COMMERCIAL-IN-CONFIDENCE
CONFIDENTIAL
HSBC have made clear that the Headquarters of a merged group would move to London. But HSBC Ltd, the licensed bank in Hong Kong, would remain supervised by the Commissioner of Banking in Hong Kong, and be subject to the capital and liquidity requirements set by the Commissioner's office and
HSBC's note issue to the provisions of the banking ordinance.
is backed by the equivalent US dollar deposits with the Exchange Fund. The HSBC also provides liquidity to the interbank market, as necessary, up to limits set by the Exchange Fund.
Second, Hong Kong's economic and financial autonomy is assured after 1997. The Sino-British Joint Declaration (JD) of 1984 (a binding international agreement registered at the United Nations) states that the Hong Kong Special Administrative Region (which will be established in 1997) "will retain the status of an international financial centre, and its market for foreign exchange, gold, securities and futures will
Section continue. There will be free flow of capital...".
VII of Annex I (the elaboration by the Government of the People's Republic of China on its basic policies regarding Hong Kong) adds "the monetary and financial systems previously practised in Hong Kong... shall be maintained".
In addition to these binding undertakings, representatives of the Chinese Government have consistently made clear in confidential discussions that they recognise HBBC's special status in Hong Kong, and the role it plays in preserving financial stability in Hong Kong.
The PRC take a prudent and cautious approach to financial and monetary issues in Hong Kong. There is no reason to believe that they would seek to intervene in the affairs of the SAR after 1997 in a way which could prejudice HSBC's interests in Hong Kong. Not only would such an intervention be a clear breach of the JD, but the resulting loss of confidence in Hong Kong would jeopardise China's own economic interests, since they earn about one third of their total foreign exchange from or through Hong Kong, have invested massively in the territory, derive some 70% of their foreign investment from the territory, and some one third of their total worldwide trade is conducted with Hong Kong.
In short, we consider that there are good grounds for concluding that Hong Kong's banking and financial system will remain sound up to and beyond 1997, to the benefit of HSBC, which will retain its important role within the Hong Kong banking system.
/We are not
COMMERCIAL-IN-CONFIDENCE