TNAG-1457-FCO40-1981-Relations-between-Hong-Kong-and-China-1986 — Page 103

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activities in both local and international banking

business. As a result, the number of wholly- or

partly-owned deposit-taking companies (DTCS) established

by the CSOBS increased rapidly. By the end of 1980, each

bank had at least one DTC subsidiary of its own (Table

4). For example, the Kincheng Tokyo Finance Co. Ltd was a

joint venture of the Bank of China, Kincheng Banking

Corporation (a CSOB) and the Bank of Tokyo, and the CCIC Finance Lta was a joint venture involving the Bank of

China, China Resources Co., the First National Bank of

Chicago and the Industrial Bank of Japan.- Like all other

commercial banks, the CSOBS established DTCs as a means to

circumvent the Interest Rate Agreement administered by the

Hong Kong Association of Banks and to engage in wholesale banking business. The joint-venture merchant banks also

provided a chance for these Chinese banks to gain

experience in international banking business and to promote foreign investment in China.

15.

Fourth, a number of the CSOBS led by the Bank of

China have strengthened their capitalization since the

1980's (Table 7). The injection of capital probably reflects on the one hand the increasing participation by China in various trade and financial activities in Hong

Kong, and on the other hand the Chinese Government's

appreciation of Hong Kong's growing importance as an international financial centre. In March 1986, China

International Trust and Investment Corporation (CITIC)

announced plans to inject HK$350 million into the

financially troubled Ka-wah Bank (a local bank). The move demonstrates not only China's interest in the stability of the Hong Kong banking system, but also its determination to ensure the prosperity of Hong Kong.

G.F. 32

CONFIDENTIAL # 3