Governor Zhou Xiaochuan of the People's Bank of China (PBOC),
China's central bank, and Chief Executive of the Hong Kong Monetary
Authority (HKMA) Joseph Yam signed Wednesday a cooperation
memorandum which allows banks in Hong Kong to conduct RMB business
of deposit, renminbi yuan-HK dollar exchange, cash remittance and
credit card services.
Economists said the landmark agreement will bring the following
benefits:
- Materializing central government's support to Hong Kong:
Chinese government chooses Hong Kong as the first site for RMB
business. It is because Hong Kong has its own advantages in
banking, and meanwhile, shows central government's assistance to
Hong Kong under the frame of one country, two systems. Beforehand,
the mainland had signed the Closer Economic Partnership Arrangement
(CEPA) with Hong Kong and allowed mainland people to travel in Hong
Kong freely.
- Prompting Hong Kong's economic development: in recent months,
with the improvement of global economic environment and support
from central government, Hong Kong's economy began to recover. The
agreement will further strengthen Hong Kong residents' confidence
of their economy, speedy economic cooperation between the mainland
and Hong Kong and solidify Hong Kong's status as an international
financial center. It also makes preparation for Hong Kong's
development into an RMB settlement and offshore center in the
future.
- Facilitating fund circumfluence: in recent years, a large
amount of RMB rushed to Hong Kong while much less return to the
mainland. It is estimated that at present as much as 10s of
billions of RMB are in Hong Kong. Since the mainland still
restricts foreign exchange floats and RMB has not yet fully
realized conversion, the agreement will help RMB in Hong Kong flow
back.
- Preparing for RMB's full conversion: some experts maintain
carrying on RMB business in Hong Kong was a step before the
eventual full conversion of RMB and could somewhat relieve the
press of RMB revaluation. RMB is now convertible only under current
accounts and the country is researching how to realize capital
accounts' full conversion without bringing about economic
risk.
Just like the CEPA, the best beneficiary of the agreement is
Hong Kong. Its banks, especially settlement banks, will gain huge
interest and can accumulate experience to develop mainland markets
in the future. At the same time, tourism, retail and relevant
industries as well as consumers in Hong Kong also have
benefits.
The agreement will let funds flow back to the mainland normally
and increase mainland banks' business. Traveling from the mainland
will be more convenient as people can spend in Hong Kong with
RMB.
There are also some problems. As the interest of RMB is higher
than that of the HK dollar, large amounts of HK dollars may be
exchanged to RMB and thus influence exchange rates of the HK
dollar; if the financial system of Hong Kong will be affected; how
to avoid impact on RMB; and how to prevent tax evasion, money
laundering and state assets escaping. The agreement has made some
regulations on these problems and the two sides need to cooperate
more closely to settle the problems, according to the economists
concerned.
(China.org.cn by Feng Yikun and Daragh Moller, November 21,
2003)