The Chinese yuan may become fully convertible in 2017, providing ample business opportunities for Hong Kong, Taiwan and other places aiming to become offshore yuan trading hubs.
“We expect yuan to be fully convertible in 2017 in terms of meeting trade settlement and investment needs,” said Anita Fung, HSBC Hong Kong chief executive officer.
At present, only 12 percent of cross-border trade in China is settled in yuan, Fung said. The ratio may rise to more than 30 percent in 2015 since more than 50 percent of Chinese companies are willing to offer price discounts in return for using yuan to settle trade, she said, adding that the yuan may grow to account for 50 percent of trade settlements in the Asia-Pacific region during the same period.
The question is whether the city should remain pegged to the US dollar, or switch to linking to the yuan. Hong Kong is increasingly tied to the cycles of the mainland’s economy, so it might as well adopt the mainland’s interest rates, according to some analysts.
The Hong Kong dollar’s peg to the US dollar has resulted in increased costs for Hong Kong manufacturers with production on the mainland, because their costs are in yuan and their prices are in US dollars. If there is a long fulfilment period, the yuan may fluctuate, increasing either costs or revenue. The Hong Kong dollar has weakened against the yuan by about 26 per cent over the past 10 years.
Lan Kwai Fong Holdings chairman Allan Zeman thinks Hong Kong will forgo the pegged currency format and use the yuan outright. “It would make sense, given that Hong Kong is so tied to China.”
Most agree that full convertibility of the yuan is a precondition for adopting it as Hong Kong’s base currency.
SOURCES – South China Morning Post, Taipei Times