Bending, not bowing, in the Economist terms
A year ago, the dollar was probably not the currency you would want to invest in; alternatives like the euro were more highly sought after.
A year later on, today, the euro has fallen and taken a hard hit since Greece and its other south European neighbours started showing signs of trouble. In a state of panic, worries abounded that the global economy will not recover as quickly because of contagion between Greece and its southern continental counterparts. The dollar, which has almost always been a safe haven in times of trouble, started rebounding, and getting stronger.
And with Tim Geithner delaying the report to condemn China as a currency manipulator, will we be seeing China bending halfway to de-peg the Yuan? The Chinese mentality must be understood for anyone to play mind games or psychoanalyze any Chinese giant, country or person. As Sun Tzu said in his very famous quote – “Know your enemy and yourself, a hundred battles, a hundred won.” In a way, this ancient Chinese proverb is extremely apt in the currency conflict between USA and China. When USA tried to throw its weight around by threatening to impose import tariffs, the last thing China would do is to bow and give in to demands which would make the Middle Country appear subservient to the Land of the Free.
In Chinese culture, (I can say this because I am of the Chinese race), the concept of “face” is of crucial importance. Anyone dealing with Chinese for anything should always heed my word of caution – If a Chinese finds himself in a situation where doing something will cause him to “lose face”, or to look like he has lost and has to give in to another, the Chinese is probably going to find every way not to do it. Even if there might be some benefits to agreeing with another party and acting out in both their interests, if there is any way outsiders would see the situation and diagnose that the Chinese is giving in to the other, defences will be up and mighty sky-high. However, if there was a way to put the suggestion across without making it seem that the Chinese guy is conceding to demands of someone else, but in a way that makes it look like the Chinese has decided to do something out of his own accord and graciousness, the chances of a deal happening increase rapidly.
A lot of time is wasted, because the final outcome reached might be the same if they Chinese had just conceded in the first instance, or if the Chinese decided to act in his generosity. Yet, many non-Chinese, and perhaps Westerners particularly, fail to understand this pertinent concept. In my experience with talking to Western colleagues and first hand experience in seeing the way they handle situations, I understand the they are generally more straightforward and don’t beat about the bush. They want something, they say it directly, whether or not it makes the other party look bad. In a completely Western society, this would be the most efficient and quickest method to getting things done. But in a society where the Chinese are increasingly powerful and don’t need to kiss anybody’s feet anymore, this attitude will lead to plenty of time wasting and sour relations, as news reports on deteriorating US-Sino relations have clearly shown.
It appears that Geithner may have done some studying of Chinese attitudes and what is important to them and their “face” – he seems to have chosen the right diplomatic tool this time. Will the Chinese now give “face”? The saga continues….
How long can the dollar remain on its pedestal?
It’ll be a long time before the dollar will be phased out as the world’s reserve currency. According to IMF data, allocated world holdings of the USD in 2008 totalled USD2.7 trillion, and with its nearest competitor, the Euro, only at a total of USD1.1 trillion in world holdings, it seems the USD still has a strong lead in the race.
However, if we noticed that USD holdings in 2000 was only 1.1trillion, it goes to say that in just 8 years, total world holdings of the dollar almost tripled, particularly in the period 2002-2007. before 2004, most of hte increase was attributable to advanced economies, but from 2006-2007, it was emerging and developing economies that ramped up dollar holdings. China must have played a large part in this, as it rapidly increased its holdings of US debt in those years, with at least USD1.3 trillion woth of foreign reserves, a large increase over the years in its effort to intervene in keeping its RMB currency cheap.
An intriguing point to note is the fact that after from 2007 to 2008, USD holdings by emerging and developing economies practically plateaued; while their holdings of EUR kept increasing, although at a slower pace. It was also during that period of time when China started to be more proactive in diversifying its FX reserves protfolio, and started entering into currency swap agreements with its major trade partners. In these swap agreements, China allows its the countries to which it exports to pay it in Renminbi instead of dollars.
China has made rather explicit remarks that it the dominance of the dollar as a worldwide reserve currency should and will end soon, yet there is a peculiar dilema that China is facing. As much as China would like to deviate from being overly reliant on the dollar, so much of its assets and foreign reserves consist of the dollar that dumping it suddenly and heavily will be China kicking itself in its foot. So rather than dumping, what is more sensible is exactly what China is doing – increasing reserves of other currencies by taking up debt other than from the US.
