SECRET ORIEL
ikk 100/3
RECEIVED IN REGISTRY
10 JAN 1984
DESK OFFICER
INDEX
M
PA
es the aft
Thank you
2
see 3.
FROM: R D CLIFT, HKD DATE: 3 January 1984
cc: Mr Donald
)with Private Secretary )encs
HONG KONG: FINANCIAL CONTINGENCY PLANNING
HKK 100/7 (1983)
113
B.
Ансив
1.
A,
C
JIZ
1007 (1983)
DAHCL".
My minute of 29 December. In Hong Kong telno 005, the Governor has replied to the message in FCO telno 1398. This provides at least some material for the PUS's discussion with Mr Littler. The Governor is perfectly prepared to continue the consultations which are already underway but he is cautious about any more formal redefinition of the relationship between his position and the Treasury and the Bank.
2.
I think there is still some misunderstanding here. The Treasury's concern arises, I believe, from the crude prospect of a collapse of the negotiations and an assumption of authority in Hong Kong by China, whether at an earlier or later date, under conditions in which Peking would not accept liability for Hong Kong's debts. The Treasury foresee HMG being landed with the bill by default. They are thus worried that undertakings which, strictly speaking, fall within the constitutional responsibility of the Governor, might eventually land on their plate. I suspect it is that they have in mind when they speak of ''committing UK Government resources''
3.
At the meeting with Mr Littler it would clearly be helpful to explore the Treasury's worries further and to prepare for a meeting with the Governor which would include the Treasury and the Bank (para 7 of Hong Kong telno 005). I suggest the PUS might draw on the following points:
(a)
(b)
Hong Kong are looking into the question of the degree of exposure of different Hong Kong banks. It is not easy, partly because of the large number of locally incorporated deposit-taking institutions in Hong Kong. The proposed review of the Hong Kong supervisory system by Bank of England experts in February/March will be very relevant.
There are of course clear procedures already defining the Governor's powers and the limitations on them. The Governor is already obliged to consult the Secretary of State before assenting to bills dealing with a number of financial matters under Section XXVI of the Royal Instructions. But,apart from this, consultation is obviously essential and the Governor has taken the initiative in setting it up.
SECRET ORIEL
/(c)