TNAG-0382-FCO40-428-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1974 — Page 46

BRITISH OVERSEAS TRADE BOARD

OVERSEAS VISITORS BUREAU

(یا))

GENERAL EXPORT SERVICES BRANCH EXPORT SERVICES DIVISION Department of Trade and Industry

Export House 50 Ludgate Hill London EC4M 7HU

Telex 886143 Answer back DTI Export LDN Telegrams Exserbra London

7239

COMMERCIAL IN CONFIDENCE

D I Lewty Esq

Financial Relations Department Foreign and Commonwealth Office

London SW1

Telephone 01-248 5757 ext

Your reference

Our reference

ESB7C/HON

MF 7/2

Date

lo December 1973

(12)

< Ben Away,

Em

Thank you for your letter NF7/2 of 30 November about the Hong Kong and Shanghai banking group.

As you may know this group is registered in Hong Kong and not therefore subject to Bank of England direction like United Kingdom Banks. Its policies may not therefore necessarily accord with those of HMG and I do not think that it warrants equal consideration with United Kingdom banks by our representatives abroad.

Moreover

should it come to be used as an investment advisor by Gulf Sheikhdoms it is possible that sterling balances at present hailed by these rulers in London might be switched to the Hong Kong sterling account an unwelcome move.

However the Hong Kong group also owns the British Bank of the Middle East whose manager introduced them to McCarthy. The B.B.M.E. has many branches in the Gulf area but probably is not sufficiently large or international to handle the investment of large oil revenues. For this reason it is possible that, apart from any money market operations, oil investments channelled through the BBME may be directed to SOBE: extent by the parent group. One is therefore dealing with a British but non-UK parent group owning a UK subsidiary with strong Gulf representation.

The longer term question of Hong Kong as an off-shore centre holding sterling funds is one for the Treasury to answer. There is of course no certainty that any oil funds initially channelled there for investment will be placed in London, although in the short term this seems possible. In the longer term, investment of such funds in South East Asia would both take them out of the more volatile short-term money markets and help development in an area in which we have important interests.

I do not see that the Reddaway Report is relevant in this case as it compared the relative benefits of the direct investment of British capital at home and abroad. In this case however while we might have views on the usefulness of Arab direct investment in South East Asia there is no reason to suppose that the long term

Moreover the alternatives would be direct or money market investment in Britain. sheer volume of oil revenues likely to be generated in the next few years may produce such problems for their current short term recipients that the latter will prefer to see them safely applied to a more stable and productive use.

I do not thim. There are therefore too many imponderables to be very precise in reply. we have as yet worked out an HMG policy towards what we think will be for us the most beneficial long term solution of the problems raised by either the potentially enormous Arab oil revenues or the separate question of the Hong Kong sterling balancės. In the short term however we see advantages in future oil revenues being invested in

Every effort is made to ensure that the information given herein is accurate, but no legal responsibility is accepted for any errors or

Aviduals mentioned

3.