So, the shifting away from USD as the world’s reserve currency will be gradual, not overnight, but certainly inevitable. If China were to continue diversifying at at accelerating pace, then it’s uncertain how long or how quick it will take for the another currency to replace the dollar.
Exports, exports everywhere!
Absolute current account balance and the that as a percentage of GDP show two very interesting perspectives.
Looking at absolute current account balances, we see China scaling its own mountain (around US$400 bn) when the rest of developing Asia’s C/A balances are mostly staying within the +/- US$50 billion range. One glance at the absolute C/A balance graphs throws the attention solely on the Dragon of the East; the other developong Asian nations seem to have less newsworhthy stories. Since the early 2000s, China has set its own pace; following none other in its race to growth. Rich in natural resources, and cheap labour, its manufacturing industry blows out exports like bubbles, with their unprecendented increase propped up by heavy FX intervention to keep the RMB competitive. Surely, the Chinese do things with a aim in mind – to be fulfilled despite protests from its any trade partner or supranational.
Turn the page with me and let’s now look at the C/A balance, but as a percentage of GDP. Suddenly China drops out of the limelight and other Asian stories emerge. It’s easy to get carried away with the China growth story. Certainly, one nation cannot have the rest of the world at its mercy, simply because it has duly earned the title “Factory of the World” – or can it? But the sheer size of the 1.34 billion population nation should not be forgotten. When looking at C/A accounts in proportion to GDP, we see China (roughly 10% in 2008) coming in third behind Brunei (51%) and Malaysia (18%). The rest of the developing Asian countries don’t go much more than +3% for surpluses but do hit -16.5% for decifits, with Laos setting the record, followed by Vietnam with a deficit of 12% of GDP.
For the last 5-7 years at least, there seems to be a consistent list of obvious C/A surplus nations (Brunei, Malaysia, China, Myanmar, Thailand), and the corresponding list of C/A deficit nations (Laos, Vietnam, Cambodia, Pakistan, Sri Lanka). The former list is also generally made up of countries richer in the region; the latter list the opposite. Well, obviously we know from Y = C + I + G + (X-M), that net exports (X-M) are positively correlated to GDP. And as factories and companies shift operations towards the countries with the cheapest labour, exports tend to follow a natural upward curve, and so does the C/A balance, unless imports increase much faster (such as in the case of Vietnam, in which case exports have been sky-rocketing but imports have also been rapidly rising, particularly for machinery and spare parts, reflecting strong investment growth).
Now, trade surplus, and a huge one at that, is usually a highly sensitive topic, particularly so because before the Global Financial Crisis of 2007-2009, the main export markets for developing Asian economies were the US and Europe. China has been the main targetboard for dart calls of letting its currency revalue, and more recently, these have intensified, as economists around the globe (well, maybe excluding the Middle Kingdom), have been pushing for rebalancing of economies. Many asian countries, pegged to some extent to the Yuan, will only allow currency appreciation if China does so first. And well, what does China say in response to calls for currency appreciation?
NO! Chinese Premier Wen Jiabao said in a conference over the weekend of 12-14th of March that he does not believe the RMB is undervalued, despite protests from Washington and prominent US economists like Paul Krugman that if China were to allow the RMB to depreciate, global growth would increase by around 1.5 percentage points. Yet it seems that there will be no one-off revaluation (like that in July 2005) as Wen stressed the importance of keeping the Yuan “basically stable” and that timing for any monetary policy changes must be appropriate. In this response, his tone was serious, and unyielding, making US President Obama look weak against China.
Relations between the huge chinese nation and the world’s number one economy have been deteriorating, since a long time ago. Right now, the US recent meetign with the Dalai Lama and the American arms sales to Taiwan, is what has main a strained relationship even more fragile. Wen’s deliberate comments about the declining value of dollar assets as a result of the growing US fiscal deficit rubbed a sore wound. China’s proactive policy to engage in bliateral agreements and currency swaps allowing it’s main export buyers to pay it in RMB instead of the USD and it’s slow but definite shift in weightage of foreign reserves away from the USD, is all fueling speculations of how much longer it will be before the RMB because one of the world’s reserve currencies, and when will the USD lose that power.
Much is unfolding in this current climate – all very exciting developments that will take a while to fully bloom, but still nonetheless, exciting.
1/3 of the world! (Available in 2 different colours.)
