HK benefits from rising yuan

(Shanghai Daily)
Updated: 2006-11-30 16:43

Hong Kong doesn't need to let its currency catch up to the rising yuan because the differential will benefit the city by stoking Chinese mainland demand for its tourism and financial services, economists said yesterday.

"A wealthy China with a stronger exchange rate is likely to lead to more mainland buying interest," Dong Tao, a senior economist at Credit Suisse, said in a report.

"Hong Kong's challenge is not competing against the mainland but tapping its rapidly rising demand and bright prospects."

The People's Bank of China last July allowed the yuan to rise against the United States dollar by re-pegging it to a basket of currencies such as the yen and euro. It has since gained 5 percent in value against the U.S. dollar.

In contrast, Hong Kong continues to link its currency to the U.S. dollar.

The yuan closed yesterday at 1.00711 against the Hong Kong dollar on the interbank market, compared with a reference rate of 1.00823 set by the central bank before the session started.

It also finished at a record high of 7.8313 versus the U.S. dollar.

"We firmly believe that the Hong Kong dollar will stay pegged to the U.S. dollar while the yuan should continue to appreciate," Tao said. "De-pegging would do little good to Hong Kong," which has lower operating costs than New York and London.

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