Hong Kong favors Yuan
At the end of June, Hong Kong residents held 77.6 billion yuan, or about US$11.34 billion at current exchange rates, in Hong Kong bank accounts, three times the amount they were holding a year earlier.
China's well telegraphed, gradual upward adjustment of the yuan against the dollar has made the Chinese currency seem one of the few sure bets in global financial markets and it isn't just Hong Kongers latching onto it. Many investors and businessmen see it not only as a good trade, but as a matter of survival.
The yuan has risen 7.1% against the dollar this year. China's government maintains firm control over the range and direction of the exchange rate. The appreciation has slowed in recent weeks, but the broad direction is still clear. Forward markets price in another 4.4% gain in the next 12 months.
The flood of outside money pouring into the yuan helps explain why China's reserves have grown by an average of $1.6 billion a day this year. At the end of June, they stood at $1.81 trillion, up about 18% from the beginning of the year — even though the country's trade surplus, long the main source of its foreign currency, is down 12% from a year earlier.
