Page 2 of
2 Hong Kong dollar takes a back
seat By Olivia Chung
volume reached 12 billion yuan, up
14% from 2005.
A recent survey by the
company showed that 40% of about 400 respondents
were interested in buying mainland properties in
view of the strong yuan. The number of deals
signed by Hong Kong people buyers for new homes on
the mainland is expected to reach 19,230 this
year, up 11% from 2006, and the transaction volume
may climb 13.5 billion yuan, up 12.5%, Lai said.
However, Hong Kong manufacturers, who
moved their production
lines to the mainland during
the 1990s in pursuit of the much lower labor costs
there, are complaining that they have suffered a
double loss from the rising yuan, as they have to
pay yuan for raw materials and salaries and spend
Hong Kong dollars in Hong Kong.
Besides,
the rising yuan has introduced imported inflation
because most of Hong Kong's food and other goods
come from the mainland. Government figures last
month showed that the composite Consumer Price
Index climbed 2% in January from a year earlier.
Food prices, which make up 26% of the weighting in
the CPI, rose 2.7% in January.
The price
of clothing and footwear rose the fastest in
January, with a year-on-year increase of 9.5%, up
from 6.4% rise in December, followed by house
rent, which rose 4.8%, up from a 4.7% rise in
December.
Peter Morgan, Asia-Pacific chief
economist at HSBC, forecast that Hong Kong's
growing domestic demand will increase pressure on
inflation. "I think we are a bit concerned about
inflationary pressure just because Hong Kong's
economy is pretty strong and there is strong money
growth," he said.
He said the recent
weakening of the Hong Kong dollar and the rising
yuan are likely to put "very limited" pressure on
Hong Kong's inflation given that the degree of
yuan appreciation is still modest.
Citigroup said in a research note that
robust domestic demand and yuan appreciation are
keeping Hong Kong's inflation rate on an upward
trend, rising toward 3% this year.
However, some also say the depreciation of
the Hong Kong dollar might not be a bad thing, as
a strong yuan has shored up the shopping power of
mainland visitors to the city.
Bankee
Kwan, chairman of the Hong Kong Retail Management
Association, said many retailers say they started
to see more mainlanders last year compared with
2005 because their stronger currency gives them
greater purchasing power.
In recent years,
more Hong Kong shops, such as supermarkets and
fashion chains, have accepted payment in yuan.
Tao Dong, a Credit Suisse (Hong Kong)
senior economist, expects a stronger yuan is
likely in the coming decade, but he thinks it is a
positive thing for Hong Kong as a whole.
He said: "A wealthy Chinese mainland with
a stronger exchange rate is likely to lead to more
mainland buying interest, ranging from luxury
housing to health care and educational services.
"Hong Kong's low-end property market and
unskilled workers may still suffer through
prolonged deflationary pressure, but the process
may be shortened a little, thanks to a stronger
yuan."
Moreover, yuan appreciation has
spurred funds flowing into the Hong Kong stock
market from overseas.
On expectations of
yuan appreciation and confidence in China's strong
economic growth, overseas funds flood into the
A-share market in China through the qualified
foreign institutional investor scheme, which
enables overseas investors to trade in A-shares.
Because of the limited number allocated by
Beijing, some overseas funds flow into the H-share
market. Some heavyweight H-share companies listed
in Hong Kong also sell A-shares in the mainland.
The flourishing stock value of mainland
companies listed in the city - increasing by more
than 90% last year - has contributed to Hong
Kong's economic recovery from the deadly outbreak
of severe acute respiratory syndrome in 2003.
Tao Dong said Hong Kong's challenge is not
competing against the mainland, but tapping into
the latter's rapidly rising demand and bright
prospects, as Hong Kong will benefit from the
stronger demand from the Chinese mainland, from
tourism to financial services, while its role as
an intermediary between the mainland and the rest
of the world declines.
Olivia
Chung is a senior Asia Times Online
reporter.
(Copyright 2007 Asia Times
Online Ltd. All rights reserved. Please contact us
about sales, syndication and republishing.)
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
