DOCSLIB.ORG

Is the Hong Kong Dollar at Risk?

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Is the Hong Kong Dollar at Risk? INFOCUS MACRO COMMENT AUGUST 2020 Is the Hong Kong dollar at risk? DISCIPLINED BY NATURE. FLEXIBLE BY DESIGN. HIGHLIGHTED IN THIS PUBLICATION: The icons alongside represent our investment process. Through a disciplined provision of investment policy and security selection at GLOBAL STRATEGIC GLOBAL SECURITY ASSET ALLOCATION SELECTION the global level, regional portfolio management teams have the flexiblility to construct portfolios to meet the specific requirements REGIONAL REGIONAL PORTFOLIO of our clients. ASSET ALLOCATION CONSTRUCTION IS THE HONG KONG DOLLAR AT RISK? With tensions between the US and China rising, investors naturally wonder whether Hong Kong’s linked exchange rate regime is at risk. In this edition of Infocus, Stefan Gerlach argues that it is not. With the US presidential election approaching and President These developments gave rise to political uncertainty and Trump appearing to think that ratcheting up tensions with concerns about the future of Hong Kong and the Hong Kong China is a good election strategy, there is every reason to dollar (HKD). The outcome was a massive depreciation of the expect more political turbulence. Unsurprisingly, investors HKD, which fell from 5.29 HKD/USD in January 1981 to 8.70 HKD/ wonder whether there is any risk that the Hong Kong dollar peg USD in September 1983 or by 64%. To stop the turmoil, a (one- to the US dollar could become collateral damage. sided) peg of the HKD to the USD through a currency board was introduced in October 1983 at a rate of 7.80 HKD/USD. To assess that risk, it is understandable to ask why Hong Kong has a pegged exchange rate in the first place. While large In the intervening 37 years, the currency board has economies, such as the US, trade a lot, their traded goods experienced several episodes of extreme market pressure sectors tend to be a small part of the overall economy. The often related to political developments in Mainland China. US authorities therefore generally pay little attention to the Nevertheless, the peg – or the ‘Linked Exchange Rate System’ exchange rate and let it float. (LERS) – has remained unchanged and has continued to underpin monetary and financial stability in Hong Kong. That is For small economies, however, the exchange rate is of critical no small achievement. importance. While many prefer floating exchange rates because they help offset economic shocks, they can also move Exchange rate policy in Hong Kong is also influenced by the strongly in response to political developments. A floating fact that it is a small economy on the periphery of the much exchange rate can therefore also be a shock generator as well larger economy of Mainland China.1 Small open economies as a shock absorber. that are adjacent to a much larger economy often fix their exchange rate to their neighbour’s.2 It would therefore be Switzerland is a case in point: the Swiss franc often moves natural to peg the HKD to the Chinese Renminbi (RMB). Indeed, abruptly to political news that raises concerns about a until 1935 both Hong Kong and China were on a silver standard breakup of the eurozone. Since such developments are of and between 1983 and 2005 both fixed to the USD. But since little importance for the Swiss economy, they do not warrant the RMB is not yet fully convertible, it is not possible to peg the a change in the exchange rate. Indeed, a sharp appreciation of HKD to it. the franc could harm the Swiss economy. This is why the SNB seeks to prevent the Swiss franc from appreciating in response Could the peg be abandoned? to political uncertainty in the eurozone. It is easy to see that a With that as a background, could the LERS be abandoned? flexible Hong Kong dollar would be highly exposed to political That seems extraordinarily unlikely. First, the link is sacrosanct shocks in Asia. among policy makers in Hong Kong. No one has any experience of living under a flexible exchange rate and economic The Hong Kong dollar peg: some background considerations, as outlined above, are strongly in favour of Indeed, the early 1980s provides an instructive example. In Hong Kong having a fixed exchange rate. 1982 the British Government started to negotiate with the Chinese government about Hong Kong’s status after 1997. In Second, the Hong Kong Monetary Authority’s foreign exchange March 1983, the British Government recognised that China had reserves are massive, exceeding USD 500 bn. With such a large sovereignty over Hong Kong. war chest to defend the currency, it is difficult to envisage the currency board being overrun by speculators. 