TNAG-1764-FCO40-2518-Hong-Kong-stock-market-and-exchange-rate-1988 — Page 142

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SECURE 94 JANUARY 1988

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FROM: HONG KONG

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: TOKYO

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: WASHINGTON

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: CANBERRA :SINGAPORE

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SUBJ: HONG KONG : ARREST OF STOCK EXCHANGE LEADER

THE ARREST ON 1 JANUARY BY THE HONG KONG INDEPENDENT COMMISSION AGAINST CORRUPTION (ICAC) OF THE IMMEDIATE EX-CHAIRMAN OF THE HONG KONG STOCK AND FUTURES EXCHANGE, RONALD LI, AND TWO SENIOR EXCHANGE OFFICIALS HAS ROCKED HONG KONG. IT IS LIKELY TO CREATE SOME SHORT-TERM UNCERTAINTY ON THE STOCK EXCHANGE. LONGER TERM IF THE ARRESTS HERALD, AS IT WOULD SEEM, A SUSTAINED DETERMINATION BY THE HONG KONG GOVERNMENT TO BRING THE PROCEDURES AND PRACTICES OF THE HONG KONG STOCK EXCHANGE INTO LINE WITH ACCEPTED INTERNATIONAL STANDARDS, THEN THE WEEKEND'S DRAMATIC DEVELOPMENTS SHOULD HELP STRENGTHEN HONG KONG'S SOMEWHAT DUBIOUS REPUTATION AS A FINANCIAL AND BUSINESS CENTRE.

2 OUR REPORT ON THE IMPLICATIONS OF THE OCTOBER FINANCIAL CRISIS IN HONG KONG (OUR MEMO 92/1/1 OF 11 NOVEMBER) COVERED THE GOVERNMENT'S TENTATIVE HANDLING OF THE STOCK MARKET CLOSURE. IT CONCLUDED, HOWEVER, THAT THE CRISIS HAD PROVIDED THE ADMINISTRATION WITH A VALUABLE OPPORTUNITY TO PUT THE FINANCIAL SECTOR ON A SOUND FOOTING AND TO INCREASE ITS OWN AUTHORITY WITHIN THE COLONY AND BEYOND. IT REMAINS TO BE SEEN WHETHER IT MAKES THE BEST OF THIS.'

3 THESE ARRESTS AND THE GOVERNMENT'S PARALLEL INSISTENCE THAT SEVEN MEMBERS OF THE STOCK EXCHANGE COMMITTEE (INCLUDING THE NEW CHAIRMAN, CHARLES SIN) SUSPEND THEMSELVES FROM THE COMMITTEE IN THE MEANTIME, SUGGEST THAT THE ADMINISTRATION IS DETERMINED TO SEIZE THE OPPORTUNITY AND TO START OPERATING AS A GOVERNMENT THAT IN MATTERS OF LAW AND PRINCIPLE IS SEPARATE FROM THE FINANCIAL AND BUSINESS ESTABLISHMENT WHICH HAS SO MUCH INFLUENCE HERE. THERE CAN BE LITTLE DOUBT THAT THE ICAC HAS A STRONG CASE AGAINST LI GIVEN THAT HE IS ONE OF THE TERRITORY'S THREE RICHEST AND MOST INFLUENTIAL BUSINESSMEN AND WELLKNOWN IN INTERNATIONAL BUSINESS AND FINANCIAL CIRCLES AS AN ADVOCATE FOR HONG KONG AS A LEADING FINANCIAL AND INVESTMENT CENTRE. 4 NEW ZEALAND, AUSTRALIA AND UK BANKERS WE HAVE SPOKEN WITH OVER THE WEEKEND TAKE THE VIEW THAT CLEANING OUT THE EXCHANGE STABLES WAS LONG OVERDUE: THAT THE GOVERNMENT IS TO BE CONGRATULATED ON ITS COURAGE: AND THAT OVER THE LONGER TERM THE GOVERNMENT'S MOVES THUS FAR AND, AS THEY HOPE, ITS COMMITMENT TO FOLLOW THROUGH WILL STRENGTHEN HONG KONG BUSINESS AND FINANCIAL SECTOR BOTH INTERNALLY AND INTERNATIONALLY.