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REFERRED MR MCLAREN FOR DISTRIBUTION ADVICE, PADS SUGGESTED LNMDAN 656? HMLNAN 1858
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OF 12115OZ DECEMBER 90
INFO IMMEDIATE PEKING, UKREP JLG HONG KONG
PERSONAL FOR MCLAREN, HKG FROM GOVERNOR
Hicc 182 12
PADS: COMMENTS BY LU PING ON FINANCIAL RESERVES AND THE EXCHANGE FUND
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1 THE PRESS HAVE GIVEN WIDE COVERAGE OVER THE PAST TWO DAYS (11,12 DECEMBER) TO COMMENTS MADE BY LU PING ON THE USE OF HK'S FINANCIAL RESERVES TO PAY FOR THE AIRPORT.
2. ON DECEMBER 10 LU PING HELD A PRESS CONFERENCE IN CANTON. IN RESPONSE TO A LEADING QUESTION (DO YOU HOPE HK WILL STILL HAVE A CERTAIN AMOUNT OF RESERVES AFTER 1997), HE SAID THAT THE CPG DID NOT WISH TO SEE HK'S HKD60 BILLION FISCAL RESERVES USED SINCE THEY FORMED A MAJOR PART OF THE EXCHANGE FUND. USE OF THE RESERVES WOULD HAVE AN EFFECT ON THE STATUS OF HK'S CURRENCY. THIS APPEARED IN A NUMBER OF PAPERS ON 11 DECEMBER.
3. ASKED ABOUT THIS BY REPORTERS DURING A VISIT TO GUANGDONG WITH THE CHIEF SECRETARY, THE SECRETARY FOR ECONOMIC SERVICES SAID THAT THE EXCHANGE FUND WOULD NOT BE USED TO FINANCE THE AIRPORT. IN HONG KONG, THE SECRETARY FOR THE TREASURY EXPLAINED THAT A PROPORTION OF THE FISCAL RESERVES WAS PLACED ON DEPOSIT WITH THE EXCHANGE FUND. BUT THIS WAS NOT USED TO BACK THE CURRENCY.
4. TODAYS HONG KONG PRESS MAKES GREAT PLAY WITH THE FACT THAT, ON 11 DECEMBER LU ON THREE OCCASIONS FURTHER CRITICISED THE HKG FOR PLANNING TO USE THE RESERVE FUND. LU REITERATED THAT IF THE FINANCIAL RESERVES WERE USED FOR BUILDING THE NEW AIRPORT, THE EXCHANGE FUND WOULD BE REDUCED AND THE STATUS OF THE HK DOLLAR WEAKENED. HE SAID THAT THE EXCHANGE FUND, WHICH COMPRISED AN ACCUMULATED SURPLUS OF HKD60 BILLION AND A RESERVE FUND OF HKD30 BILLION BACKING THE ISSUE OF HONG KONG'S CURRENCY, WAS
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INSTRUMENTAL IN KEEPING THE VALUE AND STATUS OF THE HK DOLLAR STABLE. WHAT THE HONG KONG GOVERNMENT HAD TOLD HK PEOPLE WAS DIFFERENT FROM THAT WHICH THEY HAD TOLD THE CHINESE. HKG SHOULD TELL THE PEOPLE HOW IT PLANNED TO USE ITS RESERVE.
5. LU DESCRIBED AS A PLAY ON WORDS EXPLANATIONS BY HKG OFFICIALS THAT FINANCIAL RESERVES WERE ONLY DEPOSITED IN THE EXCHANGE FUND. HE IS QUOTED AS SAYING 'HOW CAN THEY SAY THE SURPLUS IS NOT PART OF THE EXCHANGE FUND? PLEASE LOOK AT THE LAWS ON THE FUND AND ITS COMPONENTS. YOU CAN'T CASUALLY SAY THAT. IT'S ALL IN THE LAWS.'
6. LU HAS ALSO BEEN REPORTED ON THE RADIO TODAY (12 DECEMBER) AS SAYING THAT HKG HAD TOLD THE CHINESE GOVERNMENT THAT THE FINANCIAL RESERVES WOULD BE SPENT AND ONLY A SMALL AMOUNT WOULD BE LEFT BY 1997. HE WAS WORRIED THAT THE PENSION FUND (SIC) FOR HONG KONG CIVIL SERVANTS WOULD BE AFFECTED. HE ALSO SAID THAT THE
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