A decade ago, on July 1, 1997, at midnight, when Britain handed over the reins of Hong Kong to People's Republic of China (PRC), even the most prophetic of the economists could not have gauged what unprecedented consequences the rest of the world would be left dealing with. The historic transfer process, which ended 155 years of colonial dominance, immediately carried with it usual euphoria as well as tension and mutual mistrust between the neo-liberal Hong Kong and relatively less liberal China. Now, 10 years later, both the countries are seriously contemplating to garner the maximum benefit out of this association in order to keep their growth wheels vrooming.
China, now the fourth largest economy in the world, in terms of nominal GDP, has grown at 10.7% in 2006 and touched US$2.7 tn. Huge FDI and rocketing trade, both of which posted year-on-year growth rate of 24% in 2006, propelled China to post fourth straight annual double-digit growth rate. However, the increasing trade surplus and huge investment figure led to tremendous international pressure on the Chinese currency renminbi (RMB) or yuan to appreciate. And though this appreciation process started slowly, since July 2005, when China floated its renminbi from the earlier peg system (in fact, renminbi had appreciated by over 6% against the USD since then—with no exception to the popular economic logic), the stronger renminbi begins to show its real power now. Given the fact that revalued renminbi can cut down Chinese exports which has been a traditional growth driver, its dual currency structure can come handy. Since China's yuan climbed above the Hong Kong Dollar's (HKD) fixed rate for the first time in 13 years on January 19, 2007, China can now use its typical dual currency structure to its advantage by manipulating the relatively weaker Hong Kong dollar to boost its exports and relatively stronger renminbi to attract capital inflows. |
