Yuan slowdown no blow to Hong Kong's ambitions
A slowdown in the strengthening of the yuan against the US dollar is not necessarily a bad thing, according to a government official who says currencies are not a one-way street.
'It is always good for the market to have two-way trading,' said Secretary for Financial Services and the Treasury Chan Ka-Keung. 'It's normal for markets to have some participants who think the yuan will rise, while others expect it to go the other way.'
Some bankers are now forecasting that the yuan will slow its gains against the US dollar in 2012, but Chan said this would not hurt Hong Kong's ambitions to become an offshore yuan trading centre.
'If the yuan only went up and up, it would be hard for companies to choose to settle their business in yuan,' he said.
Likewise, for companies wanting to issue yuan-denominated bonds, a continually rising yuan against, for example, the US dollar, would be a concern, because currency appreciation would mean the issuer of the bonds had to repay more in US dollar terms when it matured, he said.
Beijing still has capital controls and the yuan is not yet fully convertible, but the mainland has been easing its currency regime. Since mid-2009, Beijing has allowed selected companies to settle cross-border trade in yuan instead of US dollars in a bid to boost the international status of the currency.
Further relaxation followed last July, when Beijing allowed issuance of yuan bonds, and the launch of yuan funds and yuan insurance policies which have been popular with investors betting on a rising yuan. The currency has appreciated more than 20 per cent since 2004.
But analysts predict the rally may end. Credit Agricole last week revised down its forecast for yuan appreciation to 3 per cent next year, from 5 per cent earlier, on the assumption of 8 per cent mainland economic growth and 3.4 per cent inflation for China next year.
Andrew Fung Hau-chung, executive director and head of treasury and investment at Hang Seng Bank, said the US dollar would likely rise next year as the European debt crisis prompted investors to flee the euro.
'A stronger US dollar would mean the rate for the appreciation of the yuan would slow down,' Fung said. 'The yuan may well be flat against the US dollar next year.'
Brokers said this would cut down investors' interest in trading yuan products, which might affect some listed companies' interest in issuing yuan-denominated shares.
The first yuan initial public offering in the city - the Hui Xian Real Estate Investment Trust, a spin-off of Li Ka-shing's Beijing Oriental Plaza - had a lacklustre market debut, down 9.35 per cent on its April launch.
Yuan bonds have had a better reception, with 99.1 billion yuan (HK$121 billion) worth of 'dim sum' bonds - yuan-denominated bonds issued outside China - issued in the city in the first 11 months of the year. That is nearly three times the 35.8 billion yuan issued last year.
