TNAG-1744-FCO40-2463-Visits-by-FCO-officials-to-Hong-Kong--including-visit-by-Lor-1988 — Page 182

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system.

4.

We are also trying to resist suggestions within the OECD that

there should be some form of collective dialogue with the "four dragons". We point not only to the disparate nature of the group but also to the impossibility (for Hong Kong as well as ourselves)

of government contacts with the Taiwanese.

(c) HONG KONG STOCK EXCHANGE

5.

After the October crash the Hong Kong Stock and Futures

Exchanges closed for four days and a support package totalling $4 billion for the Futures Exchange had to be put into place. In January Mr Ronald Li, former Chairman of the Stock Exchange, and

some other members of the Stock Exchange Committee, were arrested by the Independent Commission Against Corruption (ICAC) on corruption charges. Further changes may be brought against other former

members of the Committee in due course. Despite these shocks share

prices in Hong Kong have recovered, in line with prevailing

international trends.

6.

Following the stock exchange collapse the Hong Kong Government acted quickly to appoint a Securities Review Committee to

undertake a thorough review of the Stock and Futures Exchanges and

the government's regulatory position. The Committee's report was published in Hong Kong on 2 June. The Securities Review Committee

had identified the following main shortcomings in the securities

industry:

(a) the Hong Kong Stock Exchange's present manangement structure is not in the best interests of the generality of market

participants or of the investing public.

(b) the Hong Kong Futures Exchange, the Clearing House, and

the Hong Kong Futures Guarantee Corporation, present a confusing structure. This is not conductive to a proper system of risk management and awareness essential to any futures market.

CONFIDENTIAL