1 It is, of course, legally a part of China. 2 They at times even use the currency of the larger neighbour. For instance, Monaco and Andorra use the euro and Lichtenstein uses the Swiss franc. 2 | August 2020 IS THE HONG KONG DOLLAR AT RISK? Third, that said, the ability of policy makers to defend the Figure 2 shows, while the pegged rate was 7.80 HKD/USD, exchange rate does not depend solely or even mainly on how until 1999 the HKMA the took action to defend the peg at the large the foreign exchange reserves are but rather on the exchange rate 7.75 HKD/USD. Following the experiences of the economy’s ability to withstand higher interest rates. If the Asian financial crisis, in April 1999 that intervention rate was currency board were to sell USD to Hong Kong banks in order moved by ‘1 pip’ (0.00001) per calendar day to reach 7.80 after to sustain the exchange rate, it would debit those banks’ 500 days. accounts with the HKMA. That would reduce interbank liquidity, 2. HKD/USD exchange rate and Linked Exchange Rate System or what is known in Hong Kong as the ‘Aggregate balance’, and push up interest rates. 7.90 As Figure 1 shows, during the Russian and Asian financial 7.85 crises, pressures on the HKD pushed up interest rates to above 7.80 10%. The Hong Kong economy, being so dependent on the property market, would not be able to endure interest rates at /USD 7.75 this level for any extended period of time. HKD 1. 1-month HKD Hibor – 1-month USD Libor spread 7.70 12 7.65 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 10 HKD/USD Weak-side Convertibility Undertaking Strong-side Convertibility Undertaking 8 Source: Refinitiv and EFGAM calculations. Data as at 28 July 2020. 6 % 4 Another series of major innovations was announced in May 2 2005. The currency board had been one-sided in that the HKMA stood ready to prevent the HKD from falling below 7.80 0 HKD/USD, the so-called ‘Weak-side Convertibility Undertaking’ -2 (CU), but had not specified at what level it would step in to JFMAMJ JASONDJFMAM JJASOND 1997 1998 prevent the HKD from appreciating. The HKMA then introduced Hibor-Libor, 1-month (%) a strong-side CU to buy US dollars from licensed banks at Source: Refinitiv. Data as at 28 July 2020. 7.75. It was also announced the existing weak-side CU would be shifted from 7.80 HKD/USD to 7.85 HKD/USD to achieve However, the HKMA has an additional tool to deal with symmetry around the linked exchange rate of HK$7.80. pressures on the HKD since it also manages all the government’s reserves, which total about USD 150bn. If these Thus, while it is unlikely that the peg will succumb to reserves were sold for HKD, there would be no impact on speculative pressures, it seems likely that it may evolve further interest rates since interbank liquidity would be unaffected. in the future. Changes in the peg The future of the HKD and the peg The fact that there is a strong economic rationale for the linked How might it do so? It seems self-evident that after the 50-year exchange rate, that policy makers have no experience of other transition period ends in 2047, the HKD will be replaced by monetary policy regimes, and fact that the HMKA have plenty the RMB. There are no examples of one country having two of ability to withstand episodes of even extreme pressure on currencies. But what might happen before then? the HKD suggest that the pegged exchange is here to stay. The Basic Law specifies that the HKD shall remain legal That said, the linked exchange rate regime has undergone tender during the transition period.4 However, as the Chinese a number of improvements and changes over the years.3 As economy and financial markets continue to grow, the RMB 3 See https://www.hkma.gov.hk/eng/key-functions/money/linked-exchange-rate-system/milestones-of-monetary-reform/ 4 See Article 111. The Basic Law is available here: https://www.basiclaw.gov.hk/en/basiclawtext/images/basiclaw_full_text_en.pdf August 2020 | 3 IS THE HONG KONG DOLLAR AT RISK? will no doubt be increasingly used in Hong Kong. It is easy to Conclusions imagine a situation in a few years’ time in which RMB can be The conclusions of this analysis are clear. The HKD peg, which used at par in retail stores and, later on, that firms earning has served Hong Kong well, in our view will not succumb to a revenues and having a large part of their business in Mainland speculative attack, but will continue to evolve over time as it China start paying their workers in Hong Kong in RMB.
