Western demand for Chinese-made products
launched China as a major exporter. But now as American and European consumption
is cut back due to the global economic downturn, China is making efforts to
boost its domestic trade and prop up Hong Kong's ailing economy. The People's
Bank of China signed a $29.3 million currency swap with the Hong Kong Monetary
Kenny Tang, head of research at Redford Securities in Hong Kong, says the
currency swap helps stabilize Hong Kong and fosters trade between southern
Guangdong province and Hong Kong, Macau and Taiwan.
The agreement makes available short-term funds to Hong Kong banks based in
the mainland and to mainland lenders based in Hong Kong. The amount is based on
the foreign exchange rate. Tang says China's yuan currently is valued higher
than the Hong Kong dollar. "Mainland China's economy still outperforms the
global economy during the recession. So you can see there's a lot of funds
flowing into mainland China that push up the currency," he said.
Tang says in the long run the currency swap expands the base of the Chinese
currency, the renminbi, in Hong Kong and helps Hong Kong become a RMB offshore
banker. The swap can be extended after three years.
Tang also says the swap may help the RMB become more flexible and interactive
with major international currencies.
China's currency may be strong, but its economy is faltering. China's
fourth-quarter gross domestic product dropped to less than 7 percent growth from
a year earlier, its slowest pace in seven years. Hong Kong's GDP also is
expected to drop significantly during the fourth quarter.
After years of growth, China's exports contracted in November and December,
as Europe and the United States slashed orders.
In southern Guangdong province, the government earmarked $278 million for two
funds to support exporters. Guangdong will introduce measures to assist Hong
Kong, Macau and Taiwan manufacturers in the province.
In another effort to align Hong Kong with the mainland, both the Hong Kong
and Shanghai stock exchanges signed an agreement to coordinate products and
Hong Kong may be in recession for the first time in five years, yet it still
wants to maintain its status as an international financial center.