China alters tack on HK's plan for renminbi
By Richard McGregor and Victor Mallet in Shanghai
Published: August 17 2003 16:54 | Last Updated: August 18 2003 2:41
China's initially positive response to Hong Kong's plan to become an offshore renminbi (Rmb) centre is coming under fire from Chinese officials, who fear it could destabilise the currency and unfairly advantage the territory and its banks.
Two teams from China are due to visit Hong Kong in the coming weeks to examine the plan to allow the territory's banks to take renminbi deposits, handle remittances and operate dual-currency credit cards.
China may back the plan as a way to regulate and monitor the big and growing amount of renminbi already in circulation in Hong Kong, estimated at anything from Rmb20bn to Rmb70bn.
The renminbi is not a freely convertible currency but is widely used in Hong Kong - in big sums for illegal share trading, and in small transactions by mainland tourists.
China could also market the policy as another gesture of support for Hong Kong's struggling economy, on top of its recent announcement of a bilateral trade accord.
"It's a natural thing to set up a renminbi offshore centre in Hong Kong, as its economy is highly interdependent with that of the mainland," said Yi Xianrong, of the Chinese Academy of Social Sciences in Beijing.
"It could reduce money laundering, provide more credit tools for lenders and borrowers, and promote domestic competition in China's financial markets." But increasingly, mainland finance industry officials, especially in Shanghai, are becoming vocal in internal forums in objecting to the plan.
Shanghai has been struggling to establish itself as a renminbi finance centre and fears its role may be undermined by concessions to Hong Kong, which has a far more sophisticated infrastructure and skills base.
"Shanghai officials are very worried about this," said a government adviser who did not wish to be named.
Government officials opposing the plan also contend that it could create a separate market for the renminbi, with interest rates and an exchange value different from the mainland.
The renmimbi is pegged to the US dollar and interest rates are tightly regulated.
"The central bank may fear an interest rate gap could cause speculation, thus destabilising the renminbi and undermining domestic policy to the point where it loses its independence and effectiveness," Mr Yi said.
Hong Kong's ambitions for the renminbi do not stop with the banks. It is also working with mainland officials on measures to allow trading in renminbi-denominated products.
Senior Chinese officials, however, warned that Hong Kong's enthusiasm could be misplaced, and could even be dangerous for its own financial system.
The renminbi, one said, was an inherently unstable currency and could prove destructive to Hong Kong's financial stability if it became an increasingly important part of the territory's banking business.
The renminbi is under increasing pressure from China's trading partners, especially Japan and the US, which want it revalued to temper the competitiveness of the country's exporters.
news.ft.com |
