China's Central Bank Chief Strengthens Hong Kong Links

by Mary Swire, Tax-News.com, Hong Kong

19 February 2002

Addressing business leaders at a Hong Kong General Chamber of Commerce function, Chinese central bank governor Dai Xianglong said that mainland China is considering expanding its foreign exchange operations in Hong Kong and allowing banks in the SAR to handle yuan deposits. He also said that Beijing was about to invite senior financial chiefs from Hong Kong to take up leading posts in major banks including the Peoples Bank Of China and the four big state commercial banks.

By the end of last month, China's foreign currency reserves reached US$217.4 billion, an increase of US$5.2 billion (HK$40.56 billion) compared with the end of last year. However Dai said there was no timetable for the yuan's liberalisation and the convertibility of the Chinese currency would depend on the development of the mainland's economy and capital market. "In my personal view, the sooner the better,'' he said, pointing out that the yuan was in fact already circulating in Hong Kong and other places along China's borders.

The next step was to consider "giving yuan holders in the SAR some convenience'' by allowing Hong Kong banks to deal with yuan deposits, the governor said. The current exchange rate of the yuan, Dai said, was reasonable and it was important to keep the Chinese currency stable, but the central bank would look at giving the currency greater flexibility when the time was right.

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