Banking & Finance, Rise of the RMB

Be quiet and eat your carrots

Why Hong Kong banks are excited about new Qianhai Bay scheme

Be quiet and eat your carrots

Welcome to the club

Most politicians hope for a honeymoon period of at least a few months when they first take office. So it will have been a disappointment for Hong Kong’s new chief executive, Leung Chun-ying, that he managed only a few minutes before the opprobrium started.

In fact, Leung was almost instantly mired in controversy thanks to the manner in which he was sworn in. The problem? Hong Kong citizens took umbrage when he chose to deliver his inaugural speech in front of Chinese president Hu Jintao in Mandarin, and not Cantonese, the Chinese dialect prevalent in the city.

Cantonese reigns supreme in Hong Kong and in previous inaugurations, the new chief executives (Hong Kong’s most senior government position) have spoken in Cantonese as well as Mandarin. Most recently in 2007, Donald Tsang was sworn in, using Cantonese to give his inaugural remarks, says the Wall Street Journal. So Leung’s decision to stick to Mandarin raised eyebrows. It was a sign of Leung kowtowing to China, frowned Sing Tao Daily.

Others disagreed, thinking it only normal for Leung to speak in Mandarin because the inauguration was broadcast live in China.

Many Hongkongers are now much more sensitive to signs of China’s rising sway in the former British colony, with the influx of mainland visitors to the city’s maternity wards and luxury retail outlets coming in for particular focus.

Despite the return of Hong Kong to Chinese sovereignty in 1997, there is little sign of a closer bond between the locals and their much larger neighbour. In a recent survey in the city, only 18% of those asked defined themselves as Chinese citizens, with 45% preferring to be described as citizens of Hong Kong, according to a poll from the University of Hong Kong.

Then last Sunday – the fifteenth anniversary of the handover – as many as 112,000 people marched publicly to vent their dissatisfaction, according to the estimates by the same university.

The demonstrators raised issues ranging from the wealth gap and human rights to demands for a higher minimum wage. Unfortunately for CY Leung, as he is known locally, the new chief executive seems to have become a lightning rod for some of their frustrations. A week before he was sworn in, it emerged that Leung had six illegal structures at his own luxury home in the city, a sensitive issue in Hong Kong. Leung – a chartered surveyor – has made a number of apologies and acknowledged that he had been “seriously negligent”. But he denied knowing that the structures were illegal when he bought the property.

He will be hoping that a gift from Beijing may soften some of the public mood. The carrot being dangled in front of Hong Kong is the creation of a special zone across the border in Shenzhen into which Hong Kong banks will be allowed to lend renminbi directly to Chinese companies. The idea is that the Qianhai Bay zone will pilot a new cross-border flow of the renminbi, supporting its progress towards becoming a more convertible currency. Previous reforms have focused more on the renminbi as a payment currency in cross-border trade. But for Hong Kong, the new measures should help boost the city’s offshore yuan business in renminbi loans and investment too.

Despite the closer economic ties, Hongkongers still fret about a loss of their identity, as well as a perceived interference from across the border. That led to a spat at the city’s leading English language newspaper, last month, when journalists accused their editor of spiking stories that cast the mainland in an unfavourable light. He hotly denied it, although 36% of local reporters then admitted to self-censoring in the last year in a poll arranged by the Hong Kong Journalists Association. As many as 79% also thought self-censorship had become more common in the past seven years.

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