TNAG-1896-FCO40-2690-Calls-on-Francis-Maude--Minister-of-State-for-Foreign-and-Co-1989 — Page 115

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NOTE OF THE MEETING BETWEEN MR MAUDE AND MR DAVID LI KWOK PO,

LEGISLATIVE COUNSELLOR

1. Mr Li congratulated Mr Maude on his recent visit to Hong Kong

and said that by all accounts he had heard, it had been most

successful. He said that there were two main issues which he wished

to raise: banking and the financial sector.

2. Mr Li felt strongly that the existing financial power base situation was not equitable. Currently the Hong Kong and Shanghai

Banking Corporation (HSBC) had the effective Central Bank control

and this appeared likely to continue up to 1997. If nothing was done then this control would naturally pass to the Bank of China. This could create problems if Hong Kong was to continue as a major financial centre. He urged that a more level playing field should be the aim, with all financial institutions having a role and not just the British. He suggested that Britain and China should talk

about the arrangements for the financial sector in the future.

3. Mr Maude asked what changes Mr Li envisaged in the run up to 1997. Mr Li felt it important that the Hong Kong Association of Banks should play a more prominent role in the system. He suggested that the Association could act as the clearing system, could take over note issuing, and could be established as the regulatory body. He thought it was important that the Bank of China did not become

the regulatory authority.

4. Explaining further the problems of the smaller banks, Mr Li said

that since there was no lender of last resort and no discout

facility, this meant that many of the small Hong Kong banks had been

and were being swallowed up by the larger opposition.

The very close relationship between HSBC and the Hong Kong Government also meant that this placed HSBC in a very advantageous position as knew of its rivals liquidity position. Mr Li said that he had spoken with officials at the Bank of England and they were sympathetic to his concerns. He wondered whether it would be

possible to arrange for someone from the bank to go to Hong Kong and

to review the situation.