Yuan revaluation said good for HK
By Vincent Lam (China Daily)
Updated: 2005-07-23 13:30

HONG KONG: The appreciation of the yuan is good for the Hong Kong economy, with mainlanders' consumer power increasing, local economists, officials and industrial leaders said.

Associate Professor at the Department of Economics of Chinese University of Hong Kong Kwan Cheuk-chiu expects yuan appreciation will accelerate the pace of Hong Kongs' economic recovery.

The yuan's appreciation will lead to a larger tourist and capital influx into Hong Kong, which will surely enhance the local economy, Kwan said. Based on that, he has raised his projection on 2005 GDP growth by 0.5 percentage to 6 per cent.

The trade sector, the city's pillar industry, will also receive a shot in the arm.

Secretary for Commerce, Industry and Technology John Tsang believes the yuan's appreciation will help Hong Kong exports become competitive on the mainland market but that it will not be too high since the appreciation rate was a mild 2.1 per cent.

The city's other pillar industry, the property sector, also remains sanguine after the yuan appreciation.

Henderson Land Development Deputy Chairman Colin Ko-yin Lam said that mainland property buyers will find Hong Kong properties relatively cheap after the yuan revaluation, thus luring them to invest in Hong Kong real estate.

That would be good to the local market, he said.

Chief Analyst at Midland property Lau Ka-Fai agreed that the buying spree of mainland property by Hong Kong investors is feverish in anticipation of further yuan appreciation.

In an indirect way, Lau added the increasing number of mainland tourists will also give an impetus to the local real estate market.

"Their coming will push up the local retail sector and may boost the rent on street shops," he said. As a matter of course, the property market will also benefit.

Labour-intensive sectors would be greatly affected by the yuan rate change, said an economist.

Chief Economist of the Trade Development Council Edward Leung suggested that the yuan revaluation has a more significant effect on Hong Kong businesses engaged in labour-intensive sectors such as apparel and footwear.

However, the impact will be little on capital-intensive industries such as electronics, telecom and jewellery.

Some also said a 2.1 per cent appreciation of the yuan will play a small role in Hong Kong and another appreciation would likely bring greater impact.

HSBC Chief Economist for China George Siu-kay Leung argued that the Hong Kong economy would not be much affected if the yuan does not appreciate by more than 5 per cent within six months.

Striking a note of caution, analysts also said the yuan move would result in rising consumer prices as imports from the mainland would be dearer.

Edward Leung, Chief Economist of Hong Kong Trade Development Council, said that the renminbi move would boost mainland export prices by 0.6 per cent to 1 per cent.

"The CPI (consumer price index) is likely to rise another extra 0.3 to 0.5 percentage point to 2 per cent at the year end as a result of dearer consumption import from the mainland," Chinese University of Hong Kong's Kwan Cheuk-chiu said.

DBS also said in a report that inflation in Hong Kong will be stimulated from about 1 per cent to 3 per cent by early 2006.

Hong Kong's CPI stood at 1.2 per cent in June, according to the latest official data.

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