... If markets have to adjust, then it's better to let them adjust instead of trying to resist change or to support them artificially.

Japan tried to manage markets (protect jobs, institutions, banks, etc.), create demand by fiscal pump priming, and refused to allow markets to adjust during the 1990s. The result was simply that the adjustment process was prolonged unnecessarily, and the costs to the community became arguably much larger.

Investors are not stupid. If they believe prices are going to go down sooner or later, they are not going to buy even if prices are supported at artificial levels. What you have is just a false market with little transactions. If prices do adjust, even massively, you have transactions. Hong Kong thrives on trade, on transactions. Transactions create activity, and activities create jobs. This is much better than pleasing the vested interests by maintaining artificial markets with little transactions. From this perspective, I would see the recent drop in prices of new sales flats by some developers as a positive development for HK.

In any case, the gap between the prices of properties on the two sides of the SAR's boundary is actually narrowing fast. High-end residential property prices in Shenzhen are quite close to some of the low end property prices in northern New Territories now.

The problem for Hong Kong, as I see it, is not whether to liberalize or not to liberalize the border. The problem is to figure out how to promote more two-way traffic flows. Right now, the flow is predominantly one way, and this is a problem for HK.

The "one country, two systems" concept, institutions, structures, etc. were put forward at a time when the predominant thinking was to stop people and organizations in the Mainland from interfering into HK. Five years after 1997, we know the problem today is to facilitate a suitable degree of interflow between HK and the Mainland. We need to get rid of the. obstacles which were set up in the past, although most of them were introduced for good reasons. We know very well how difficult it is for officials, businessmen and tourists in the Mainland to come to HK. We know how inefficient the quota system for HK-bound travellers is managed in the Mainland. We know that the cooperation and interflow between HK and Taiwan could have been better. A lot of the news about HK are treated as too sensitive to be published in the Mainland's media (because of the need to avoid any suggestions of interfering into HK), but this means that people in the Mainland know very little about HK. There must be a lot other problems.

Now that Beijing is getting more concerned about HK's economic difficulties, it is an opportune time for the SAR government to get rid of some of these stumbling blocks in the Mainland.

Even in the absence of such "liberalization" from Beijing, I think we should not look at unilateral liberalization as something bad for Hong Kong. HK used to open up its trade freely to the rest of the world during the past few decades, at a time when protectionism was the norm. By opening up to free trade, some of our industries lose out, but we benefited a lot more from the industries that we developed. The same is true of opening up the links with Mainland China. The retail industry, particularly in northern NT, complained about citizens spending money in Shenzhen. But why should HK as a whole protect the retailers, against the interest of the consumers. What's the difference between HK's argument as compared with the workers' unions in the US or Europe, asking their governments to protect their jobs.

In addition, by having a more smooth flow of goods and people across the border, there will be a lot more other activities that will arise and these will create more opportunities for HK. We may not be able to figure out exactly what such activities are. Let the market tells us. What I know is that less problem at the border reduces the costs of a lot of people. Just imagine the time costs wasted and the frustrations experienced by thousands of people and firms everyday because of congestions or other problems at the border. Most of these people and firms are from HK. They could have done more business, reduced their costs, or done other useful things, if not because of the time and energy wasted at the border.