Currently among developing Asia, Malaysia’s GDP per capita at current market prices is the highest (approx US$7,600); almost double that of Thailand’s (approx. US$4,200). China is just a stone’s throw behind Thailand, and at it’s rate of GDP growth and tapering population growth, its GDP per capita will soon surpass the Thai kingom, leaving its current nearest competitor, Indonesia, trailing in the Chinese dust. The Indonesian muslim nation is fighting a close battle with Bhutan (both at approx US$2,400), which is widening the present gap it has with Sri Lanka and Philippines. The rest of developing Asia look like they will be developing for a long time, hovering around or below the US$1,000 mark.
What is interesting is how over the last 30 years, India has managed to decrease the differential its population has with China’s (which now stands at 1.34 billion), and catching up with the Chinese Dragon has to be largely attributable to China’s one child policy and “gendertism”, and maybe the lack of birth control further down South?
The two most populous nations in the East cannot be more different – one is a chinese communist republic; the other the world’s largest democracy. One is soaring exponentially in terms of GDP (at current prices); as well as per capita, the other is struggling to crawl its way out of poverty. Yet both the Dragon and the nation renouned for the Taj Mahal are almost always compared side-by-side, perhaps due to the fact that they are the two largest emerging market nations with a burgeoning middle class whose demand can only be on the rise. Representing so much demand capacity in the Orient, these two seem like an answer to the current crisis, attracting vast amounts of capital flows as the balance of financial and economic power shifts slowly but increasingly surely to the East.
With 2008 FDI inflows to China of almost US$110 billion, and India at US$41 billion, the capital pouring in is flooding the markets, pushing asset prices up up up. China’s latest Feb 2010 inflation figure at 2.7% (almost double that of the month before) might up fears of market bubble, and worries of rate hikes are very present. But for a country as dependent on exports as China, would the PBoC push its luck and try to reign in inflation at the risk of hurting growth? What about India then? The Chinese engine success story has opened up the India market to international capital that was previously averse to flowing South of Asia, and amidst the rubble of poverty and slums, there is a rising class of workers, educated and fighters of survival, that may show us India in a different light some 20-30 years from now.
Data sources: IMF, Unctad.
A continuacion… El libro de las fotos
3 more days to the dawn of yet another new year, and as I stare at the mirror of 2009, I see the reflection of the previous 12 months, the memories, the experiences and the elements that created another great year, and I wonder – what other exciting, beautiful experiences will come next?
It seems like this year I had the traveler’s itch satisfied, but it also makes me yearn for more. This year was segmented into chapters, each bookmarked by stunning, unique experiences in places unfamiliar and accompanied by people who imprinted their individual DNAs in my life. The last time I scribbled about the picture book, it was based on the backdrop of 2007, a continental story; this year it was mainly staged in Asia and party South America.
I am always most inspired and triggered to write and feel in countries that are not my own, no surprise for those who are intrepid travelers. It is being in another foreign land, seeing unfamiliar faces and hearing the buzz of strange tongues spoken as you frantically try to decipher the meaning of those unrecognizable words, which makes my heartbeat accelerate. Surprisingly, it is when I am most unsure of the situation that I am in that I become more certain about myself, my views and what matters. Experience has always held a high value in my heart, and what stands out in my review of the year almost ended are those thoughts and emotions that I experienced and that changed my focus, widened my narrow viewpoint and opened my heart.
Being in Asia with Juan, I put on the tourist hat and saw things common to me my whole life as a visitor would. Food tasted different, spices fired up and burned my tongue like never before, and everything took on a different light. It was as if so many things which faded into the wall paper previously started to stand out, highlighted in random places, and my greedy eyes absorbed them, like I was new in the land. I realized how different cultures all over the world could be, and how being exposed only to hose we are familiar with produces an ignorance that narrows our spectrum of sight. I learnt that while we were all human beings, people, being nurtured differently and leading such different lives provides an intriguing interest but also creates the need to accept and understand.
Returning to Argentina, in the South American continent, my aforementioned belief simply got strengthened. I delighted in the Latin culture, where affection was openly shown, where people lived passionately, unafraid, full of emotions and strength. I reveled in open-arm embraces, which where I live are few and rare like precious metals, and drew me towards such a life of expression and openness. I soaked up the sunshine of hugs, kisses, greetings and genuine interest which lit up my soul and pushed the cloudy curtains away. I learned to laugh ear to ear, hug like I meant it, and smile and cry without being embarrassed. It was as if being on the opposite end of the world released a different side of me, and I was just getting to know her better.
