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SCMP Reporter

Businessmen complain of double loss as mainlanders dump city's currency

With the yuan gaining in value, the once sought-after Hong Kong dollar is losing its popularity in the Pearl River Delta, and in some cases is no longer accepted by mainlanders.

For most consumers and retailers in the delta,  the yuan passing parity with the Hong Kong dollar had long  been a reality long before it officially did so yesterday.

Once a popular currency widely accepted in the delta  because of its full convertibility and anti-forgery features, Hong Kong dollars are now shunned, sold, and frowned upon by taxi drivers and capital investors alike.

Starbucks in Shenzhen has declined to accept Hong Kong or US dollars since last month.  A HK$100  banknote can now buy goods worth only about 96 yuan in most shopping malls and supermarkets in the special economic zone.

Even taxi drivers and  friends playing mahjong are shunning  the  currency. 'Sorry, Hong Kong dollars are not okay, yuan please,' said one taxi driver.

This change in fortunes began about a year ago. Until last year, most households in Guangdong  preferred depositing their savings in Hong Kong dollars instead of yuan.

At its peak in 1994 and 1995, HK$100 could fetch up to 140 yuan on the black market. But the tables have turned, with the yuan steadily gaining ground against the US dollar, to which the Hong Kong currency is pegged.

A fund manager at a Bank of China branch in Guangzhou said many of his clients with savings in Hong Kong dollars had started to change their money into yuan. Within a week, the branch had converted more than HK$100 million for clients.

'The amount is huge and it's very unusual. We told our clients that it would be wise to keep yuan because it will definitely rise again. If they have Hong Kong dollars, either sell them or go shopping in Hong Kong,' he said.

Sensing the yuan appreciation is set to continue, many Hong Kong people are also racing to sell their dollars.

'We have helped many Hong Kong clients to convert their money into yuan so that they could invest in mainland properties and stock funds,' the fund manager said.

Hong Kong businessmen with factories or businesses on the mainland are increasingly reluctant to convert their profits back into Hong Kong dollars, preferring to keep their yuan and buy properties on the mainland.

Andy Lee Yiu-chi,  general manager of Shenzhen Centaline Property Consultants, said about 50 per cent of the luxury property buyers in Shenzhen were  from Hong Kong or Macau. The buying frenzy had helped push the prices of luxury homes  in Shenzhen up by 30 per cent  last year despite repeated government efforts to cool the market.

'They [Hong Kong investors] anticipate the yuan will continue to rise, so it's a good time for them to increase their investments on the mainland,' he said.

However, Hong Kong firms in the delta  are complaining that they have suffered a double loss from the yuan appreciation.

'I have to pay renminbi for raw materials and employee wages. But our American clients pay us in US dollars. It means I have to pay for the [US] dollar's depreciation [against yuan],' said Chai Kwong-wah, who owns a toy factory in Shenzhen. 'And when I go back to Hong Kong, I have to change my money into Hong Kong dollars.'

Economists say the Hong Kong dollar is likely to slip further against the yuan in the foreseeable future unless the Hong Kong government is ready to abandon  the peg with the US dollar. But most  say the depreciation of the city's  currency might not be a bad thing.

'We should not worry, because the Hong Kong economy still has sound basics. Losing the peg to the US dollar would only hurt our logistics and tourism industries and undercut our competitiveness,' said Lin Jiang , dean of the public finance and taxation department at Guangzhou's Sun Yat-sen University.



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Yuan

Once-mighty HK dollar shunned in delta