Load more

Recommended publications
  • Treasury Reporting Rates of Exchange As of March 31, 1994
    iP.P* r>« •ini u U U ;/ '00 TREASURY REPORTING RATES OF EXCHANGE AS OF MARCH 31, 1994 DEPARTMENT OF THE TREASURY Financial Management Service FORWARD This report promulgates exchange rate information pursuant to Section 613 of P.L. 87-195 dated September 4, 1961 (22 USC 2363 (b)) which grants the Secretary of the Treasury "sole authority to establish for all foreign currencies or credits the exchange rates at which such currencies are to be reported by all agencies of the Government". The primary purpose of this report is to insure that foreign currency reports prepared by agencies shall be consistent with regularly published Treasury foreign currency reports as to amounts stated in foreign currency units and U.S. dollar equivalents. This covers all foreign currencies in which the U.S. Government has an interest, including receipts and disbursements, accrued revenues and expenditures, authorizations, obligations, receivables and payables, refunds, and similar reverse transaction items. Exceptions to using the reporting rates as shown in the report are collections and refunds to be valued at specified rates set by international agreements, conversions of one foreign currency into another, foreign currencies sold for dollars, and other types of transactions affecting dollar appropriations. (See Volume I Treasury Financial Manual 2-3200 for further details). This quarterly report reflects exchange rates at which the U.S. Government can acquire foreign currencies for official expenditures as reported by disbursing officers for each post on the last business day of the month prior to the date of the published report. Example: The quarterly report as of December 31, will reflect exchange rates reported by disbursing offices as of November 30.
    [Show full text]
  • BULLETIN CZECHOSLOV Akla - President: Dr
    ISSN 0739-1390 ICTM NATIONAL COMMITTEES AUSTRALIA - Chairman: Dr. Stephen Wild Musicological Society of Australia, GPO Box 2404, Canberra, ACT 2601 BULGARIA -SuiuznaBulgarskiteKompositori, 2 Ivan Vazov, Sofia 1000 BULLETIN CZECHOSLOV AKlA - President: Dr. Oskar Elschek SA V, Umenovedny Ustav, Fajnorovo nabr.l, 884 16 Bratislava DENMARK - President: Dr.Lisbet Torp of the Dansk Selskab fl<'rTraditionel Musikog Dans, Kzrsangervej 23, OK -2400 CopenhagenNV FEDERAL REPUBLIC OF GERMANY- Chairman: Prof. Dr. Marianne Brocker Abt. Volksmusik, UniversitatBamberg, Feldkirchenstr. 21, 0-8600 Bamberg INTERNATIONAL COUNCIL FINLAND - Secretariat Kansanmusiikin Keslcusliitto, P.O.Box 19, SF-0053I Helsinki 53 HUNGARY - Secretary: Prof. Laszlo Vik:ir for MT A, Zenetudomanyi 1ntezet, Pf. 28, H-1250 Budapest IT AL Y - Chairman: Prof. Tullia Magrini TRADITIONAL MUSIC clo DipartimentodiMusica,ViaGalliera 3,140121 Bologna JAMAICA - Chairman: Dr. Olive Lewin Institute of Jamaica, 12 East Street, Kingston R.O.KOREA - Chairman: Prof. Hahn Man-young College of Music, SeoulNationalUniversity,Seoul 151 NETHERLANDS - President: Or. Wim van Zanten Nl.VerenigingEtnomusicologie· AmoldBake',POB l0088,NL-lOOI EB Amsterdam No. LXXVIII NORWAY -President: Bjem Aksdal Norskfolkemusikklag, Radet f. Folkemusikk og Folkedans, N -7055 Dragvoll April 1991 OMAN - Oman Centre for Traditional Music, P.O.B.2000, Seeb POLAND - President: Prof. Anna Czekanowska Institute of Musicology , Warsaw University, 02-089 Warsaw ROMANIA - President: Prof. Tiberiu Alexandru 1ntr. Tirgu-FrumosNr.7, #20, R-75357 Bucuresti SWEDEN - President: Or. Krister MaIm I With c/o Musikmuseet, Box 16326, S-103 26 Stockholm Preliminary Program of the SWITZERLAND - President: Dr. Brigitte Bachmann-Geiser Sonnenbergrain 6, CH-3013 Bern 1991 CONFERENCE UNION OF SOVIET SOCIALIST REPUBLICS - President: Tikhon Khrennikov Union of Composers of the USSR, ul.
