China’s depreciating yuan against the US dollar is music to the ears of Hong Kong shoppers heading over the border, but economists have warned that the move will exacerbate the downturn in the city’s retail, food and drink consumption and hammer the economy.
The People’s Bank of China allowed the yuan to further weaken against the US dollar, which was expected to boost the competitiveness of exports.
Some economists said the Hong Kong dollar would strengthen against the yuan as a result of its peg with the US dollar.
“Our expectation is that the Chinese government is likely to roll out additional consumption stimulus, which could cover the service sector and pose further risks to Hong Kong’s retail and dining scene,” said Chim Lee, a senior Asia analyst with the Economist Intelligence Unit.
He said the yuan was facing significant depreciation pressure and predicted that it could test 7.5 per US dollar for the rest of this year, which would be the weakest since 2007.
