G.F. 326
15.
CONFIDENTIAL ☆ ☆
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It was agreed that the paper should be forwarded to
the FCO, the British Embassy in Peking, to the British
Trade Commission, and additionally to GH.
Action: Secretary
FINANCIAL DEVELOPMENTS IN CHINA AND THEIR IMPLICATIONS FOR THE
HONG KONG ECONOMY (PAPER 4/87)
16.
PAS(ES)E said that the moves towards modernisation in
China and pursuit of the open-door policy had led to
pressure to change the Soviet style economy. The Chinese authorities were gradually implementing change
in the financial sector: to enhance its macroeconomic
functions, moving away from the idea that banks just
operated as a state agency to distribute funds,
towards putting greater emphasis on interest rates and credit to provide guidance to the economy; and in microeconomic terms to provide a better banking system
and thus more efficient allocation of funds. China
now wanted individual banks to exercise more control
on the basis of financial considerations such as the
viability of projects for which loans were required. This should improve the efficiency of capital
investment. There was also a trend towards
specialisation in banking functions through the
revitalisation of old banks or the creation of new
ones. The PBOC was thus operating more as a central
bank.
17.
PAS(ES) E pointed out developments in the non-bank
sector, where some enterprises were now raising funds
through direct approaches to the market. The form of
these approaches appeared to be a mixture of stocks
and bonds. But there were considerable restrictions
on such issuances. Approval had to be sought, and
only a small proportion of each placement could go to
CONFIDENTIAL #3