I
ARPAAH
file
Mr McLaren
PS
HONG KONG AND SHANGHAI BANK
Problem
SECRET ORIEL
FROM:
A R Paul
DATE:
Hong Kong Department
19 November 1987
PS/Lord Glenarthur
PS/PUS
Mr Gillmore
MKC 102/8.
RECEIVED IN REGISTRY/
19 NOV 1987
DESK OFFICER
INDEX
PA
REGISTRY
Action Taken
1. To respond to the Chinese request for a fuller explanation of the HKSB acquisition of 14.9% of the equity of Midland Bank.
6
A
Recommendation
2. I recommend that instructions are sent to HMA Peking on the lines of the attached draft telegram. This incorporates the views of the Bank of England and Treasury and the Governor of Hong Kong.
Background
3
Mr McLaren on instructions informed the Chinese informally of the acquisition in the margins of JLG on 13 November, just before it was announced publicly In a substantive response later that day (Peking telno 2006) the Chinese reacted surprisingly adversely: they were irritated that they had not been consulted in advance and were concerned about the implications of the move. They also revealed an unexpected knowledge of the earlier merger idea (an aspect which we are pursuing separately).
4.
We have discussed the terms of our reply with the Bank of England and the Treasury. They believe that we should not be too apologetic or defensive about the fact that the Chinese were not consulted in advance: neither of course were we. The draft seeks to make it clear to the Chinese that they cannot realistically expect to be given advance notice of purely commercial decisions of this kind: it also tries to convey to the Chinese the idea that if they
SECRET ORIEL