As China devalues the yuan, Hong Kong consumers are cautiously optimistic
Originally published at the South China Morning Post on August 13, 2015.
Hong Kong consumers and savers with yuan time deposits yesterday reacted with caution but remained optimistic in the wake of China's recent sharp currency devaluation.
China weakened the yuan or the renminbi's (RMB) value against the US dollar by 1.87 per cent on Tuesday and another 1.62 per cent yesterday, a move that represents the country's biggest devaluation since it unpegged the currency from the dollar in 2005.
According to statistics released in July by the Hong Kong Monetary Authority, RMB time deposits in licenced Hong Kong banks held 812,479 million yuan in June.
That figure was about 2 per cent more than the total for March.
"It's kind of a helpless situation," said Ming Ng, a 60-year-old retiree who opened an RMB time deposit account last month on a three-month contract. "It was supposed to be a very stable currency and it's been appreciating for quite a while."
Chui Ting-yin, a 50-year-old Hongkonger who works in the IT industry, has kept an RMB time deposit account for the past two years running on half-year contracts. He has one month left, but does not plan to pull the deposit because he's optimistic about the currency's future.
"I'm not too worried," he said. "I will wait for a period. I don't think it's going to fall more. I'm looking at the long-term game."
Analysts say the currency fluctuation will significantly affect investor sentiment but that China's move can be seen as a positive development in terms of policymaking.
Lily Lo, an economist at DBS, said banks will now have a tough time trying to persuade both consumers to lock up money in long-term contracts and investors to exchange to RMB even if they raise interest rates. To help, banks might start marketing short-term products more, she added.
"In the past, people thought 'if I put some money in RMB, it will appreciate for sure'. That's changed forever. It's not just this week's volatility, so the impact is quite semi-permanent," Lo said.
Companies that had drawn contracts related to the exchange rate, or small and medium-sized enterprises that have debt denominated in US dollars, would also be greatly affected by the devaluation, she said.
The devaluation may also affect spending by mainland tourists in Hong Kong, which has already fallen after a drop in visits, as well as spending by mainland businesses.
According to the Hong Kong Tourism Board, there were 3.3 million tourists from the mainland in the city in June, about 1.8 per cent lower than last June. Retail sales in Hong Kong have now declined for four consecutive months.
Guan Qinhua, a 30-year-old from Shenzhen, said he would not visit Hong Kong as often due to the RMB's depreciation.
"I came four to five times a year and every time I bought a lot of stuff like gold, shampoo, skincare products and medicine," Guan said. "If the depreciation continues, I may buy less stuff and come less frequently."
Meanwhile, some Hongkongers see an opportunity to shop in the mainland.
"I usually go to Shenzhen. I will definitely buy more there," said Kwok Yin-ha, a 42-year-old restaurant owner in Hong Kong. "I want to go to the nail salon, get more massages and eat more."
Additional reporting by Shirley Zhao
This article appeared in the South China Morning Post print edition as: Local consumers cautious, visitors are wary