TNAG-1457-FCO40-1981-Relations-between-Hong-Kong-and-China-1986 — Page 104

- 8

China's financial activities in Hong Kong

16.

The CSOBS experienced a major change in financial policy in the 1970's. Prior to 1970, these banks generally confined themselves to China-related banking business, namely financing China's trade with Hong Kong and other countries, handling remittances from Hong Kong residents and overseas Chinese, offering deposit facilities denominated in China's currency, assisting and liaising with foreign businessmen and bankers wishing to do business with China, and dealing in foreign exchange, In the absence of foreign exchange controls in Hong Kong, another priority task of these banks was probably to convert China's huge trade surplus with Hong Kong into hard currencies or gold to build up China's foreign reserves. Although an important part of the business of these banks was related to accepting Hong Kong dollar deposits, only a small part of the funds so gathered was recycled to finance business activities in Hong Kong that

were not connected with China.

17.

This has

However, beginning from 1970 onwards, the CSOBS have adopted a much more outward-looking strategy, in line with the more liberal financial policy of China. includea a rapia expansion of their branch network to absorb more Hong Kong dollar deposits, and the granting of loans to Hong Kong-based industrial and commercial concerns not connected with China. Its results for 1985 indicate that the Bank of China Group has outperformed the

local banking sector as a whole in a number of areas:

+ F. 12

CONFIDENTIAL #BZ