CONFIDENTIAL # 3
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45.
In terms of net financial transactions, Hong
Kong's financial sector maintained a net creditor position vis-à-vis China prior to 1981, reflecting the role of Hong Kong as a source of credit finance for China. After late
1981 there was a reversal of this trend, and Hong Kong's financial sector became a net debtor until the second
quarter of 1985. The trend reversed again subsequently, so that by the end of December 1986, Hong Kong's financial sector had net claims amounting to US$1.9 billion (HK$15.0
billion) on China.
46.
Apart from providing a source of funds for China, Hong Kong also provides an access point to the world's major financial markets. Initially China was a
net lender to the rest of the world but recently it has become a net borrower. Hong Kong as a major financial centre in the east Asian region possesses the type of expertise and financial services needed by China in arranging for credit facilities. Thus, Hong Kong can be expected to continue to provide a convenient base from which China's external borrowings are negotiated and organised. Hong Kong is also useful as a training ground
for banking officials in China.
47.
(d) Hong Kong's presence in China's
banking sector
Competition from foreign banks could provide an important stimulus to the development of China's domestic banking sector. If China were prepared to allow greater
freedom in the operation of foreign banks, then the best-represented foreign banks in China today, namely the Hongkong and Shanghai Banking Corporation and the Standard Chartered Bank, would probably benefit most. However, although it has been reported that the Standard Chartered Bank has recently expanded its China business department
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