TNAG-1233-FCO40-1546-Future-of-Hong-Kong-1983 — Page 49

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IMPLICATIONS FOR FINANCIAL INSTITUTIONS.

3.MOST SERIOUS PROBLEM INVOLVES HANG LUNG BANK. WE HAVE

:

LEARNED CONFIDENTIALLY FROM WELL PLACED SOURCE THAT ONLY THING

WHICH WILL PREVENT A COLLAPSE OF THIS BANK WITHIN NEXT MONTH

WOULD BE A HIGHLY UNLIKELY BAIL OUT BY GOVT.COLLAPSE OF THIS

BANK WITH ASSETS CLOSE TO DOLLARS US ONE BILLION AND OVER 25

BRANCHES COULD CAUSE MAJOR PANIC AND COULD RESULT IN RUNS ON

OTHER BANKS AND FINANCIAL INSTITUTIONS. IT MAY YET PROVE POSSIBLE

7

TO MOUNT A SALVAGE OPERATION BUT DIFFICULTIES ENCOUNTERED IN

ATTEMPTING TO RESCUE CARRIAN AND DTCS DO NOT/NOT PROVIDE MUCH

CAUSE FOR OPTIMISM.

4. APART FROM SERIOUSNESS OF THESE COLLAPSES IN ECONOMIC TERMS

THERE IS ADDED WORRY OF POSSIBLE CHINESE REACTION GIVEN THEIR

EARLIER STATEMENTS, THOUGH SUBSEQUENTLY DENIED, THAT COLLAPSE OF

HKONG ECONOMY MIGHT RESULT IN TAKEOVER BEFORE 1997. IN CONCLUDING

IT SHOULD BE EMPHASIZED THAT WE ARE NOT/NOT PREDICTING COLLAPSE

OF ECONOMY .MANUFACTURING INDUSTRIES ARE VERY MUCH ALIVE AND

WELL AS ARE MANY OTHER IMPORTANT AREAS OF ECONOMY. HOWEVER MAJOR

COLLAPSE IN FINANCIAL SECTOR WOULD REDUCE FURTHER AN ALREADY LOW

CONFIDENCE LEVEL AND WOULD FURTHER DELAY ANY RECOVERY IN VITALLY

IMPORTANT AND SADLY DEPRESSED PROPERTY MARKET.

CCC/296 1302302 XBGR0022

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