TNAG-2474-FCO40-3604-Business-matters-in-Hong-Kong-acquisition-of-Midland-Bank-by-1992 — Page 22

5 Mr Li then went on to raise two issues with the Governor. First, he wanted to be sure that in the sensitive and delicate period of transition for Hong Kong it would be made clear that HSBC would maintain its current central position both before and after 1997. He expressed concern at the effect on confidence in Hong Kong of HSBC purchasing Midland and moving its headquarters to London. He had already discussed this issue with Mr Purves; he

well understood HSBC's role as a commercial bank and that it wanted to expand its international business. He was hoping, however, that HSBC would move very cautiously.

6

Secondly, Mr Li explained that in expanding its international operations the PBC would be establishing banking relationships with other central banks. It had already applied for and received approval for opening an account with the Bank of England. After the Bank of Japan this was the second external account that the PBC has opened. The PBC was responsible for the management of China's reserves. At present these were managed almost wholly by the Bank of China; in future the responsibility would shift to the PBC. Mr Li said he hoped that he would have the Bank's support in this

process.

7 In response the Governor said that he was delighted about Mr Li's second point and he would be in a position to hand over the Bank's acceptance letter shortly. Reserves management was now a specialised function and the Governor hoped that Mr Li would be seeing those in the Bank who had this responsibility.

8 On Mr Li's first question about HSBC the Governor emphasised that the Bank, too, fully understood the importance of HSBC to Hong Kong. The Bank had been at great pains to ensure that any moves by HSBC served to strengthen Hong Kong. It was important for HSBC to be at the heart of a large international group and the addition of

Midland would strengthen this position. Without such an international move HSBC would be less well-placed to serve the people of Hong Kong: there would be a risk of contraction rather than expansion.