    [Show full text]
  • What If the Hong Kong Dollar Repegs to the Renminbi?
    Market Views – July 2020 WHAT IF THE HONG KONG DOLLAR REPEGS TO THE RENMINBI? Russell Clark’s Market Views “If US sanctions deny Hong Kong access to the US dollar, it could repeg to the Chinese Yuan. How would this impact dual listed equities?” The Trump Administration is considering sanctions against China and Hong Kong due to the imposition of their national security laws. The Hong Kong Autonomy act (HR7440) includes provisions to limit Hong Kong banks access to the US dollar. Hong Kong has a peg to the US dollar with local rates typically following US rates, apart from periods of Asian currency strength or weakness. Hong Kong Interbank Offered Rate (Hibor), London Interbank Offered Rate (Libor) If Hong Kong was denied access to US dollar under US sanctions, it could repeg to the Chinese Yuan. If this were to happen, the first change would be that Hong Kong Interbank Offered Rate (Hibor) rates would need to move close to Chinese Shanghai Interbank Offered Rates (Shibor). At current rates, this would mean that Hong Kong interest rates would rise, potentially negatively for property in Hong Kong, but the higher interest rate would help stabilise the exchange rate. RUSSELL CLARK – MARKET VIEWS RUSSELL CLARK – WHAT IF THE HONG KONG DOLLAR REPEGS TO THE RENMINBI? There are currently restrictions on the Chinese capital account. Perhaps the bigger question would be whether China would impose capital flow restrictions on the Hong Kong dollar, or whether the repegging of the Hong Kong dollar to the Renminbi would coincide with a general loosening of capital account restriction in mainland China? If the US dollar weakened, China opening its capital account becomes more likely.
    [Show full text]
  • Before the Fall: Were East Asian Currencies Overvalued?
    Emerging Markets Review 1Ž. 2000 101᎐126 Before the fall: were East Asian currencies overvalued? Menzie D. ChinnU Council of Economic Ad¨isers, Rm 328, Eisenhower Executi¨e Office Bldg., Washington, DC 20502, USA Received 10 October 1999; received in revised form 4 February 2000; accepted 5 April 2000 Abstract Two major approaches to identifying the equilibrium exchange rate are implemented. First, the concept of purchasing power parityŽ. PPP is tested and used to define the equilibrium real exchange rate for the Hong Kong dollar, Indonesian rupiah, Korean won, Malaysian ringgit, Philippine peso, Singapore dollar, New Taiwanese dollar and the Thai baht. The calculated PPP rates are then used to evaluate whether these seven East Asian currencies were overvalued. A variety of econometric techniques and price deflators are used. As of May 1997, the HK$, baht, ringgit and peso were overvalued according to this criterion. The evidence is mixed regarding the Indonesian rupiah and NT$. Second, a monetary model of exchange rates, augmented by a proxy variable for productivity trends, is estimated for five currencies. An overvaluation for the rupiah and baht is indicated, although only in the latter case is the overvaluation substantialŽ. 17% . The won, Singapore dollar and especially the NT$ appear undervalued according to these models. ᮊ 2000 Elsevier Science B.V. All rights reserved. JEL classifications: F31; F41; F47 Keywords: Equilibrium exchange rates; Overvaluation; Purchasing power parity U Tel.: q1-202-395-3310; fax: q1-202-395-6583. E-mail address: [email protected]Ž. M.D. Chinn . 1566-0141r00r$ - see front matter ᮊ 2000 Elsevier Science B.V.
