TNAG-2749-FCO40-3964-Economic-situation-in-Hong-Kong-1993 — Page 173

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ASSESSMENT OF IMPLICATIONS OF HONG KONG ECONOMIC AND FINANCIAL POSITION

serious deterioration in the Mk (and Chinese) economies. Bil no need for us to stimulate Hat!

1. I attended another of Paul Gray's meetings this morning. A note prepared by DTI on British companies' investments in Hong Kong was considered (copy attached).

2. There was some discussion of the financial health of the major companies (those on page 1 of Annex A) and the importance to them of their Hong Kong business. Nobody had any detailed information on these companies to hand, but the general impression was that they were either in sufficiently good shape to withstand serious loss of their Hong Kong business with most having secured ECGD cover. Although Cable & Wireless are more exposed, given their fixed investments in Hong Kong and franchises/contracts extending beyond 1997, it was felt that their current monopoly of the domestic and international telephone systems and their link with CITIC puts them in a relatively strong position.

3.

DTI have been asked to do more work to establish the importance of the Hong Kong and China market to these companies in relation to their current business and business prospects. This will include an analysis of the consequences of loss of contracts and a major fall in share prices.

4.

The Bank of England are still doing some work on the integrity of the Hong Kong banking system which they expect to complete within the next ten days.

5.

Mr Gray considers that he now has enough information to go back to the Chancellor, who commissioned this study, setting out his preliminary views. On the basis of the work done so far, he is likely to conclude that the Hong Kong economy is robust, that there is no particular Achilles heel, and that British business (which for this purpose excludes the Hongs) could withstand either an attack by the Chinese on their interests, or a serious downturn in the Hong Kong economy.

A further meeting will be held in the last week of March.

6.

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NC G Whitney

HONG KONG DEPARTMENT

25 February 1993

HKB 090/1

RECEIVED IN PEGISTRY

23 MAR 1993

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CODE 18-77

Confidential

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