Tuesday, November 18, 2003
China to make yuan convertible in Hong Kong
Reuters Hong Kong, November 18
Beijing will soon allow Hong Kong banks to offer personal yuan bank accounts in one of the biggest steps yet towards loosening controls over the highly regulated Chinese currency.
The initiative, announced on Tuesday, may also act as a safety valve to ease upward pressure on the yuan, the value of which has been criticised by US lawmakers for being too weak.
The unveiling of the package prompted a surge in Hong Kong bank shares as investors wagered it would enhance the territory's role as a financial centre.
"This is a very good start. It means a lot for Hong Kong's banking sector," Hong Kong Chief Executive Tung Chee-hwa told a news conference.
Tung said Hong Kong banks would be able to start taking yuan-based deposits later this year or early next year.
The move may also boost consumer spending in deflation-hit Hong Kong as Chinese tourists splash out on electronics and other goods using their yuan-denominated credit cards for the first time in the territory's shopping malls.
The Hong Kong Monetary Authority said a Hong Kong-licensed bank would be appointed by the People's Bank of China, the mainland's central bank, to act as a clearing bank in Hong Kong for business based in yuan, which is also known as the renminbi.
HKMA chief Joseph Yam said the selection process could take one or two months. However, Hong Kong banks could start issuing yuan-based credit cards immediately as this service would not require a clearing house.
"The renminbi is convertible against Hong Kong dollars in Hong Kong if people can change them freely at banks there. This is a step forward in the process of making the renminbi fully convertible," said Wang Chuanglian, an analyst at China Southern Securities.
Currently, the Chinese yuan can be converted only for trading and tourism purposes, with mainland Chinese tourists limited to the amount of yuan they can carry beyond the country's borders.
China's rigid monetary controls have been a source of friction with major trading partners, especially the United States, which argue Beijing is keeping its currency artificially weak to boost exports.
Pressure has also been building on Beijing to revalue its currency from the massive inflow of foreign investment into China as well as foreign currency from its trade surplus.
A mechanism by which Beijing could allow some of its foreign currency inflows be exchanged for yuan could relieve the upward pressure on the Chinese currency, economists say.
Tung said Hong Kong banks would soon be able to make remittances in yuan and exchange the Chinese currency for Hong Kong dollars and US dollars.
The measures are not expected to boost the profitability of Hong Kong banks significantly because for now they will not be allowed to lend in the Chinese currency. "Hong Kong will be given the priority to be considered as an offshore renminbi centre. But that's a long-term goal," Tung said.
But economists saw the measures as a significant first step. "It will enhance Hong Kong's position as a financial centre," said George Leung, HSBC's chief economist for Greater China.
© Hindustan Times Ltd. 2003.