Page 2 of 2 Yuan changing hands, attitudes in Hong
Kong By Kent Ewing
build. Since there are luxury properties
in the city going for half that amount, analysts
look for other developers to raise prices
substantially if the Sun Hun Kai deal is a
success.
Meanwhile, the yuan continues its
steady rise.
As a heavyweight US trade
delegation, led by Treasury Secretary Henry
Paulson, arrived in Beijing last week for talks
with Chinese leaders, the yuan reached a new high
of 7.8180 against the
greenback before dropping off
somewhat. The Chinese currency has risen more than
3.7% against the US dollar since China reformed
its exchange-rate system in July 2005, but
critics, many of whom hold seats in the US
Congress, insist the currency remains undervalued
by at least 20%.
Mirroring Congress, US
Federal Reserve chairman Ben Bernanke, who took
part in last week's "strategic economic dialogue"
in Beijing, characterized the central government's
attitude toward gradual yuan appreciation as an
"effective subsidy" of its exports. While Bernanke
did not use this phrase in the speech he
delivered, it did appear in the released text of
that speech and was widely reported.
Facing a trade deficit with China this
year that is certain to surpass last year's
record-breaking US$200 billion, members of
Congress, including incoming Speaker of the House
of Representatives Nancy Pelosi, have threatened
Beijing with countervailing tariffs unless the
central government allows the yuan to appreciate
more rapidly.
But Beijing seems unlikely
to bow to such pressure and, with last month's US
mid-term election campaign now over, the
China-bashers may back off from rhetorical
vote-getting stunts that are not really in the
country's long-term interest.
In Hong
Kong, businesses are counting on a gradual,
orderly rise in the yuan's value that will create
only mild inflationary pressure on goods imported
from the mainland. The city imports much of its
fresh vegetables and meat from China. As mainland
food prices tend to be low, however, no one is
unduly concerned, at least not in the short term.
At the same time, the city can look
forward to its exports and re-exports being more
attractive on the mainland and, it hopes, to a
steady rise in tourism. Hong Kong is already the
most popular destination in the world for
travelers from mainland China, with nearly 13
million people visiting from across the border
last year, according to the Hong Kong Tourism
Board.
But as mainland incomes rise, there
is increasing global competition to attract
Chinese tourists. Although Hong Kong is one of the
most expensive cities in the world, it continues
to hold a number of advantages in this
competition.
First, there is its proximity
to China's richest province, Guangdong, which
shares a language, Cantonese, with Hong Kong. In
addition, Hong Kong educators have been working
hard since the handover from British to Chinese
rule in 1997 to make the city trilingual in
Cantonese, English and Putonghua (Mandarin), the
standard Chinese language spoken in most places on
the mainland. Results are mixed so far, but the
ambitious project continues.
Perhaps the
biggest advantage that Hong Kong enjoys, however,
is the privileged financial relationship it is
granted by the central government. As special
administrative regions of China, Hong Kong and
nearby gambling mecca Macau are the only two
cities outside the mainland to offer yuan banking.
For newly affluent Chinese, the two cities present
a financial ease that is unavailable anywhere else
in the world.
With Hong Kong's gross
domestic product skipping along at 6.8% growth
year on year in the first three quarters of 2006,
people here are feeling better and better about
their mainland counterparts. News this month that
listings of mainland companies have helped to
create a bumper year for the Hong Kong Stock
Exchange only enhanced that feeling.
A
World Federation of Exchanges survey showed that
US$33.3 billion in capital was raised from initial
public offerings on the Hong Kong exchange in the
first 10 months of this year, surpassing New York
and lagging only behind London among the world's
bourses.
At this rate, it is more likely
that raw economics, rather than any political
debate or piece of legislation, will dictate a
change in the traditionally condescending attitude
that Hong Kong assumes toward the motherland.
Kent Ewing is a teacher and
writer at Hong Kong International School. He can
be reached at kewing@hkis.edu.hk.
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