CHINA / Taiwan, HK, Macao

Tsang: SAR should boost RMB business
By Teddy Ng (China Daily HK Edition)
Updated: 2006-05-20 11:53

Chief Executive Donald Tsang Friday said renminbi (RMB) business should be boosted in Hong Kong but the territory's currency would still be pegged to the US dollar as a long-term policy.

Hong Kong could assist the country's progress and the Hong Kong dollar's global status should be enhanced, he said.

Speaking on a Metro Radio programme on a series of measures to intensify the interaction between the Hong Kong dollar and RMB to capitalize on the development opportunity provided by the 11th Five-Year Plan, he said the community had not paid enough attention to it.

Asked if the Hong Kong dollar would be pegged to the renminbi, Tsang said the Hong Kong dollar would still be pegged to the US dollar because both currencies could be freely exchanged in the international market.

RMB's free convertibility is a prerequisite for having a pegged-rate system with the currency, he said.

Tsang expected Hong Kong to be the pilot city for opening up the RMB market. The SAR could play an important role in RMB clearance system and issuing of RMB bonds, he said.

He suggested, for instance, that loans given by Beijing to other countries could be in Hong Kong dollar instead of US dollars.

"When these countries use US dollars to buy goods from the mainland, they or the goods suppliers need to change the US dollars to RMB and this involves a loss from discrepancies between the two currencies. If the loan is in Hong Kong dollars, such loss from discrepancies will be beneficial to Hong Kong," he said.

A large group of villagers on the mainland would move to urban areas over the next few years, creating a demand for goods, energy and services, he said. That in turn would create a lot of opportunities for Hong Kong's commodity trading.

"We have not done anything serious regarding commodity trading. There were not many businesses in that aspect, but the situation would improve in the coming years," he said.

Hong Kong has a reputation for acquisition and merger of firms, he said. It needed to catch up because it had already missed the opportunity to fully capitalize on the chances offered by the development plan.

"The community and the government have not paid enough attention to the nation's development plan. We have discussed about the issue, but failed to focus on the problem."

He had earlier said that the banking sector bigwigs had not cashed in on the opportunities created by the Qualified Domestic Institutional Investor (QDII).

Hong Kong should not be passive while looking for opportunities, Tsang said. "Some of the banks and financial institutions have established branches on the mainland. They should explain to officials their views on QDII before the policy is launched. They should add their influence to the policy."

Tsang told individual investors not to buy shares beyond their own ability, even though the stock market was stable and healthy.

Responding to property developers' concern that the government had adopted stricter control on discretionary powers after the Grand Promenade episode, Tsang said it was impossible for the government to sell land cheap.

"The developers will always have their rationale. But the Lands Department's estimate is based on the average price of land in the districts. The government will not sell land at despicably cheap prices," he said.

Tsang said the government needed to reserve the wealth for the public despite a surplus of HK$14 billion in the last fiscal year, about HK$10 billion more than estimated.