CONFIDENTIAL
that the Hong Kong Government have been allowed to acquire during the post-war period for us to attempt to influence its decisions on the placing of investments, which have presumably been determined by normal financial commercial considerations.
Nor is there anything objectionable in what the Hong Kong Government have done so far as sterling is concerned. Following
the ending of the Sterling Guarantee Arrangements in late 1974, the Treasury have accepted that the Hong Kong Government may diversify their sterling holdings. When the question arose in another context last summer the Treasury informed us that the gradual and careful way in which the Hong Kong Government had diversified out of sterling left "no cause for reproach".
Moreover, the Treasury are kept regularly informed of the Hong Kong Government's investment policies and have been aware of the investments in South African stocks. The Treasury have said that they have no complaints to offer from their point of view.
4. This said, the Hong Kong Government's investment in South
African stocks is a sensitive matter because of the political but real sensitivity of our commercial relations with South Africa
which are under attack both at home and abroad. It is not
Government policy to place restrictions on normal civil trade and investment by business concerns; and, as the recent case of investment in South African Defence Bonds by Barclays Bank's South African subsidiary has shown, Ministers are concerned that
due sensitivity should be shown on South African issues, particularly where organisations are not compelled or guided by legislation. Ministers might well feel that at a time when they were exhorting firms to behave responsibly towards South Africa without necessarily threatening the use of restrictive legislation, the moral force of their approach would be put at risk by the Hong Kong Government's investments. For these reasons HMG, which is responsible to Parliament for the actions of the Hong Kong Government, could come under embarrassing criticism if it became known that the Hong Kong Government had invested in South African
/ stocks
CONFIDENTIAL