CONFIDENTIAL
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13. Provision of infrastructure and trade promotion overseas represented important government contributions to industrial development. The outlook was probably for upgrading existing product lines rather than new areas of activity.
Sales
14. There was optimism that things were picking up after the slack export picture in 1985. Evidence from December trade figures suggested that the decline in the HK$ value against European currencies was starting to improve relative competitiveness. of industrial land had started moving recently. There had been considerable flexibility within the labour market - declines in manufacturing employment being absorbed elsewhere. Increased services activity related to increasing Chinese exports were probably important, but it was difficult to measure the expansion in financial and transport services associated with this factor.
15. Capital goods exports to the PRC had continued, but direct and re-exports of consumer goods (including vehicles) had come to a halt. Involvement of Hong Kong capital in the Shenzhen SEZ was still predominantely in hotels and leisure. There had been some limited moves of industry to the zone, especially for land-intensive work and dirty or hazardous operations which faced more severe regulation in Hong Kong.
SECRETARY FOR MONETARY AFFAIRS MR DAVID NENDICK
16. Steps in the area of banking supervision were being taken to bring Hong Kong's standards up to those established by the Cooke Committee and the two concordats. The main change was a move to the use of risk/asset ratios (it was desirable that there should also be convergence between countries to prevent unfair competition).
17. There would be increased communication between the Commission, banks and their auditors (with the Commission able to deal independently with auditors if necessary). The Banking Commissioner would have wider discretionary powers (arising principally from the application of what had turned out to be wide powers in Section 13 of the Banking Ordinance to DTCs).
18.
Intervention would be and had been justified on the grounds of risk to the integrity of financial markets (hence the response to Hang Lung and OTB) and in the interests of "protection of the unsophisticated".
19. To speed up the enactment of the new banking law it was probable that initial debate and introduction of amendments would be carried out outside LegCo, with its involvement only when the Bill was in a polished form needing little further change.
20.
There was satisfaction with the operation of the exchange rate link, though minor drawbacks included:
CONFIDENTIAL