TNAG-1621-FCO40-2235-Relations-between-Hong-Kong-and-China-1987 — Page 134

C.F. 326

2

CONFIDENTIAL # 3

22

-

remain a possibility.

Through these activities, the

financial links between Hong Kong and China could be

further strengthened.

Investment

32.

(a) Hong Kong's investment in China

The euphoria over setting up business in China

with a view to exploiting China's domestic market seems to

have faded. China's recent measures to boost foreign

investment seem unlikely to change this situation, as the

preferential treatment is granted mainly to high

technology projects and export-oriented enterprises. Only

a few projects involving Hong Kong interests belong to the first category. Nevertheless, some export-oriented

factories in Hong Kong seeking to relocate to China to

take advantage of the lower land and labour costs would

probably regard the new measures as an additional incentive, and there are signs that more factories

involving Hong Kong interests are being set up in China so as to reduce production costs.

33.

(b) China's investment in Hong Kong

Enterprises involving Chinese interests have

continued to expand and diversify their business in Hong

Kong. In the financial sector, the Bank of Communications

is planning the introduction of a capital market fund. This fund would invest mainly in medium- and long-term bonds and commercial paper. The Bank of Communications

has also expanded in other lines of business. For

example, its five-year fixed-rate mortgage loans for residential flats, which appears to have been

well-received, has now been extended to industrial

buildings.

CONFIDENTIAL #