TNAG-1871-FCO40-2659-Relations-between-Hong-Kong-and-China-1989 — Page 92

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I.

Reform of the Financial and Banking Systems in China.

This meeting will be held for 3-4 days in the period from 20 May to 1 June 1989.

7.

The banking system in China has been unchanged for decades and must be developed to meet the needs of a rapidly changing economy. More attention must be given to banking and financial reform as an essential component of modernisation.

8.

The precise focus of the meeting will be worked out in consultations over the next few months: at present, three main topics are envisaged:

9.

1.

The modernisation of the banking system.

2. The establishment of an effective system of share ownership and a market for stocks and bonds.

Policies and instruments for the management of the money supply, drawing on the experience of other countries.

3.

There are three basic concerns which will be considered throughout the meeting:

10.

1. The role of monetary policy in the control of inflation, an immediate practical issue in China at the present time.

The problems involved in the reform of an economy based on the concepts and practice of central planning to a more market-oriented approach.

2.

3. The importance of preserving Hong Kong as a vigorous world financial center, both before and after 1997. This issue is of great concern to the Chinese authorities as it has implications for the future of the Chinese economy as a whole and for the Special Economic Zones in particular.

11. The Chinese side will provide a brief (10/15 page) statement of present arrangements and problems and will identify the priority issues for discussion, (by 31/1/89.)

12. The costs of preparing this meeting on the international side, including substantive papers, consultant fees and travel, administrative and secretarial services are estimated at

$50.000.