    [Show full text]
  • RMB on HK.Pdf (1.154Mb)
    SAE./No.83/July 2017 Studies in Applied Economics AN ANALYSIS OF THE IMPACT OF RMB DEPRECIATION ON HONG KONG Richard (Ziyuan) Li Johns Hopkins Institute for Applied Economics, Global Health, and Study of Business Enterprise An Analysis of the Impact of RMB Depreciation on Hong Kong By Richard (Ziyuan) Li Copyright 2017 by Richard Li. This work may be reproduced provided that no fee is charged and the original source is properly cited. About the Series The Studies in Applied Economics series is under the general direction of Professor Steve H. Hanke, Co-Director of The Johns Hopkins Institute for Applied Economics, Global Health and the Study of Business Enterprise ([email protected]). The authors are mainly students at The Johns Hopkins University in Baltimore. Some performed their work as summer research assistants at the Institute. This working paper is one in a series on currency boards. The currency board working papers will fill gaps in the history, statistics, and scholarship of the subject. About the Author Richard Li ([email protected]) is a graduate student at The Johns Hopkins University in Baltimore, pursuing a master’s degree in Financial Mathematics. He wrote this paper as a research assistant at the Institute for Applied Economics, Global Health, and the Study of Business Enterprise in Spring 2017. He will graduate in December 2017. Abstract Hong Kong is one of the main economies operating a currency board system today. With its currency fixed to the U.S. dollar, the system has functioned successfully since it was restarted in 1983. The last time it faced severe challenges was during the East Asian financial crisis of 1997-98.
    [Show full text]
  • Media Freedom in Chinese Hong Kong Richard Cullen City University of Hong Kong, Hong Kong
    Global Business & Development Law Journal Volume 11 | Issue 2 Article 3 1-1-1998 Media Freedom in Chinese Hong Kong Richard Cullen City University of Hong Kong, Hong Kong Follow this and additional works at: https://scholarlycommons.pacific.edu/globe Part of the International Law Commons Recommended Citation Richard Cullen, Media Freedom in Chinese Hong Kong, 11 Transnat'l Law. 383 (1998). Available at: https://scholarlycommons.pacific.edu/globe/vol11/iss2/3 This Article is brought to you for free and open access by the Journals and Law Reviews at Scholarly Commons. It has been accepted for inclusion in Global Business & Development Law Journal by an authorized editor of Scholarly Commons. For more information, please contact [email protected]. Article Media Freedom In Chinese Hong Kong Richard Cullen* TABLE OF CONTENTS I. INTRODUCTION ............................................... 384 U. BACKGROUND ............................................... 386 A. The ColonialEra ......................................... 386 B. The TransitionalPeriod ................................... 387 C. Points of Conflict ......................................... 388 III. OVERVIEW OF THE MEDIA IN HONG KONG ......................... 391 IV. THE REGULATORY FRAMEWORK .................................. 396 V. THE JUDICIARY AND THE MEDIA ................................. 399 A. Introduction ............................................. 399 B. The Press in Court ........................................ 402 C. Summary ..............................................
    [Show full text]
  • Currency Risk Management for Hong Kong Insurers: Prepare for the Next Unpeg
    Article from Risk Management January 2016 Issue 34 Currency Risk Because of the currency peg Management for Hong system, the exchange rate move between 7.75 and 7.85, a pretty Kong Insurers: prepare narrow range. Hence, so far, the for the next unpeg FX mismatch risk is very well By Questor Ng contained. he Swiss franc peg was introduced in 2011 in response to social, economic and political conflicts in Hong Kong. Many an- investors buying up substantial amount of the currency as alysts are now speculating as to should the HKD be de-pegged. Ta safe haven asset. On Jan. 14, 2015, the Swiss franc was trading around 1.2, at the minimum exchange rate of 1.20 francs THE INSURANCE INDUSTRY to the euro cap. On Jan. 15, with no hints from the central bank, UNDER THE CURRENCY PEG the Swiss government announced the removal of the three year The insurance industry in Hong Kong has a long history of 170 old Swiss franc to euro ceiling policy. The euro dropped as low years. There are over 150 authorized insurers. In 2014, the total as to 30 percent against franc, plunged to 0.85 francs per euro gross premiums of the Hong Kong insurance industry increased at one point. The central bank also cut its main interest rate to by 13.3 percent to HK$339 billion. If the currency peg is re- -0.75 percent—a move further into negative interest territory. moved suddenly, there would possibly be material impact on the industry. The sudden death of the Swiss franc ceiling policy demonstrates the kind of currency volatility and impact when a currency peg The liability side is removed.
