yaun revaluation next week

SINGAPORE, May 11 (Reuters) - The People's Daily newspaper in China said on Wednesday a revaluation of the yuan currency would be announced next week.
The following is a text of the announcement, as published at the Web site: http://english.peopledaily.com.cn/200505/11/eng20050511_184538

As next week will see a periodic meeting to be held between the US financial minister and the official of the People's Bank of China the appreciation of the people's currency as wished for by the international financial market will be announced to revaluate or expand the margins of its exchange rate and the estimation of the revaluation will be going from 1.26 to 6.03 percent in a span of one month and one year after the meeting of the two parties.

With regard to this, Ren Zhigang, President of HK Monetary Authority, expressed on May 6 by saying, if the people's currency saw a big revaluation it would exert a great impact on the economy in Hong Kong.

He warned that the influx of a large amount of hot money into Hong Kong due to the expectation of its appreciation has already incurred a rise of local rent and according to the estimation it is liable to hoist the inflation in Hong Kong up to 2.5 percent by the 4th quarter of the year, indicating a pressure increase brought about by inflation in Hong Kong in the later half of the year.

As regards the warning by Ren Zhigang, the observer here holds why the market manipulation about the revaluation of the people's currency is getting hotter is mainly due to the political and economic consideration for the US and Japan's own interest and so they are trying to exert ceaseless pressures on China.

Some comment pointed out, one cannot be too careful about the revaluation of the people's currency for its appreciation is no good for China's inland nor is it good for Hong Kong.

First and foremost, a revaluation by big margin of the people's currency means a bigger loss than gain for the inland of China.

R. Mundell, known as "Euro father" ever pointed out, the revaluation of the people's currency would at least bring about six negative effects, including the influence on China's export, making China to go down in attracting foreign capitals, reducing the profitability of Chinese enterprises, causing heavier employment pressure, liable increase in financial deficit and bad debt in banking business and an influence on the stability of China's currency policy.

And secondly, the big-margin appreciation of the people's currency proves no good for Hong Kong either.

On the one hand, the non-staple food, raw materials and semi-products in Hong Kong are mainly supplied from the inland of China. The revaluation of the people's currency will make the goods prices for the import from China's inland into Hong Kong to go up, thus exerting a big impact on the lives of the people at medium and lower levels there.

And on the other, the real estate market, stock market and the transit trade constitute the three main pillars of the economy in Hong Kong.

In view of the transit trade in Hong Kong, nine out of ten business dealings in Hong Kong are closely related with the inland of China. If the appreciation of the people's currency renders shrinkage in the export trade from China's inland it will accordingly cause the trade shrinkage in Hong Kong. This will not only incur the GDP decrease in Hong Kong but also a deteriorated situation in the employment.

So far as the real estate business is concerned Huang Liangsheng, senior manager of the Central Realty pointed out, as most of the housing rent signed in 2003 when the SARS was very virulent are going to be terminated this year and the rent contracted at that time was very low due to the pressure. And so it is estimated, the rent is going to spring up in the later half of the year. Should the people's currency be going to revaluate, it will be sure to incur an intensification of the inflation.

In regard of the bounce-up of the property rent those who are mostly affected will be those engaged in catering and retailing businesses.

Huang Jiahe, chairman of the catering business association in Hong Kong expressed, due to the rent rise for shopping floors the better turn in the market is unable to offset the rise of the cost. This will not only force the food price to go up 3 ¨C 5 (text unclear) percent but a number of food stores to wind up their business. Guan Bohao, chairman of the retailing association, is also of the opinion that the retailing business volume cannot keep pace with the rent and is facing a difficult situation ahead. If the people's currency is going to revaluate it means to add more pressures on it.

So some observer pointed out, Hong Kong has just got an initial recovery out from the setbacks brought about by the breakup of economic foams and Hong Kong is now confronted with a task and a good opportunity for the transformation of economic structure. If the people's currency is going to revaluate on a large scale the impact on Hong Kong economy is not very hard to imagine. Therefore, for the central to keep the exchange rate of the people's currency stable, it is favorable for a sustainable recovery of the economy in Hong Kong.