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reformed Stock and Futures Exchanges weathered the crisis and emerged with their reputations enhanced. So did the territory's banks. The run on the China-controlled banks was contained without a knock-on effect on
the whole system. Local banks benefitted from the withdrawal of deposits from their PRC competitors.
21.
The main economic problem now facing Hong Kong is the maintenance of confidence overseas. North American buyers and investors in particular, already conscious of the effects of emigration on Hong Kong, have now been presented with a highly unfavourable picture of conditions in China. They often fail to distinguish clearly between Hong Kong and mainland China. There is therefore an understandable reluctance to commit new investment, at least while the situation on the mainland remains fluid. Hong Kong's export performance, particularly in manufactured products, could be at risk. Some local manufacturers have come under pressure to transfer production out of China.
22. back have
The Chinese have already begun a campaign to woo businessmen, particularly to Southern China. They made it clear that they intend to maintain, and even to extend, their open economic policy. This will directly benefit Hong Kong. But the Hong Kong Government must also take urgent steps to emphasise to our overseas customers that Hong Kong is a separate political entity and a separate economy from that of mainland China and that Hong Kong will enjoy a unique status both before and after 1997. We will need to continue to argue against any proposals to impose economic sanctions on China, and will look to HMG for help in this.
PRC Attitudes to Hong Kong
23.
The Chinese Government clearly regard as provocative the way in which Hong Kong people donated funds to Chinese student demonstrators, participated directly in events on the mainland and strongly denounced the actions of the Government and individual leaders. But they have so far reacted in a reasonably restrained way. Initially they criticised direct Hong Kong involvement in events in China, but were careful to distinguish this from activities carried out in Hong Kong itself. However, a People's Daily commentary on 21 July took the attack a stage further by accusing the Hong Kong Government of turning a blind eye to the plans of the recently-established All Hong Kong Alliance in Support of the Patriotic Democratic Movement in China to turn the territory into a base for overthrowing the
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