Coming back to Asia, I arrived in Shanghai, China, the subject of so many news reports and the factory of the world. Peddlers selling fake goods and offering illicit services on Nanjing Road; night skies heavy with smog from its 24-hour factories, and smiles from strangers whose genuineness was impossible to decipher – these make up my memories of hte Pearl of the Orient. It was a mad rush of blue collar workers, smartly dressed executives, destitute street beggars and cunning salesmen rushing from place to place, stopping only if a quick buck could be made. It seemed they never stopped, fuelled by an enthusiasm sparked off by a destiny of poverty, greed, fear, and uncertainty. They seemed to be scrambling mindlessly after the bandwagon, the carrot of a quick rise to wealth dangling attractively, luring the large masses of rural villagers to the cities of China in search of a better life gleaming like a promised key to freedom from forced destiny. It was extremely difficult to let my guard down, and despite belonging to the same race, despite tracing my roots back to China, it was impossible to identify with or admire a culture so hooked on materialism and rockets to prosperity. It seemed everything had a price tag, a value – a reason had to exist for something to be done. Of course, I cannot say I saw every aspect of the Dragon in the East. In fact, I believe and hop that what I saw and experienced does not accurately capture the essence of the land so big its tremors shake the rest of the world. I want to be proved wrong, to be proud of the people who built the Great Wall, who invented the printing press, whose legends are so beautifully imprinted on the palace walls. I want to understand and love my roots, aware of their beginnings and how they spanned out, not wary like I am now.
My next adventure – probably the chapter to be highlighted, started in India, where I found myself excited, exhilarated, awaked and jolted in all furiousness. The country China is most compared to, India was like finding out I was Alice in Wonderland, where each turn made me stumble into a separate discovery, startled yet curious, shocked yet intrigued. I experienced a wide spectrum of emotions – times where the plight and poverty of the people made me choke back on tears, where I was stunned into silence and when I laughed so hard and smiled so much because of their friendly nature. India’s majestic palaces and white-washed marble architecture impressed me no end, while the poor living conditions of its people have become accustomed to slap me hard in the face, making me ashamed of taking things for granted. I saw the state those below the poverty line were in, the lack of dignity that drove them to stare at you, demanding you give them something just because they danced in front of you while you watched unwillingly, the frail thin frames that were mothers whose children sucked at dry sagging breasts, the absence of hygiene which manifested all around as men, children and women walked barefoot on roads which were literally pot-holed tar littered with feces and junk. I wrote the most in the three weeks that I was there – it seemed a well of inspiration was suddenly unlocked, pouring all over my writing canvas. That was when I realized that I needed experiences so different from my own, from what I was used to, from what I could imagine. That was the key to unlocking my potential, which allowed the ink to flow.
I later returned to South America towards the end of the year, and still delighted in soaking up its big open culture. Decorum and traditions were plenty, and the culture is steeped in them. But it was beautiful; it was lovely, and just so different. I witnessed first hand family love, boldness, courage and strength, and with those I love so much, I spent close to three wonderful weeks, creating and recreating some of many more memories to come.
Now the year is ending and I will start off the next in Hong Kong – where Cantonese flourishes and its people are a special kind of Chinese. The special administrative region of China, which had been held under British rule and later returned to its motherland – this is where the old meets the new, the east and west merge in a woven quilt of well-meshed traditions, and where you may be alone, but never lonely. In a place where food bonds its people and space is a rare commodity, where Asia’s financial hub and fashion core combine, I will kick start the new year with treasured family and friends. I can’t quite wait.
Happy New Year! I hope yours will be as spectacular and as brilliant as it can be!
The world we live in
It is so hard to be good, and ethical in this broken down corrupted world. India and China are epitome of such brokeness and corruption; yet is it not for me to condemn their ways of working; it is just that it is so rampant that no other way of getting things done will get anything done at all.
Vatsan was telling us yesterday that to start a business in India, there are so many hidden costs that cannot be properly accounted for. Most of these miscellenous costs result from and include under the table transactions and coffee money to ease the restrictions that otherwise would be present and of a great hindrance to the flow of operations. Living in Singapore, it is easy to shake our heads in disgust and think that everyone should be ethical and uncorrupted; but in fact, we are the minority of Asian countries that actually practice what we preach (or at least appear to). Being a good business man is not covered in the University courses we diligently attend; so much of it has to be learnt on the job; only that some of us are more adept at learning the ropes than others.