    [Show full text]
  • A Brief History of Hong Kong Dollar Exchange Rate Arrangements
    Hong Kong’s Linked Exchange Rate System A brief history of Hong Kong dollar exchange rate arrangements A brief history of Hong Kong dollar exchange rate arrangements Hong Kong has had a linked exchange rate regime of one kind or another for most of its history as a trading and financial centre. In 1863 the Hong Kong Government declared the silver dollar – then a kind of international currency – to be the legal tender for Hong Kong, and in 1866 began issuing a Hong Kong version of the silver dollar. The silver standard became the basis of Hong Kong’s monetary system until 1935, when, during a world silver crisis, the Government announced that the Hong Kong dollar would be taken off the silver standard and linked to the pound sterling at the rate of HK$16 to the pound.2 Under the Currency Ordinance of 1935, banks were required to surrender to the Exchange Fund (which was invested in sterling assets) all silver bullion held by them against their banknote issues in exchange for Certificates of Indebtedness. These Certificates were the legal backing for the notes issued by the note-issuing banks under what became, in effect, a Currency Board system. The note-issuing banks were obliged to purchase the Certificates to back subsequent increases in their note issue with sterling. In June 1972 the British Government decided to float the pound sterling. The Hong Kong dollar was then linked briefly to the US dollar, first at the rate of HK$5.65 to the US dollar, and then, from February 1973, at HK$5.085.
    [Show full text]
  • Hong Kong Dollar Bonds 21 V
    _ HONG KONG CORPORATE BONDS by CHAN HOI-YING 陳海英 MBA PROJECT REPORT Presented to The Graduate School ‘\ In Partial Fulfillment of the Requirements for the Degree of MASTER OF BUSINESS ADMINISTRATION THREE-YEAR MBA PROGRAMME THE CHINESE UNIVERSITY OF HONG KONG Apr. 1995 V 麻/fe丄s人s Auvyair^^ 广’ / 7 111 霞 m 51 ix；! h 7 ) v^V /I ., 暴纷w夥 I[ i , • Ii • . 1•1 • APPROVAL � Name: Chan Hoi-Ying Degree: Master of Business Administration Title of Project: Hong Kong Corporate Bonds ‘ 而r. Geo^THuir^ Date Approved:. \ 11• 1• • ABSTRACT A Bonds market is an underdeveloped segment of the Hong Kong Capital Market. How Hong Kong corporates use bond as a way of financing is an interesting question. This report is a study of the current Hong Kong Corporate Bonds. It takes the perspective of both the corporation and the financial market. ；•？ The Hong Kong bond market is still in its early development stage and lacks depth and liquidity. The bond market in the US and Europe is more ^ mature and highly liquid. Hong Kong corporations have long tapped into these markets for satisfying their funding requirements. However Hong Kong corporation is still new to the international investors. The set up of international bond rating agencies in Hong Kong is helping the Hong Kong companies to gain access to these markets. Back in Hong Kong, the Monetary Authority is doing much work to establish the local bond market and increase its liquidity. Various factors affecting the pricing of the bonds is also discussed in this report. Illustrations using examples, graphs and tables are extensively » used to help the reader to better understand the subject.
