CHINA'S recent relaxation of controls on the flow of yuan across the border will not affect Hongkong's economy, according to Hongkong Bank's latest economic report. The bank says the amount of Chinese currency circulated in the territory remains relatively insignificant. The report estimates the renminbi flow at any one time to be 26 million yuan (about HK$35 million at the official rate). That is about 0.034 per cent of Hongkong dollars in circulation, and about 0.013 of the Hongkong dollar M1 money supply. ''As long as the renminbi inflows are steady, the amount remains relatively small, and there are effective official channels to recycle the cash back to China, the circulation of renminbi should not pose a problem for the local economy; nor should it have a noticeable impact on Hongkong's money supply or inflation,'' says the report. The bank assumes that 1.5 million Chinese will visit Hongkong this year and all will spend their full allowance of 6,000 yuan in Hongkong, bringing a total nine billion yuan into the territory. If Hongkong residents make 21.5 million trips to China a year - as they did last year - and one in 10 brings 200 yuan home, 430 million yuan will come into the territory. Mainland visitors and Hongkong residents will bring a total of about 9.4 billion yuan to the territory. ''Under normal circumstances, the supply of Hongkong dollars can be adjusted in line with the actual demand for cash, although a sudden, unexpected influx of Chinese currency into Hongkong - which is not likely - could disrupt the normal supply and demand balance of Hongkong dollars,'' says the report. ''Even if it did occur, the large supply of renminbi in Hongkong is likely to lead to a sharp fall in the Hongkong dollar/renminbi exchange rate, thus limiting its possible impact on Hongkong's monetary system.'' The move to allow travellers to take Chinese currency to and from the mainland and the introduction of Hongkong dollar/yuan exchange services by banks are likely to encourage more shops to take yuan, putting more into circulation. However, the report says the willingness to accept yuan is limited. ''The willingness of retailers to accept renminbi will depend on the availability of renminbi exchange service in Hongkong, as well as on the exchange risk involved. ''This, in turn, will depend ultimately on the existence of reliable channels to recycle this cash back,'' it says. The establishment of more formal channels for banks to absorb the cash and send it back to China will help to shorten the currency's time in Hongkong, and cut the number of transactions it is involved in. ''Nevertheless, given that foreign banks are not allowed to offer renminbi deposit or lending services in China, the participation of non-Chinese banks in Hongkong in renminbi exchange business will continue to be restrained by the lack of renminbi lending outlets and the exchange risk,'' says the report. ''Until these restrictions are relaxed, the use of yuan as a means of payment in Hongkong is unlikely to become widespread.'' Since March 1, visitors from the mainland have been allowed by their government to take up to 6,000 yuan per person across the border. The report says that while the increased yuan flow's impact on Hongkong's money supply and inflation is small, it should, with its acceptance by shops, stimulate sales and tourist spending.