Hong Kong's government is hoping to boost the local economy by linking more closely to booming southern China. But some retailers in Hong Kong are ahead of the government. They are tapping into the rising number of mainland tourists, and are doing more business in China's currency, the renminbi. The retailers do not really have a way to repatriate the money.
Shopping in one of Hong Kong's many 7-Eleven convenience stores is becoming easier for visitors from mainland China. The convenience store chain now lets shoppers use Chinese renminbi, also known as the yuan.
The 7-Eleven chain is not alone in catering to millions of Chinese tourists. Watson's, a popular drug store chain, and British retail chain Marks and Spencer are some of the companies that now accept the renminbi in Hong Kong.
Increasing use of the renminbi is significant for Hong Kong because it means the former British colony is becoming more closely tied to China economically, says Dong Tao, chief Asia economist at the investment bank CSFB.
"We're seeing a greater integration between Hong Kong and China and simply just a lot more of Chinese tourists in Hong Kong," said Mr. Dong. "And there are a lot more of Chinese exports going through Hong Kong. The economic integration makes the renminbi more of a popular currency."
A year ago, the Hong Kong government persuaded Beijing to abolish quotas that limited the number of mainland tour groups to the territory. The number of mainland visitors soared, more than six million visited in 2002, up about 50 percent from the previous year. On average, each one spent more than $600 in the city.
Although retailers have been quick to make it easier for tourists to shop with renminbi, handling the currency is not simple for businesses. China does not allow its currency to be traded on open markets and it can not be used outside the country. That means retailers in Hong Kong cannot easily move large sums of renminbi back to China and it means the currency is virtually worthless to Hong Kong residents unless they can take it to China.
At Marks and Spencer's Hong Kong stores, the small amount of renminbi collected goes into a bank account, where it sits, said John Cheston,the managing director of the company in Hong Kong. He said even in busy tourism periods, such as the week-long Chinese National Day holiday, the amount of renminbi taken in is small.
"It is banked, and it certainly is banked here in Hong Kong. It really is a very small percentage of our revenue. For example the 'golden week' in October when we saw so many tourists from the mainland here, it was less than one percent of the revenues that we took in that week," Mr. Cheston siad.
He said Marks and Spencer sees accepting renminbi as an extra service to build goodwill with mainland tourists.
Smaller businesses in Hong Kong started accepting renminbi years ago. One jewelry store owner in a busy tourist district of Hong Kong says she will often close a sale by offering to accept renminbi instead of Hong Kong dollars from mainland tourists.
She does not mind the inconvenience if it means a guaranteed sale. She usually takes the cash immediately to a foreign exchange dealer where she buys Hong Kong dollars. She explains that the cash is not useful to her and accumulating too much renminbi would be like keeping worthless money.
One analyst points out that the increased use of yuan in Hong Kong may make it difficult for China to control the flow of renminbi into and out of the country. Right now, tourists from the mainland are only allowed to take the equivalent of about $800 out of China.
"If more and more Chinese currency circulates in Hong Kong that probably would make it more and more difficult for the regulators in China to keep the control or the management of the currency," said Yiping Huang, a Hong Kong-based China analyst for investment bank Citigroup. "But the trend is, of course, if more people use it, it's as if it is a semi-convertible currency in Hong Kong."
One analyst speculates that some retail chains hope to eventually repatriate the renminbi collected in Hong Kong through their outlets in China. Another suggests that retailers in Hong Kong already have negotiated agreements with their banks to swap renminbi for Hong Kong dollars. But bankers say it would be far more convenient if Hong Kong retailers could use a clearing-house to repatriate renminbi.
David Li is the chief executive of the Bank of East Asia in Hong Kong and a legislator who represents the banking sector in Hong Kong's lawmaking body.
"We would like basically to have a clearing facility for one of the mainland banks, preferably the Bank of China, so that any surplus renminbi that the banks have can be repatriated back to the mainland. By so doing the Hong Kong Monetary Authority will have a record of how much renminbi flows into Hong Kong and how much is being repatriated back to the mainland," Mr. Li said.
Mr. Li estimates that the equivalent of US$5 billion circulates in Hong Kong in the form of renminbi. He does not think, however, that the growing amount of Chinese cash collecting in Hong Kong puts pressure on China to loosen restrictions on the currency.
Mr. Li adds that Hong Kong banks would like to see China relax restrictions on the currency. He hopes to offer renminbi bank accounts for the growing number of people who travel back and forth between Hong Kong and China.
"The Hong Kong Association of Banks would welcome the idea that we can open renminbi accounts in Hong Kong - current account, savings accounts even time deposit accounts in Hong Kong. I hope that it can be done within one year, within this year," he said.
Hong Kong's government has taken strides toward becoming a regional business and logistics hub for China by investing in transport infrastructure. The territory's leader, Tung Chee-hwa, made it clear in a recent policy speech that more economic cooperation with southern China is a priority for Hong Kong's government. Banker such as Mr. Li say greater use of the renminbi in Hong Kong could be part of that cooperation.