ON Hong Kong’s reversion to Chinese rule, its foreign reserves stood at about $70 billion — half the amount held by China, yet accrued by a population less than 1 per cent its size.

This treasure store, which Lord Patten of Barnes called “the biggest dowry since Cleopatra”, was largely the legacy of Sir John Cowperthwaite, who between 1961 and 1971 ran Hong Kong’s economy along extreme laissez-faire lines. Between 1841, when Lord Palmerston thundered that this “barren rock” would “never become a mart of trade” and its return to China in 1997, Hong Kong grew at its most frenetic pace under Cowperthwaite, resulting in a per-capita income more than a third greater than that enjoyed by Britain.

John James Cowperthwaite was educated at Merchiston Castle School, Edinburgh, then took a first in classics at St Andrews University. He followed this with a double-first in classics at Christ’s College, Cambridge, before returning to St Andrews to study economics. He was greatly influenced by the economist Professor Wilkie Nisbet, a staunch free-trader.

Cowperthwaite entered the Colonial Administrative Service in Hong Kong in 1941, but was posted to Sierra Leone before the Hong Kong’s capture by Japanese Forces on Christmas Day. He remained at the district office in Freetown for three years, returning to Hong Kong in 1945 with a brief to set the economy back on its feet and restore the Hong Kong dollar.

A cadet in the administrative service, he rose to become head of department, then to deputy financial secretary. He became Financial Secretary in 1961, a year after being appointed OBE.

In The Sunday Times in 1996 Peter Clarke wrote: “It was one of those glorious accidents that a man unversed in the 20th century’s fad for socialism could apply his 18th-century ideas in a territory unencumbered with democracy. Governors came and went, but Cowperthwaite kept balancing budgets, lowering taxes and keeping markets open, including the market in immigrants.”

Cowperthwaite did away with all import and export duties, put a flat tax on profits and set the ceiling on income tax at 15 per cent. The personal allowance for each citizen was high enough to enable many to pay no tax at all. He swept away many of the curious idiosyncrasies of colonial administration, in 1970 abolishing a prostitution tax expressed as a fee per dance with a “professional dance partner”.

In 1963 Hong Kong had a severe drought. As water was bought from China, it was proposed that the Government should help to fund lower water rates. Cowperthwaite retorted: “I see no reason why someone who is content with a cold shower should subsidise someone who is able to luxuriate in a deep hot bath, or why someone who waters a few plants on his windowsill should subsidise someone who waters his extensive lawns.”

He kept government out of business, and cronyism out of contracting. He refused to coddle any particular industry, believing that the instinct of the individual Chinese businessman would prove far more astute than any policy decision made by the Hong Kong Government. He trod a thin line betweeen positive non-intervention and simply doing nothing. His main task was to keep legislation from impeding business, and to simplify every process by which a private citizen could become a limited company.

He kept no statistics, telling Milton Friedman in 1963: “If I let them compute those statistics, they’ll only use them for planning.”

We do know that during his tenure there was a 50 per cent rise in real wages, a two-thirds fall in the number of households in extreme poverty and a rise in exports of 14 per cent.

It is impossible to assess how much of Hong Kong’s growth over this period was attributable to British governance and how much to the entrepreneurship of its people — Cowperthwaite gave full credit to the latter.

He could have been less parsimonious, however: the tiny amounts put aside for health and education often remained unspent; in 1970-71, health services were budgeted at just over £1 per head of population, but less that two thirds of this was used. Some have argued that, had Comperthwaite spent more on welfare, it might have soon paid greater dividends. Certainly, Patten’s last-gasp attempt to put together a package for the impoverished elderly would not have been so little, so late.

The growth of the Cowperthwaite regime was fuelled by a similarly laissez-faire approach to immigration. Many new arrivals were housed in shacks and squatter huts, built on hillsides and cemeteries. As Hong Kong’s population swelled, the willingness of its residents to put up with the most intolerable conditions gave testament to their Confucian patience and, after 1967, the barbarity of the Cultural Revolution on the other side of the border. But as the economy grew, farmers abandoned the countryside, waterways became polluted and corruption became endemic.

Hong Kong’s forbearance broke in 1966, when a proposed rise in cross-harbour ferry prices sparked mass rioting which laid waste to the “Golden Mile” of Nathan Road. They were repeated — with bombs and a Maoist edge — the next year. Yet financial policy, or the lack of it, remained unaltered.

Lucky as Hong Kong was to have Cowperthwaite’s free-market absolutism, the successive governorships of Sir Robert Black and Sir David Trench that had allowed him free hand needed the ameliorating rule that followed with Sir Murray (later Lord) Maclehose.

He engaged in a massive public housing programme which made the Hong Kong Government the world’s biggest landlord, fenced off much of the remaining greenery as country parks and entirely dismantled the Royal Hong Kong Police, most of whom had embraced the free market ideal a little too enthusiastically.

Cowperthwaite was a keen member of the (then Royal) Hong Kong Jockey Club, an institution whose gambling revenues continue to keep the colony’s taxes down and to fund its public hospitals. He was joint owner of three race horses, and also enjoyed bowls and golf. After his retirement in 1971 he began a second career in merchant banking. He was appointed CMG in 1964 and KBE in 1968.

In 1998 the Hoover Institution published Friedman’s summary of The Hong Kong Experiment in the free economy, concluding that the “incredible” per capita parity of Hong Kong with the US was due largely to Cowperthwaite’s legacy which, in letting people keep their own money, had proved itself a model of monetary efficiency.

He is survived by Sheila, his wife of 65 years. Their only son, the Hong Kong-based architect John James (Hamish) Cowperthwaite, was murdered in the Philippines in May 2004.

Sir John Cowperthwaite, KBE, CMG, Financial Secretary of Hong Kong, 1961-71, was born on April 25, 1915. He died on January 21, 2006, aged 90.