TNAG-1873-FCO40-2661-Relations-between-Hong-Kong-and-China-1989 — Page 106

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retention ratio is probably the most important underlying factor contributing to the rapid growth of trading

activities in Shenzhen.

26.

According to the representative of the foreign exchange adjustment centre, enterprises which were regarded as legal entities (corporations) and registered in Shenzhen could buy or sell their foreign exchange through the foreign exchange adjustment centre after they

(16) had got the approval of the SAEC

There was only one foreign exchange adjustment centre in the SSEZ and its set up had required the approval of the SAEC. Individuals could also sell foreign exchange in the adjustment centre but were forbidden to buy. All applications for foreign exchange transactions through the adjustment centre have to be vetted by the SAEC so as to ensure that the foreign exchange was obtained or spent legally. The exchange rate in the centre, at Rmb 84/HK$100 at the time of visit, was said to be determined by market forces of supply and demand. This rate was quite near to that in the black market but was not the same. The volume of transactions

was reported to be substantial. The representative of the adjustment centre was apparently in favour of the centre retaining some sort of control, so that the exchange rate of Renminbi in the centre was not as low as in the black market. Usually the exchange rates set by the adjustment centre for the trading of foreign currencies lasted for at least one day (17).

(16) But financial institutions, including banks (both local and foreign ones), are not allowed to trade foreign exchange in the adjustment centre.

(17) The need for some sort of vetting has probably

rendered more frequent changes in the trading rates technically difficult.

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