This is what separates academics from real practitioners; the former like to idealize and theoreticize all topics that they cover; the later just find the best way to get things done and do it without thinking too much about the consequences. I think I lean more towards the former; with a bunch of lofty notions and ideals in my head, I tend to want to do more for a society than is actually possible.
Yesterday in our IB chat, Kelvin, Spencer and I discussed about poverty in the world; and whether giving humanitarian aid was worth it; or whether it was simply solving a problem temporarily while in fact causing more harm than good. Kelvin steadfastly pointed out the importance of self-motivation; his belief lay in the fact that people should strive to improve the quality of their lives, not merely depend on aid for survival. That is true; look at Africa– no matter how much aid has been pouring into the continent, it seems that there are always people dying of aids and poverty; but its mainly attributed to the government as well; the corrupt government and constant civil wars and illegal trade make life hard for these African nationals. Spencer asked me how I was going to try to help a world so badly in need of help; and I said I wanted to write and make the rest of the developed world aware of the terrible mess the rest of the undeveloped nations were in. He then asked me whether that would really be of any help– since after all if people dont help themselves, why should they be given help? I totally disagreed with that; there are so many loopholes to that argument; I told him it wasnt that I think people who dont help themselves should be left in the ditch to die; but that if we do not help them, there are many others who because of forced circumstances such as being sold as sex slaves and other abusive labour, have lost all hope of moving to a better life, that they succumb to a fate that was not theirs to begin with but unfairly thrown and thrust upon them.
We had a debate; the details of which are too much to go into; but we finally arrived at the same conclusion that education is the key to an improved life; but that unfortunately, there are so so many people who are deprived of the chance to be educated. It is ignorance that leads them to surrender their fate to be that of the victims, and also incidents that leave them marred for the rest of their lives.
Talking about this is saddening; that we are the fortunate few who can worry about things other than just our subsistence level is in fact a heavy responsibility on our shoulders; the more we are given, I feel, the more we should do for those that have not.
The World is Flat
Thomas Friedman, author of “The World is Flat”, commented in his book that when he was young, his mother told him to “Finish up your food, people in India and China are starving.” Nowadays, he tells his daughter, “Finish up your homework; people in India and China are starving for your jobs.”
As globalization continues its rampage around the world, mobilization of everything is possible. Jobs are no longer confined to domestic citizens; its buffet time for all who are willing to travel and grab them. To transit and be willing to take the cheapest pay in exchange for having a job at all.
There are billions of people starving for jobs, and it makes the stark acknowledgement that productivity is so crucial for survival even more real.
Oh oh, we’re in trouble; Is someone going to burst our bubble?
In 1997, I was in Primary 6, didn’t give a hoot about the world, nor the fact that the Asian Financial Crisis was hitting all the Asian countries in full force, wrecking havoc whose effects on certain countries like Indonesian have left them still recovering from the shock.
This year its 2007, I’m in University, and through my readings and courses as well as of course, my new interest in the world whose effect on all of us I can no longer deny, I read over and over again, about the 1997 crisis. It’s weird to read a Caucasian’s reports on the effects of the Asian Crisis, and weirder to find that it seems in the field of Asian Monetary Policy, there are more good writers from the Western part of the world than from Asian. Even my Asian Monetary Professor is American.
Apart from that brief digression, I really want to talk about the possibility of another crisis, another crash, but this time, perhaps not just involving Asia, but perhaps America (very likely) and maybe also Europe. I’m not advocating that such a scenario is good; but looking at the news everyday that mark yet another all time high on the stock exchange, in Singapore, China, and many other places, where the prices of goods are going atrociously high. In a time and age where the economy is booming, everyone is busy swiping out their plastics to make use of more and more credit, it seems the stage is set for a market correction. Maybe Crash is a word too harsh; corrrection may be more correct (pun intended).
As I mentioned a few posts ago, hedge funds are taking on dangerous amounts of debt, and together with the package, risks that they may be unable to handle. Everywhere, it seems the press is screaming with news about inflation curbing, in the USA, Thailand, China; all the Central Banks are scratching their heads over whether to maintain or increase interest rates. If you were to keep up with the news everyday, you’d realize that every country seems troubled by any news that may hint at increasing inflation, yet at the same time, investors with money to act on these news are moving capital in and out of countries, hedging their bets that these interest rates increases or decreases will move currencies and bond prices in the direction of their favour.
