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Mr Stewart (HKD)
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Reference...
HKK tools.
102 BY 8/2/77
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HONG KONG GOVERNMENT INVESTMENT IN SOUTH AFRICAN STOCK
1.
(3
Mr Smith (Senior Economic Adviser) kindly copied to me his minute to you of 25 January about Hong Kong Government investment in South African stock, and has copied to you his minute of 26 January in response to my request for details of the investment.
2. I am afraid that I do not know the precise nature of the relationship between HMG and the Hong Kong Government. But I imagine that it would be most unusual for us to attempt to influence future decisions or change past decisions by the Hong Kong Government on the placing of their investments which would presumably be determined by normal commercial considerations. But if foreign policy considerations arise, I assume we would have powers in the last resort to control the decisions of the Hong Kong Government and it would presumably be quite in order for us to offer advice on the foreign policy consequences, which the Hong Kong Government might not have spotted, of their normal commercial decisions.
3.
Investment by the Hong Kong Government in South African stocks is sensitive because of the sensitivity of the whole question of British investment in South Africa. You may have seen the recent fuss about the investment by Barclays Bank's subsidiary in South Africa in South African defence bonds. The Hong Kong Government have not invested in anything so sensitive as defence bonds but they are a British colonial Government and HMG might come under embarrassing criticism if it became known that the Hong Kong Government had invested in South Africa and were continuing to do so There is a powerful lobby in this country, led by the Anti Apartheid Movement, who would make a great deal of this if they heard about it. It would be difficult in the circumstances, especially after the recent Barclays Bank case, for the Government to take a stand on our stated policy which is not to place restrictions on normal trade and investment. I think Ministers would take the view, if the matter became one of public controversy, that we ought to have spotted the implications.
4.
Subject very much to your views, my inclination is that we ought to draw the Hong Kong Government's attention to what we see as the sensitivity of this matter but that we should not go so far as to say that it is so sensitive that they should necessarily divest themselves of their existing investments at once. However, I think we should suggest to them that they ought not at least to expand their portfolios and should in no circumstances buy South African defence bonds and that given the sensitive political background they might consider a gradual phased reduction of their holdings, provided this did not cause them any unacceptable financial disadvantage.
Musileid
28 January 1977
CODE 18 - 77
H M S Reid
Central & Southern African Dept
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