Tag Archives: Hong Kong

Lam Lacks Much Room For Manoeuvre

Carrie Lam, seen at the Asia Society, New York on June 9, 2016 when she was still Chief Secretary for Administration of Hong Kong. Photo credit: Elsa Ruiz/Asia Society. Licenced under Creative Commons.

CARRIE LAM, HONG KONG’S newly elected chief executive (seen above), has a nigh impossible task in satisfying the desires and wishes of both her masters in Beijing and her constituents in Hong Kong, or more precisely, those who would be her constituents had they a vote.

It is equally nigh impossible to imagine that Lam will not prioritise those of the first over those of the latter. She has said that ministers in her administration would “be in charge of their own work” rather than taking their cue from Beijing’s local representatives. However, even if they are not following the script word for word, they will certainly follow the gist.

First, though, she will need to repair the damage done by her predecessor, the hapless and unpopular CY Leung. His five years in office were marked by civil discontent over political reform and an increasing chaffing on Beijing’s part at Leung’s inability to quell divisiveness that was evident not only on the streets of Hong Kong.

As Leung’s chief secretary, Lam will arrive carrying some of her predecessor’s baggage. However, before that, she was a well-regarded career civil servant. That may stand her in good stead, particularly with the Beijing-friendly business establishment whose support she will quickly want to consolidate, probably through more deregulation and tax reform. They (and Beijing, which backed her) will expect her administration to be more competent than that of Leung. She also comes without the scandals that dogged his term in office.

Winning over the opposition in the Legislative Council let alone outside it will be a different matter. It doubts that Lam will compromise on the key political reform issues that stalled under Leung. Possible education reform and more construction of affordable public housing — much needed though it is — will not be enough to offset that.

Lam also suffers from the constraint on every Hong Kong chief executive, the absence of a popular mandate. Hong Kong’s population of more than 7 million is reduced to an electoral committee of 1,194 voters that is more, if not entirely, representative of its pro-Beijing business establishment than the overall population.

A greater constraint lies 2,000 kilometres to the north. Beijing will not tolerate any consideration of the political and constitutional reforms the opposition wants. Independence is no more on the cards for Hong Kong than it is for Taiwan.

Many Hong Kong residents, though, while realistic about the realpolitik of their situation, are protective of the autonomy granted to them for 50 years under the ‘one country, two systems’ agreement by which the United Kingdom returned its colony to China in 1997. They do not appreciate the efforts of Beijing is making to accelerate the full integration of Hong Kong into China before 2047.

The fear is that many of the protections and freedoms granted under the Basic Law, such as access to the courts, private property rights and freedoms of speech, association and assembly will start to erode at the same pace.

As they have shown, some at least are ready to take to the streets to defend those rights. Even worse than an independent Hong Kong, by Beijing’s lights, would be a Chinese Hong Kong that harboured a centre of opposition to the Party. Lam’s term of office will take Hong Kong to the half-way mark to 2047. The trick she will have to pull off is knowing how much reform to allow to sustain popular trust in her administration without pointing even a toe in either the splitist or dissident direction.

Hong Kong’s descent into being just another corner of China of middling importance continues.

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Gauging Hong Kong

THE TURNOUT FOR Hong Kong’s annual July 1st rally in support of the territory’s continuing autonomy was the largest in a decade.

This year’s protest had added appeal as a way for Hong Kongers to show their distaste for Beijing’s recent white paper on the former British colony. This was read as foreshadowing tighter political control from Beijing and a less independent judiciary in a more-rapid-than-expected convergence of the two systems in the “one country, two systems” arrangements that now prevail.

Such proposals do not suggest that Beijing has a sure feel for Hong Kong’s political pulse. Hong Kong’s ultimate destiny is to be just another big city in southern China. Getting there will be bumpy unless Beijing demonstrates a more deft political touch.

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London Expands As Offshore Yuan Center

Last year, the British and Hong Kong governments agreed to promote London as a center of trading offshore yuan. This week, some meat was put on the bones of that agreement with the issue of a three-year yuan-denominated bond in London. HSBC was the lead on the deal, the first so-called dim sum bond to be issued outside China. It raised 2 billion yuan ($317 million), mostly from European investors, and yields 3%. Demand from investors was so heavy that HSBC doubled the bond from its originally planned size.

Yuan-denominated deposits in London totaled 109 billion yuan at the end of 2011, according to a report commissioned by the financial district’s government and published to coincide with the launch of a working group to develop London as the western hub for offshore yuan business. The group includes HSBC, the biggest issuer of dim sum bonds in Hong Kong, and Bank of China.

London’s is a sufficient pool of liquidity to start supporting a bond as well as a foreign-exchange market, but it is still less than a fifth of the 566 billion yuan in renminbi deposits in Hong Kong as of February. Despite the strong push London is making, Hong Kong remains the leading offshore yuan market, as Beijing desires. Singapore and New York also have designs on the business but London has stolen a march on them.

China’s doubling of the yuan’s trading band and other recent financial reforms, including allowing banks to hold short dollar positions, raising the ceilings on foreigners’ equity and bond investments in China, and a trial of giving domestic Chinese investors more access to offshore yuan markets, are all part of Beijing’s drive to expand the international use of its currency that started in 2008. More optimistic financial reformers have pencilled in 2015 for full convertibility. The more cautious fear that would be a destabilizingly quick timeline, especially if GDP growth continues to slow.

