less generous mortgages. However, these haven’t stopped Hong Kong property prices from more than doubling in the past decade.
Chan has also presided over the boom of Hong Kong’s offshore yuan market. Yuan savings have shed almost 40% from the peak, however, as the Chinese currency weakened.
It was a rocky start when Chan looked for jobs after college graduation. He failed to get a single interview after sending job applications to 40 companies. The sociology graduate ended up joining the government as an administrative officer in 1976. After almost 30 years as a public official, he briefly jumped into the commercial world and became a regional vice chairman of Standard Chartered Plc. He rejoined the HKMA in 2009 as its second chief executive in history.
“In the international policy arena, Mr. Chan’s articulation of the emerging market economy perspective means that the HKMA, as a small central bank, often punches above its weight,” said Chang Shu, chief Asia economist for Bloomberg Economics, who formerly worked for the HKMA. She said “the search party may not need to travel far for a successor” as the authority has several capable deputy governors.
1976: Joined the Hong Kong government as administrative officer
1991: Appointed deputy director of the Office of the Exchange Fund
1993: Joined HKMA as executive director at its establishment
1996: Became deputy chief executive at HKMA
2005: Left the HKMA and assisted in Donald Tsang’s chief executive election campaign; Went to Harvard for short-term study and then joined Standard Chartered as Asia vice chairman
2007: Returned to government as director of Donald Tsang’s Chief Executive Office
2009: Rejoined HKMA as its chief executive