A weaker yuan has turned Hong Kong into a haven as mainland China’s rally sends banks, insurance policies and the US dollar soaring.
The Chinese yuan has weakened this year to near its lowest level since October, and many mainlanders are rushing to Hong Kong for safety in soaring yields. Bank depositsand insurance and investment products and the US currency.
Xi was from Beijing at the Bank of China (Hong Kong) branch in the city’s tourist hotspot, Tsim Sha Tsui, at 7.30am on Friday to open a bank account. He had decided to wait there as the online appointments at the other branches were already fully booked. As the 9am opening time approached, more than 30 people made a beeline for the door.
“I plan to buy insurance policies in Hong Kong for my children,” said Xi, who wanted to be known only by his family name. I am also considering buying some US dollars and Hong Kong dollars due to the recent depreciation of the Yuan and the high interest rates in Hong Kong.
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In the same class, Chen from Suzhou in the eastern province of Jiangsu said he was looking to buy an insurance policy to diversify his investments. “You don’t have to put all your assets in one basket, and that’s why I came here.”
The health of the Chinese economy deteriorated in June and July, as trade, inflation and lending slumped while demand at home and abroad contracted. The country is facing a crisis of confidence as its partial approach to reviving growth has disappointed investors, and pressured its currency.
The yuan has lost 5.4 percent of its value against the US dollar this year and 7 percent over the past 12 months. The offshore exchange rate fell to a nine-month low of 7.3451 per US dollar on Thursday, according to Reuters, while the local yuan hit its lowest since November at 7.3008 per dollar.
Goldman Sachs said that foreign investors took $7 billion out of the internal stock market this month. A Wall Street bank expects the yuan to weaken to 7.2 per dollar by the end of 2024, from 6.98 per dollar at the end of 2023, according to reports to clients this week.
Pedestrians walk past the HSBC logo outside a local branch bank in Hong Kong in August 2021. Photo: AFP alt=Pedestrians walk past the HSBC logo outside a local branch bank in Hong Kong in August 2021. Photo: AFP>
Hong Kong commercial banks such as HSBC offer lucrative incentives to attract more customer deposits, given the high cost of borrowing among lenders in the interbank market. Others offered Sunday banking to accommodate mainland customers.
HSBC offers rates of up to 10 per cent on deposits to new high-net-worth customers, while rival lenders offer 4 per cent to 8 per cent on new deposits. Banks in mainland China currently pay around 1.25 percent to 1.65 percent annually on similar term deposit accounts.
Sales of new life insurance policies in Hong Kong to mainland Chinese visitors jumped 28-fold to HK$9.61 billion (US$1.23 billion) in the first quarter of a year earlier, according to data released by the Insurance Authority.
“More mainland customers will come to Hong Kong to exchange their yuan for HK dollar or US dollar deposits, or buy investment products in these currencies as a hedge,” said Jasper Lu, an independent currency analyst. “Investors can enjoy higher interest rates offered by banks in Hong Kong and potential gains for the currency. It’s a good diversification strategy.”
Jasper Law, an independent foreign exchange analyst, says more mainlanders will seek to hedge against a weaker yuan. Photo: Dixon Lee alt=Jasper Lu, an independent foreign exchange analyst, says more mainlanders will seek to hedge against a weaker yuan. Photo: Dixon Lee>
Under China’s capital controls, mainlanders are limited to transferring US$50,000 out of the country annually, according to advisory firm Horizons. External withdrawals from ATMs are limited to 100,000 yuan per person per year. She added that domestic and foreign travelers can carry 20,000 yuan in cash in and out of China, while higher amounts require more documents.
Lu believes there is scope for the yuan to depreciate to 7.50 yuan per dollar in the medium term. However, the Chinese currency is unlikely to reach the “panic level” at 7.80 per dollar. The last time the yuan paired with the Hong Kong dollar was in 2007, before the global financial crisis.
“Beijing is certainly sensitive to (the yuan’s) volatility after two months of relatively rapid decline,” said Nomura economists, including Lu Ting. Beijing fears that the continued depreciation of the currency will lead to greater capital outflows, which would dampen domestic consumption and investment.
They said in a report on Friday that real estate prices in first-tier cities such as Shanghai and Shenzhen are falling, in part because these high-net-worth individuals are trying to sell their homes there and take money from abroad.
“These efforts have been successful,” said a spokesperson for the agency. “Notably, the number of new cross-border customers from banks in the first half was higher than pre-Covid-19 levels.”
The number of new accounts opened by Bank of China (Hong Kong) cross-border customers increased five times over the previous year in the January-April period. It was also 44 percent higher than the same period in 2019.
The bank said new accounts opened by customers at Standard Chartered between January and June exceeded the total in 2022 in the Greater Bay Area. It said new accounts for non-residents at HSBC in the second quarter were twice the level in the same period in 2019.
New accounts for mainland Chinese customers at OCBC Hong Kong rose 12 times in the first half of this year, compared to the same period in 2022, a bank spokesperson said. They are seeking wealth diversification, access to international markets, and foreign exchange opportunities.
Amy Kwan, chief executive of Consumer Banking Group, said DBS Bank (Hong Kong), a unit of Singapore’s largest lender, has seen an average monthly increase of 60 per cent in new account openings this year, compared to pre-pandemic levels. .
“Chinese individuals who frequently travel to Hong Kong for personal or business purposes may find it convenient to have a local bank account,” she said. “It can facilitate day-to-day banking needs, such as cash withdrawals, currency exchange, and payment of tuition and study fees for their children abroad.”
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