If the on- and offshore interbank markets forge a close link, that could force the pace. However, the offshore market is still in its infancy. Baby steps are yet to be made. In June, Hong Kong plans to extend its yuan payments trading to overlap with London hours. For its part, London is working on setting up local yuan clearing and settlement systems, probably piggy backing off Hong Kong’s. More European banks are expected to follow HSBC’s lead in issuing dim sum bonds in London later this year, as are the Agricultural Development Bank of China, China Development Bank and the Export-Import Bank of China.

Other yuan-denominated investment products will likely follow. But how fast London, or any other financial center, can develop as a hub of offshore yuan trading, will ultimately be determined by how quickly Beijing opens its capital account and lifts its foreign exchange controls so there is a sufficient volume of internationally circulating yuan to support the business. At present for every yuan deposited outside China, there are 99 inside.

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China: One Currency; Two Yuans

London has made more than one fortune on the China trade, though they have not all ended happily. Whether the yuan will end up as the new opium is the question raised by George Osborne, Chancellor of the Exchequer as the U.K. calls its finance minister, who has been in Hong Kong to promote a scheme to make London the leading international center for trading in China’s currency. London and Hong Kong have been talking about how to do this since last summer. Osborne’s trip will continue the talks.

Chatham House, a think tank in London, has forecast that trade transactions settle in the currency would reach the equivalent of $1 trillion by 2020. Yet, while Beijing has been taking baby steps towards making the yuan a fully convertible currency, there is still a long, long way to go. It remains an aspiration as much as anything but also a hostage to the pace of financial reform, which, as we have noted before, is in stasis during the leadership transition. China may need to rebalance its economy away from export- and investment-led growth and towards domestic consumption, for which financial system reform is a necessary if not sufficient condition, but vested political interests stand in the way. For all the wishful thinking in some parts, the Chinese currency is far from displacing the dollar as the world’s reserve currency, or even having the standing of the yen or the euro in such circles.

If anything, the surprise is that the offshore market for yuan is as large as it is (yuan deposits in Hong Kong total the equivalent of $80 billion). Normally the deepening and development of domestic financial markets and the easing of capital controls is prelude not postscript. In China, the first two are so difficult that the third is the easier option, even if by having a government controlled onshore yuan market in China and market driven offshore yuan market in Hong Kong and London, China may well end up, not untypically, with one currency but two yuans.

London, of course, will be happy to take its skim off both.

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World’s Fastest Underwater Train: It Will Be Chinese

Despite the corruption scandal surrounding China’s high-speed rail network and calls from some quarters for a pause for breath in its breakneck expansion, the superlatives continue to rack up. Add to the list, the fastest underwater trains. Strictly speaking, the existing record is yet to be broken. But the tunnel through which the trains will run has been built, Xinhua reports. Its stretches for 10.8 kilometers under the Pearl River estuary on the run from Guangzhou to Shenzhen and Hong Kong that will open next year. Trains will be able to speed through it at a record-setting 350 kph, with the trip between Guangzhou to Hong Kong cut to 40 minutes from the current two hours.

 

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Another Small Step In The Yuan’s Internationaliztion.

Bank of China’s new if limited yuan trading facility for its U.S. customers is another small step in the direction of internationalizing the currency. It is the first time customers can to buy and sell yuan using accounts at the state-owned bank’s U.S. branches, rather than go through Hong Kong. A limit of 20,000 yuan ($3,000) a day can be bought per individual’s account, the same cap that applies in Hong Kong to limit speculation. Business accounts are uncapped.

Beijing has been pushing its importers and exports to settle trade less in dollars and more in yuan, and allowing the development of an offshore market in the yuan. Cross-border trade settlements in Hong Kong grew from an average of 4 billion yuan a month in the first half of last year to 68 billion yuan in October. China Bank of Construction forecast recently that this number could reach 1.6 trillion yuan a month by 2015. However, the trend is more pronounced in the trade with countries other than the U.S.

Nevertheless, it has helped swell the yuan deposit base in Hong Kong to 260 billion yuan at end-November 2010, and the introduction of markets in the currency and of yuan-denominated financial instruments, including so-called dim sum bonds. Trading in the currency was allowed in Hong Kong last July. Daily trading has now reached $400 million. Given $4 trillion is the total of all daily currency trading, the internationalization of the yuan still has a long way to go, but it is clear where it is headed however cautiously.

 

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Shanghai Smart

“Better educational outcomes are a strong predictor for future economic growth,” says OECD Secretary-General Angel Gurría. Put your money on Shanghai, then. The city scored higher than any of the 70 economies included in the newly published survey of reading literacy among 15-year olds by the OECD’s Programme for International Student Assessment (PISA).

China, as a whole was not included in the survey (it is not a full OECD member), but Hong Kong would have come third in the country rankings behind South Korea and Finland, the longtime number one that was pushed into second place this time. The survey also found that girls read better than boys in every country, which is no surprise, but quantifies the difference, which is, at “an average of 39 points, the equivalent to one year of schooling.”

Shanghai also topped the table in maths and science.

More than one-quarter of Shanghai’s 15-year-olds demonstrated advanced mathematical thinking skills to solve complex problems, compared to an OECD average of just 3%.

One in seven of Shanghai’s 15-year olds achieved the highest levels of proficiency in all three of reading, maths and science, compared to one in twenty five across the OECD as a whole. It is a bit chalk and cheese to compare educational achievement in a city’s schools with those of a country, this is the first time Shanghai has been assessed and it is unclear how the sample of 5,000 tested children was chosen, so we are duly measured in our reaction. The key question is what makes the city’s schools so effective. The analysis that accompanies the survey’s results is too general to provide an answer. Yet, as the survey notes, high levels of skill are critical to innovation, so being top of the class should add up to something in future.

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