CONFIDENTIAL
IBRD Report
4.
Aspects of the draft report which attracted particular attention were the recommended evolution of the Exchange Fund to some form of Central Monetary authority. Proposed organisational changes in the Exchange Fund which were seen as going in this direction were discussed. The Banking Commissioner agreed with the proposal for greater liberalisation in the banking sector, and he stressed that the attitude of the Bank of China was crucial in any evolution towards a central authority; his view was at present their attitude was negative. The Bank's suggestion of an expanded role for public borrowing depended on the evolution of a central authority as no local debt market at present existed. I did not generally discuss the IBRD suggestion to reform the direct taxation system as this fell within Budget policy. Their point about the further development of economic and financial statistics (which we have stressed in the past) had been taken and progress was now to be expected on GDP (by output) and earnings front. Still a gap however were Balance of Payments statistics, on which I registered an interest.
TRORC
5.
i spoke in general terms of our disappointment with this Report, particularly the Committee's rejection of a dividend withholding tax and the time being taken for consideration. This was the third attempt locally to introduce such a tax and we wondered what could now be done to expedite matters. The Chief Secretary took this point and is now mulling on it.
Other Subjects
6.
I have written to FRD separately on alternative mints for Hong Kong Coinage and to NAD on Canadian tax exemption for Hong Kong Government Stock purchases, in each case copying to you. I examined the monthly accounts of the Exchange Fund and am content that we should be content to receive and review the Annual Accounts, which are now due.
Attitude of China
7.
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I have minuted separately to you and FED on this aspect.
14 July 1977
PP Sylvia King
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Adrian Smith
Senior Economic Adviser
CONFIDENTIAL
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