China to prop Hong Kong economy

China has introduced landmark measures, including currency swaps and easing travel restrictions, to boost Hong Kong's troubled economy.

It has unveiled 14 measures of support to help Hong Kong overcome the global financial crisis that has driven its economy into a deepening recession.

This move will also help the yuan trade freely and would help increase the supply of yuan and potentially widen its acceptance in the region as the world's fourth-largest economy gains in importance as a driver of regional growth.

Chinese President Hu Jintao said  yesterday that the central government would continue to fully support Hong Kong and Macao in dealing with the challenges brought by the global financial crisis.

Hong Kong has been battered by the slump in demand for Chinese exports, which pass through the former British colony.

Beijing wants to prevent an erosion of the pro-Mainland sentiment in Hong Kong that has risen with China's economic boom and the recent Beijing Olympics.

Pro-democracy protests and complaints about interference in local government have been constant since the territory came under the communist Mainland's control in 1997.

Hong Kong became a Chinese territory after it was returned to China by UK but has its own currency and trade policy.

China accounts for a major income inflow for Hong Kong. About half of Hong Kong's overseas visitors originate from China -- and in 2007 spending by Chinese visitors accounted for 20 per cent of overall retail sales.

Since 1985, China has been Hong Kong's largest trading partner, and trade volume, stripping out re-exports, was $175.7 billion in 2007, according to DBS.

Some key measures:

• The Chinese central government will allow eligible firms to perform renminbi trade payment in Hong Kong.
• It also agrees the People's Bank of China should sign a currency exchange pact with the Hong Kong Monetary Authority and provide capital support to Hong Kong if necessary.
• Mainland organisations will be encouraged to launch global financial business by using Hong Kong as a platform, and to establish or expand branches in the city.
• In the infrastructure sector, besides accelerating the Hong Kong-Zhuhai-Macau Bridge project, the Central Government will also promote a rail project linking Hong Kong and

Shenzhen airports, the Guangdong-Shenzhen-Hong Kong rail system and the revamping of the Huanggang and Man Kam To control points.
 
Beijing supported Hong Kong firms in taking up construction of the fourth Shenzhen railway line and also backed further development of the boundary area.

In a separate meeting with the Macao Special Administrative Region chief executive Edmund Ho Hau-wah, Wen said the central government would take similar support measures for the region.

Hong Kong, Guangdong and Macau will deepen co-operation with a view to developing the region into a world-class metropolitan area of high technology and low pollution.
 
Stock markets welcome measures

Hong Kong stocks saw the end to a mini-rally Friday, sliding more than 2 per cent on the back of overnight losses on Wall Street. The blue-chip Hang Seng Index lost 370.3 points, or 2.39 per cent, to close at 15,127.51. Turnover was 57.3 billion Hong Kong dollars (7.39 billion US dollars).

Friday's losses brought to an end four straight days of modest gains.