G.F. 326
CONFIDENTIAL ##
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18
Implications of financial developments in China for the Hong Kong economy
(a) The importance of the China dimension to
Hong Kong's development into a regional financial centre
40.
Hong Kong is much better placed than other cities in the east Asian region, including those in China,
to serve as a financial services centre for China because
of its geographical proximity, its cultural and language similarities, the substantial economic relations that Hong Kong has already established both with China and with the rest of the world, and the large amount of direct investment in China made from Hong Kong. This is
particularly so as the foreign exchange controls, the inadequate communications facilities, and the various types of restrictions on the operation of both domestic and foreign banks in China all act to limit the ability of
any Chinese city, including Shanghai, to match Hong Kong in meeting China's external financing needs. The banking reforms underway in China seem unlikely to reverse this situation in the foreseeable future.
41.
Currently, most financial business with China
This situation will probably
still involves lending.
continue for some time. Any broadening in the scope of
financial services offered is likely to be gradual.
However, at least in the short-to-medium term, the benefits to Hong Kong from the business opportunities
presented by China would probably more than offset any likely loss of financial business to Tokyo. At present,
**
China's economy, in terms of national product, is already significantly larger than that of the four newly industrialised economies in east Asia combined (South Korea, Taiwan, Singapore and Hong Kong), and is about a
fifth of that of Japan.
CONFIDENTIAL #B
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