Minting notable way for HK to be overseas yuan centre

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Last updated at: (Beijing Time) Thursday, November 20, 2003

Minting notable way for HK to be overseas yuan centre

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The initiative to let Hong Kong banks conduct personal renminbi business could pave the way for the territory to become an overseas renminbi centre - once the mainland authorities remove the control on the capital account of the currency, analysts said.

The yuan is now only convertible on the current account, which consists mainly of trade flows.

The mainland, with experience of the limited opening-up to Hong Kong, could better prepare itself for what it calls a gradual opening-up of its capital account, they said.

"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.

China's 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.

"This is good news for Hong Kong. It will benefit Hong Kong most as it becomes an offshore centre for renminbi," said Xu Hongyuan, senior economist at China's State Information Centre, a top government think-tank.

The introduction of four renminbi business areas would also add revenue to Hong Kong banks, said Wang Chunxin, an economist of the Bank of China (Hong Kong).

Although the benefit would not be significant at the initial stage, it would grow with the further relaxation in the mainland's currency control, he said.

Hong Kong's banking sector, competitive internationally as it is, faces a limited market locally and would need the support of a big market, he said, adding the mainland would offer immense potential.

Rough estimates put consumption of mainland visitors in Hong Kong at about 40 billion yuan (US$4.82 billion). Demand for renminbi of Hong Kong residents visiting the mainland is estimated at about 30 billion yuan (US$3.61 billion).

Academic Francis Lui of the University of Science & Technology envisaged that the renminbi will get stronger in the international market.

In that case, a bigger inflow of renminbi to Hong Kong would stabilize the Hong Kong dollar and attract foreign investment.

Priscilla Lau, associate head of the business studies department of the Polytechnic University, said the scheme would normalize renminbi services in the two places.

And it will enhance capital circulation between Hong Kong and the mainland and help financial institutions to expand their services, she said.

Ng Leung-sing, vice-chairman of Chiyu Banking Corporation, said the pilot scheme will benefit both the banking sector and the Hong Kong economy.

(Source: China Daily/Agencies)

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