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investment in Hong Kong will be dictated mainly by economic considerations in line with its national development objectives, although its political commitment to maintain the stability and prosperity of Hong Kong is
also relevant.
59.
It is possible that in future some of the PRC-controlled corporations in Hong Kong may seek a listing and float shares in the local stock market to raise equity capital. The skills and experience acquired in the process would be useful for the development of stock markets in China's major cities.
60.
One possible concern about China's increasing
investment in Hong Kong is that Hong Kong could be
affected by adverse political developments and economic fluctuations in China. Practically all China's investment
in Hong Kong is undertaken by PRC-controlled corporations which have close connections with, or are even representatives of, the Chinese Government at various levels. Thus, for example, if the Chinese Government decides to reduce capital outflow due to trade deficits, as was the case during the last two years, China's new investment activity in Hong Kong could be curtailed. Also, from a national planning point of view, it is doubtful whether post 1997 China will continue to devote so many resources to investing in Hong Kong, because, after this date, Hong Kong will probably be the only city under China's jurisdiction that has sufficient capital to finance its own investment projects. This is notwithstanding the fact that investing in Hong Kong may well be more profitable than investing in other Chinese cities and that profits derived from Hong Kong may still represent a major source of foreign exchange earnings for
China.
CONFIDENTIAL # 3
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