People in this most affluent of Chinese cities may be in for a
psychological blow. If economists are to be believed, the Hong Kong
dollar is likely to be overtaken by the once humble yuan "within
days", closing a 15-year long history of dominance over the
yuan.
However, an appreciated yuan may not be such a horror story for
Hong Kong residents.
Though 100 yuan ($12.5) fetched HK$99.6 at the end of 2006,
experts say the order could be reversed in a few weeks. After all,
100 yuan fetched only HK$94 prior to its latest appreciation in
July 2005.
In fact, money exchangers in Hong Kong and neighboring Shenzhen
already charge retail customers more than one HK dollar for every
yuan.
The central government's think- tank, the State Information
Center, sees the yuan appreciating by 3 to 4 percent against the
weakening US dollar this year, an effect of the Chinese mainland's
booming economy. If unchecked, some foreign banks have forecast as
much as a 10 percent increase.
It is just "a matter of time", says Sun Hung Kai Financial
Group's strategist Castor Pang. A more valuable yuan could become a
reality as early this month?-- a major reason being the HK
dollar's continuing peg to the greenback, abandoned last year by
the yuan.
Generous spenders
The greatest beneficiaries of an appreciated yuan would probably
be Hong Kong's retail and tourism sectors. A larger number of
mainlanders will head to the city where they will get greater value
for the yuan, signaling an increase in spending power, Credit
Suisse (Hong Kong) senior economist Tao Dong says.
From December 30 to January 1, a total of 145,757 mainlanders
visited Hong Kong, according to Hong Kong's Immigration
Department.
Mainlanders now comprise half of the tourists in Hong Kong
accounting for up to 8 percent of the city's economic
activities.
"Shoppers have always been the greatest boon for a service-led
economy like Hong Kong," says Bank of East Asia economist Paul
Tang, citing history to prove his point.
Post-SARS, it was the influx of mainland tourists that helped
Hong Kong recover from the economic downturn. And in large part to
said tourists, the city has seen rapid growth after 2003 -- the
longest economic upswing cycle since 1997.
Many small Hong Kong retailers, who earlier were reluctant to
accept yuan notes, have now joined their bigger counterparts in not
only accepting the mainland's currency, but also offering a 1:1
ratio.
"There's no reason to say no to the yuan now. It'll soon be more
valuable than the HK dollar," says Sally Ng, a saleswoman in a 10
square-meter outlet in Hong Kong's food and shopping district of
Wan Chai.
Market bullish
Hong Kong's retail and tourism sectors will not monopolize the
spoils of an appreciated yuan. Its stock market, too, stands to
benefit. The world's seventh largest bourse, along with its
ancillary sectors, generates almost 70 percent of the city's
GDP.
Seeing Hong Kong as a proxy to directly profit from the yuan's
appreciation and the Chinese mainland's robust economy, more
international investors will flood into the city to buy H-shares,
or Hong Kong-listed mainland companies. After all, 2006 was already
a boon for them.
The "hot money" did not recede even during the Christmas
holidays, when investors across the world normally cool down to
regroup for the new year.
Instead, between Christmas and New Year, hot money drove the
benchmark Hang Seng index (HSI) above the psychological barrier of
20,000 points.
December 28 saw the HSI reach its all-time high of 20,001.91,
reflecting a stimulating year-on-year rise of more than 34
percent.
"Hong Kong has never been short of liquidity after the yuan rose
in the second half of 2005," says Tung Tai Securities' Tung
Sing-hing.
Twelve Hong Kong economists surveyed by China Daily
even dared to go a step further. If the yuan appreciates again in
2007, it could push up the HSI to maybe 21,700 points (the average
of their separate forecasts).
Higher inflation not likely
Allaying fears that a stronger yuan would accelerate inflation
across the Chinese mainland's neighboring markets unable to keep up
with such clout, the economists say that Hong Kong residents' daily
expenses would not increase much due to a possible rise in the
prices of imported products.
As a service-based economy with little agriculture or
manufacturing units, Hong Kong imports many essential goods,
including eggs, vegetables, meat and fish, from the Chinese
mainland, hence the fear that a stronger yuan would make things
costlier.
However, when compared to spiraling housing costs that account
for 30 percent of the consumer price index (CPI) in one of the
world's most expensive cities, the rise in prices of essentials and
daily use products could at most be "mild", says Tang.
(China Daily January 4, 2007)