RESTRICTED
1004
MDLIAN 1414
4.
RUSSELL SAID THAT HE UNDERSTOOD CHINESE SENSITIVITIES ABOUT HSBC MOVING THEIR HEAD OFFICE TO LONDON. IT WAS A PSYCHOLOGICALLY AND POLITICALLY IMPORTANT POINT FOR THEM. IT HAD CAUSED A MAJOR LOSS OF FACE. RUSSELL HAD ENCOURAGED A PRAGMATIC ATTITUDE. HE HAD COUNTERED SUGGESTIONS THAT HSBC WERE RUNNING AWAY FROM CHINA: HSBC'S EXPOSURE IN CHINA WAS GREATER THAN ANY OTHER BANK'S AND INCREASING. INDEED IT WOULD BE HELPFUL IF THE CHINESE WOULD APPROVE HSBC'S APPLICATION FOR TWO MORE OFFICES. THIS WOULD SHOW BOTH THE CHINESE AND THE INTERNATIONAL COMMUNITY THAT HSBC WERE CONTINUING TO RECYCLE THE WEALTH OF HONG KONG, REFLECTED IN HSBC'S DEPOSIT BASE, INTO CHINA. CHEN HAD RESPONDED THAT PBOC WERE LOOKING AT HSBC'S APPLICATION ALONG WITH THOSE OF OTHER FOREIGN BANKS. HE HAD DELIBERATELY EMPHASISED FOREIGN AS IF TO UNDERLINE HSBC'S CHANGED STATUS.
5. RUSSELL SAID HE HAD SPOKEN AT PBOC TO THE HEAD OF THEIR NEW HONG KONG AND MACAO AFFAIRS DEPARTMENT, ZHANG TUN (FORMERLY IN WASHINGTON WITH THE IMF). HE FEARED THAT AT WORKING LEVEL PBOC MIGHT NOT UNDERSTAND THE TECHNICAL DETAILS OF THE REVISED OFFER.
HOWEVER HE WOULD BE MEETING THE VICE-GOVERNOR, CHEN YUAN, AT BREAKFAST ON 9 JUNE.
ASKED ABOUT THE GENERAL CHINESE REACTION, RUSSELL SAID THEY KEPT A CLOSE WATCH ON HSBC'S SHARE PRICE. THE PRICE HAD FALLEN FROM 44 TO 38 FOLLOWING THE ORIGINAL OFFER BUT HAD NOW BOUNCED BACK TO 46.5, SO THEY WERE APPARENTLY CONTENT. IT HAD NOT OCCURRED TO THEM YET THAT THE HONG KONG MARKET HAD RISEN SOMEWHAT MORE IN PERCENTAGE TERMS THAN HSBC'S SHARE PRICE.
7.
RUSSELL PRESSED MCLEAN ABOUT THE GOVERNOR'S CURRENT VISIT AND ITS RELEVANCE TO SOLVING PROBLEMS OVER THE PADS FINANCE PACKAGE. RUSSELL SAID THAT THE HONG KONG FINANCIAL COMMUNITY WERE BEGINNING TO FOCUS ON THE LATTER, THOUGH THE PUBLIC WERE NOT YET EXERCISED BY IT. AS TIME WENT ON, WITH STILL NO SOLUTION, HE FEARED THAT IT COULD HAVE A MAJOR IMPACT ON THE HONG KONG MARKET. HE TRUSTED THIS NEGATIVE INFLUENCE WOULD NOT COMPLICATE COMPLETION OF THE
MIDLAND DEAL.
MCLAREN
YYYY