Unconvertible yuan is a drag on Shenzhen’s race to supplant Hong Kong’s unique role as China’s offshore financial centre

Hi-tech hub is likely to play a larger role in making yuan a global currency, analysts say, but mainland Chinese capital controls will keep it from becoming a magnet for global investment

Hong Kong’s freely convertible currency ensures its unique position as China’s window to the world

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The unconvertible yuan is why Shenzhen will not unseat Hong Kong as financial hub. Illustration by Lau Ka-kuen

Published: 6:30am, 10 Oct 2019Updated: 1:22pm, 10 Oct 2019

On August 30, China’s central bank announced a new rule to be tried out in Shenzhen. Non-banking financial institutions were allowed to convert hard currency into yuan without prior approval, a move that was seen as further easing of the yuan’s convertibility.

Less than two weeks earlier on August 18, Beijing unveiled a detailed reform plan to make Shenzhen a model city for China and the world.

These developments came at a time when the protests in Hong Kong against the now-withdrawn extradition bill began to take an increasingly violent turn. There were even concerns that Beijing could downgrade Hong Kong’s role in the Greater Bay Area – a scheme linking Hong Kong, Macau, Shenzhen and eight other mainland cities into an integrated economic and business hub. There were many who feared that this was the final nail in the coffin for Hong Kong as a thriving, free market economy.

Far from it, said Joseph Yam Chi-kwong, the founder and first chief executive of Hong Kong Monetary Authority from 1993 to 2009.

Yam, a member of Chief Executive Carrie Lam Cheng Yuet-ngor’s Executive Council, does not think the current protests in Hong Kong would influence China’s plan to develop the convertibility of the yuan, adding that the city’s role as an offshore yuan centre would not be affected by those plans.

The interpretation by some people of the August 30 initiative as “more convertibility of the yuan” is a little misleading, Yam said, adding that people are unnecessarily worried that China was planning to allow the yuan to be freely convertible without any restriction.