Everything happens so fast, many are pumping in much money and taking on leverage to accelerate the growth of their wealth. Suddenly it feels like we’re trapped in an air tight bubble that keeps getting larger and thinner. Will it be another bubble that bursts? How can we identify it? Someone wise one said that you can never identify a bubble until it bursts, but by then it would have been too late.
Alas, writing the history of the future is harder than writing the history of the past (in Eichengreen’s beautiful words). Only time will be able to unravel the mystery that has left so many worrying about.
re-sparked love
The more in depth i get with Economics, the greater my love for Economics deepens, opening my eyes to a world that is so intricately webbed in a maze of decisions whose consequences befall not just one but many.
Economics has natural rules much like that of the Universe, which, no matter how man tries, will not allow themselves to be broken. The impossible trinity for one, where free capital flows, independent monetary policy and a fixed exchange rate regime cannot and positively will not co-exist together. Only two out of the three options can be put side by side, and even though there may be arguments that the impossible trinity theorem may be violated in fractions (such as having a fixed exchange rate regime with a semi-controlled capital flows regime and a semi-independent monetary policy), it only goes to prove that Economics has a mind of its own, and though markets are man-made, the natural rules that govern are as their name suggests– Natural.
This term Asian Monetary Policy is on my list of modules, and the readings that come with the package, though more than I would prefer, are actually enjoyable to a great degree. This year sees me more interested in financial and economic news than in gossip columns, and the past 7 days have been a terrific start, with the exception of the damned flu and phelgm that Im finally getting rid of.
HK braces itself as renminbi nears parity
By Tom Mitchell in Hong Kong
Published: January 1 2007 16:02 | Last updated: January 1 2007 16:02
When the Chinese renminbi slips through the psychological threshold of Rmb7.8 to the US dollar, which may happen as early as this week, it will be a moment replete with symbolism for Hong Kong and the territory’s relationship with the mainland.
It will mark the first time in 13 years that China’s currency has traded above the level at which the Hong Kong dollar is pegged to the greenback.
Technically, the Hong Kong dollar, which is allowed by the territory’s monetary authority to trade in a band set at HK$7.75- HK$7.85 to the dollar, will remain more valuable than its mainland counterpart for a few more weeks, if not months.That is because the Hong Kong dollar has been trading at the lower end of its band, last closing at HK$7.778 to the dollar. The renminbi, meanwhile, is at Rmb7.805 to the US currency.
Nevertheless, sneaking past the threshold of Rmb7.80 to the dollar will mean that the renminbi has achieved de facto parity with the Hong Kong dollar, and it will be a matter only of months before it starts to leave the territory’s currency in its wake.
Previously pegged at Rmb8.3 to the dollar, the renminbi was revalued at Rmb8.1 in July 2005, as Beijing finally bowed to US government pressure and began to let the currency appreciate, albeit at a carefully controlled rate.
The renminbi has since strengthened steadily. In the first 12 months after it was revalued, it gained just 100 basis points against the US dollar. In the past six months of 2006, however, it surged another 200 basis points.
For Hong Kong, the practical effects of a stronger renminbi will be limited. Chinese tourists, on whom the local hospitality sector depends, will enjoy increased spending power. On the negative side of the ledger, Hong Kong imports most of its foodstuffs and other important raw materials from China, so a stronger renminbi will have an inflationary impact.
Hong Kong-owned factories in China, long spoiled by renminbi-US dollar currency stability, are less than enthusiastic about the consequences of a stronger renminbi. But the renminbi’s 6 per cent appreciation against the US dollar during the past 18 months has been manageable. It pales in comparison with the price pressures they have been enduring on wages, inputs and energy.
More important for Hong Kong is the psychological effect of a renminbi that is stronger than its own currency, because it symbolises China’s economic emergence and exacerbates the territory’s fears of marginalisation.
When Donald Tsang, Hong Kong chief executive, made his annual “duty visit” to Beijing late last week, top of his wish list was central government approval for Chinese companies to issue renminbi bonds in the territory and for local importers to be allowed to pay for China-sourced goods in renminbi.
Hong Kong banks held almost Rmb22.8bn ($2.9bn, €2.2bn, £1.5bn) worth of deposits as of November, according to the Hong Kong Monetary Authority, but they can do little with the renminbi they hold. Hence Mr Tsang’s desire for Beijing to allow bond issuance.
Copyright The Financial Times Limited 2007