    [Show full text]
  • Monetary Operations Under the Currency Board System: the Experience of Hong Kong
    Monetary operations under the Currency Board system: the experience of Hong Kong Hong Kong Monetary Authority Abstract This paper documents the major policy reforms to Hong Kong’s Linked Exchange Rate System (LERS) that have enabled it to evolve into the highly credible, efficient, and transparent system it is today. It discusses the operating mechanism of the system in adjusting capital flows, and the role the Hong Kong Monetary Authority plays in maintaining the smooth functioning of the LERS. It shows that the LERS has stood the test of two major financial crises, large cross-border capital flows, and occasional scepticism over its sustainability and suitability for the Hong Kong economy over the past three decades. Keywords: linked exchange rate system, HKD currency zone, convertibility undertaking, exchange rate system credibility JEL classification: E58, E52, N1 BIS Papers No 73 145 I. Introduction Hong Kong adopted the Currency Board system in October 1983. Over the past three decades, the system has undergone a number of reforms and modifications, allowing it to adapt to the changing macro environment. Through these changes, the system has evolved into a simple and rule-based Linked Exchange Rate System (LERS) governed by Currency Board principles, with a high degree of credibility and transparency. This note provides some background information about the LERS, in particular how it fared during the global financial crisis in 2007-2008. It first discusses the evolution of the system in recent history, outlining the major reforms and the rationale behind them. It goes on to describe how the system works in its current form, with a particular focus on how it operated during the market turbulence of the global financial crisis.
    [Show full text]
  • Taxation and Exchange Control
    TAXATION AND EXCHANGE CONTROL GENERAL The taxation of income and capital gains of the Company and its subsidiary, if any, is subject to the fiscal law and practice of Hong Kong. The following summary of the anticipated tax treatment generally applicable to the Company and its subsidiary (if any) in Hong Kong is based on current law and practice subject to changes therein and does not constitute legal or tax advice. Prospective investors should consult their own professional advisers on the tax implications of investing, holding or disposing of Shares or of exercising any rights attached to them under the laws of the jurisdiction in which they are liable to taxation. Hong Kong The Company will be subject to tax in Hong Kong if it carries on business in Hong Kong and derives profits arising in or derived from Hong Kong from such business. In that case, it will be subject to profits tax, currently imposed at a rate of 16% in respect of the fiscal year 2001/2002 on any profits (including interest) which arise in or are derived from Hong Kong. Capital gains and offshore profits are not taxable. In this regard, profits from the offshore disposal of shares listed or registered outside Hong Kong may in certain circumstances be considered as derived from outside Hong Kong and would, therefore, not attract a Hong Kong profits tax liability. Under current law and practice in Hong Kong, no tax will be payable by the Company in respect of dividends paid by the Company. Gains arising on the sale of Shares will be subject to profits tax where derived by certain persons carrying on a trade, profession or business of share dealings in Hong Kong.
    [Show full text]
  • Taipei in the Renminbi Offshore Market: Another Piece in the Jigsaw Page 2
    briefing paper page 1 Taipei in the Renminbi Offshore Market: Another Piece in the Jigsaw Paola Subacchi and Helena Huang International Economics | June 2013 | IE BP 2013/01 Summary points zz As the world’s second largest economy, China is promoting wider use of its currency, the renminbi (RMB), across the world. International financial centres, notably Hong Kong, are developing the RMB offshore market. zz The cross-border RMB trade settlement scheme has noticeably expanded the use of the RMB in trade since 2010. The scheme provides the main source of liquidity to the RMB offshore market. zz The RMB offshore market is expanding and offers more investment opportunities. But the limited supply of liquidity remains a constraint on its size and scope. zz Taipei is the new player in the RMB offshore market and has strong growth potential, the main drivers being close cross-Strait cooperation in trade and foreign direct investment. The recently opened currency clearing system should ensure liquidity to the market. zz As a regional financial centre, Taipei is unlikely to rival Hong Kong, at least in the short term. Non-Taiwanese investors are deterred by regulatory restrictions, higher taxation and lack of financial openness. zz Proactive policies are necessary to support the development of the RMB market in Taipei. To become a key regional financial centre, it needs a clear strategy to maximize the advantages derived from the dynamic domestic economy. www.chathamhouse.org Taipei in the Renminbi Offshore Market: Another Piece in the Jigsaw page 2 Introduction three scenarios. Finally the paper suggests how policies China has been promoting the internationalization of its could support the development of the RMB business and currency, the renminbi (RMB), since 2009.
    [Show full text]