Date
27 April 2018

HKEJ Today: Highlights

Following is a summary of major news and comments in the Hong Kong Economic Journal, the parent publication of EJ Insight, on Tuesday, Oct. 15:

TOP STORIES

Time for Hong Kong to rethink dollar peg, David Li says

Interview: The Hong Kong dollar should be pegged to the renminbi and a basket of currencies, given closer economic ties between the mainland and the city, said David Li, chairman of Bank of East Asia Ltd. (00023.HK). The banking mogul said the exchange rate peg, which has been linked to the United States dollar over the past three decades, has caused imported inflation amid the US’ quantitative easing measures, and it is time for the Hong Kong government to think through how to ditch the regime. It would be best to first link the Hong Kong dollar to a basket of currencies, including the renminbi, and then increase the weighting of the Chinese currency in the basket in phases through 2047, Li added.

HK$ should not link to RMB before full convertibility, says Greenwood

Interview: The Hong Kong dollar should not be linked to the renminbi before the Chinese currency is “irreversibly fully convertible”, said John Greenwood, chief economist of Invesco Ltd. Greenwood, who is known as the father of peg, said pegging the Hong Kong dollar to the renminbi, even if it is in a basket with half of the weighting given to the United States dollar, will risk the stability of the city’s currency and turn it into a tool to speculate on the rise in the Chinese currency. Greenwood also argued that excessive market liquidity and rapid credit expansion had driven inflation levels in Hong Kong, and not the currency peg system itself.

ECONOMY AND BUSINESS

ZTE tips its US smartphone sales to outstrip those in China

Interview: ZTE Corp. (00763.HK) may see its income from its smartphone segment in the United States surpass that from mainland China in two years’ time, said executive vice president He Shiyou {何士友}. The world’s largest economy contributes 20 percent of the division’s revenue, second only to the mainland, which accounts for 35 percent. It may also become one of the top five smartphone producers in the US, in terms of sales and brand value, He said, adding that it aims to gain 8 percent to 10 percent of the country’s market share, competing against Samsung, Apple and LG.

Manulife taps RQFII for asset management business in Taiwan

Interview: Manulife Financial Corp. (00945.HK) is seeking to gain approval as a renminbi-denominated qualified foreign institutional investor to expand its asset management business in Taiwan, said executive vice president and general manager for Greater China, Michael Huddart. The Canadian insurer manages a renminbi-denominated portfolio worth the equivalent of US$400 million to US$500 million, factoring in its quotas under the qualified foreign institutional investor scheme and its plays in the mainland’s interbank bond market. The company is also studying the possibility of establishing a presence in the Shanghai free trade zone, Huddart said.

RMB saving rate to fall by year-end, ICBC Asia says

Interview: The deposit rate for renminbi savings in Hong Kong may drop slightly by the end of this year, given the higher funding costs and tighter liquidity of certain banks in the market, said Flora Leung, head of personal banking at ICBC (Asia) Ltd. The lender, which is backed by Industrial and Commercial Bank of China Ltd. (01398.HK), is offering an annual interest rate ranging from 2.5 percent to 3 percent for renminbi deposits. Leung, however, expects the growth in renminbi savings at her bank to stay in the double digits until the end of the year. Overall daily average deposits outstanding at the bank in the first eight months are up 34 percent from a year ago.

POLITICS

Calls grow for sanctions against Philippines over bus hostage incident 

Two major pan-democratic political parties in Hong Kong have joined calls for economic sanctions against the Philippines for its refusal to heed the demands of the families of the victims of the Manila bus hostage incident. The Democratic Party said the government should suspend purchases of goods from the country as well as bilateral trade and air services talks. The Civic Party urged Hong Kong people to boycott goods made in the Philippines. Families of the victims also said the government should toughen their stand by imposing sanctions. A government spokesman said the chief executive has no further comment.

Democrats apologize for selling fake painting to former minister

The Democratic Party, the pan-democratic flagship in Hong Kong, has apologized to a renowned painter and a former commerce minister for selling a counterfeit painting in a fundraising drive at their anniversary dinner this month. They said they would refund Frederick Ma the HK$300,000 he paid for the painting purportedly by Huang Yongyu {黃永玉} They said they were only aware the painting was a fake yesterday after contact with Huang’s family. The painting was donated by party chairman Albert Ho, who obtained it from a collector-friend. Ma said the mistake was unintentional.

EDITORIAL

Risk of global financial turmoil grows ahead of US debt default deadline

Talks between the Democrats and the Republicans over the US government debt ceiling have entered their most critical moments as Thursday’s deadline nears for a last-minute deal to avoid default. It is clear that the US’ serious financial imbalance has become an increasingly politicized and perennial issue because of the sharp differences between the two parties. The political standoff has eroded international confidence in the US’ capacity to handle its finances, and raised the risk of global financial turbulence in the next few days.

COMMENTS

Yellen will follow closely in Bernanke’s monetary policy footsteps, Lam says

The newly appointed chairwoman of the US Federal Reserve, Janet Yellen, will only make minor changes in the easy-money policy of her predecessor, Ben Bernanke, HKEJ founder Lam Hang-chi wrote. The quantitative easing policy will continue until after the economy fully recovers when inflation rises slightly and the unemployment rate eases. With the US’ monetary system unchanged, the transactions system of its commercial banks will operate smoothly and the status of the US dollar as a reserve currency will remain unchanged. Low interest rates will spur investment activity.

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