irts
Foreign and Commonwealth Office London SW1A 2AH
Telephone 01- 233 8825
No Thompsor
8203
14
Miss D Pope
Ild D173c
Ministry of Defence
Metropole Buildings
1.
Your reference
Our reference
LAKK 040/7...
Date
1973
ль
!
23 March 1978
Mr Hull passed me your letter and attachment for my comments. While I know little of the special factors surrounding Hong Kong and China, various international financial statistics suggest a ready explanation for the large increase in the difference between acquisitions of foreign currency by China and Hong Kong imports from China.
2.
China has a trade surplus with its hard currency trading partners and so it is accumulating reserves at an increasing pace.
his is shown below:
Chinese position with international banks Deposits Borrwing Net Position
THIS IS A COPY
THE ORIGINAL HAS BEEN RETAINED
IN THE DEPARTMENT UNDER SECTION 3 (4) OF THE PUBLIC RECORDS ACT 195
March 1976
705
663
42
September 1976
812
442
370
December 1976
1382
301
1081
March 1977
2015
301
1714
June 1977
2456
379
2077
September 1977
2392
247
2145
Source: Bank of England Quarterly Bulletin
Suppose that the normal Chinese practice is to hold these reserves on deposit, with Asia dollar banks, in Hong Kong, then it would appear to me that the remission of the surplus funds to long kong would show up in your accounts as a net acquisition of foreigu currency by China and held in Hong Kong. If in addition there was a delay in remission to China in 1976, then it seems clear that most of the increased difference to which your note refers will represent an increase in Chinese reserves held in Hong Kong. This presumably reflects h in your paragraph 2.
3.
SECRET
: OK ZYMI A