HONG KONG - Shenzhen in Guangdong province is the only Chinese city where both
the Chinese currency, the yuan, and the Hong Kong dollar are legally
circulating in the market. As such, it becomes a place very sensitive to the
change of the yuan's exchange rate.
Shenzhen abuts Hong Kong. And because of the geographical proximity, it is a
favorite place for Hong Kong investors and consumers alike. Every day,
thousands of tourists and business
people travel through the two main customs points of Lo Wu and Huanggang. It is
said that Shenzhen is Hong Kong's back yard.
Until recently, the Hong Kong dollar, in a sense, has dominated Shenzhen's
economy. The dollar has been much preferred there as it is a hard currency,
historically stronger in value and pegged to the greenback at around HK$7.8 to
US$1. Many Shenzhen residents earned their salaries in Hong Kong dollars.
But times have changed. The Hong Kong dollar is losing its popularity in
Shenzhen because of the recent appreciation of the yuan.
As the value of the yuan keeps rising, more and more Shenzhen residents are
rushing to exchange their dollars for yuan, and more and more shops are
refusing to accept Hong Kong currency in fear of devaluation.
Ahead of US Treasury Secretary Henry M Paulson's visit to Beijing, during which
he is expected to renew pressure on the Chinese government for greater
flexibility of the exchange rate, the yuan has begun a new round of
appreciation.
The yuan set a record high on November 9, when the central parity rate hit
7.8697 to the US dollar to break the 7.87 mark; on November 23, when it was
7.8596 and broke the 7.86 mark; and on November 27, when it was 7.8402 and
broke the 7.85 mark.
And on Wednesday, the value of the yuan hit a new high, with the central parity
rate at 7.8394, breaking the 7.84 mark. As the value of Hong Kong
dollar is kept around HK$7.8 to US$1, the yuan and the Hong Kong
currency are now of almost the same value.
So far, the yuan's value has risen by 5.32% since July 21, 2005, when the
Chinese government launched reform of the foreign-exchange regime to allow the
yuan to float against the US dollar within a daily 0.3% band from the official
central parity rate.
The exchange rate was set at about 8.28 yuan per US dollar when the reform was
launched. And the expectation is that the yuan will continue to appreciate
steadily to become more valuable than the Hong Kong dollar.
As such, many shops in Shenzhen that still accept the Hong Kong dollar for
payment are willing to take HK$100 for only 95 yuan.
Analysts say this may hurt Hong Kong residents' desire to spend across the
border. Nowadays, many Hong Kong people like to travel across the border,
during the weekends or on holidays, to spend on dining, wining, shopping and
entertainment in Shenzhen as prices are lower. It is estimated that Hong Kong
visitors spend more than HK$30 billion (US$812 million) each year in Shenzhen.
On the other hand, analysts say, the yuan revaluation will encourage more
residents in Shenzhen and other mainland cities to come to spend in Hong Kong
as they would find prices are lower than previously. In fact, Hong Kong shops
these days are busy preparing to welcome the expected influx of visitors from
the mainland during the Christmas season.
Shenzhen is also a favorite place for Hong Kong people to buy housing. The yuan
appreciation has increased the burden of home buyers who have mortgages.
A Hong Kong journalist named Chow bought an apartment in Shenzhen last year for
about a million yuan. He borrowed the yuan from a local bank with a monthly
payment of about 10,000 yuan. "Now I have to pay HK$500 more each month
compared with last year," he said.
But he is not so unhappy about it. "As the yuan rises, so does my flat. Housing
prices are steadily going up in Shenzhen. The yuan revaluation will make it
worth more. So when the price of my flat goes up more, I may sell it and bring
the money back to Hong Kong," he said.
Guo Shipin, economic consultant of the Shenzhen municipal government and dean
of the finance department of Shenzhen University, was quoted by Xinhua News
Agency as saying more Hong Kong people are investing in the mainland
real-estate industry and other financial sectors, with the anticipation of a
further yuan appreciation.
According to statistics from Shenzhen customs, the amount of yuan exported to
Hong Kong decreased by 90% in the first half in comparison with the same period
of last year. And the amount of yuan siphoned back from Hong Kong to the
mainland was 460 million yuan more than the amount of yuan exported to Hong
Kong in the first half of this year, Xinhua said.
John Ng is a Hong Kong-based freelance journalist.
