TNAG-2754-FCO40-3971-Business-matters-in-Hong-Kong-acquisition-of-Midland-Bank-by-1993 — Page 55

RESTRICTED

the Municipality. They would be ready, however, to go back into their building and restore it to a respectable state, which he estimates would cost in the order of US$30 million. Discussions with the Shanghai authorities were held up last year by Chinese concerns about the Hongkong Bank's change of domicile (These concerns also extended to delaying approvals for the opening of two new branch operations elsewhere in China; these have now however been approved). The Shanghai authorities were clearly anxious to avoid any action which might be construed as giving comfort to a bank which, in political terms, was seen by some to have demonstrated a lack of commitment to Hong Kong. Purves said that this perception of a lack of commitment (or turning its back on Hong Kong) was one by no means universally shared in China. Undoubtedly some factions put the Hongkong Bank in the same bracket as Jardines. But there were others who were much better disposed, who recognized (a) that Hongkong Bank's commitment to Hong Kong itself would continue and (b) that in banking terms the bank' s decision to move its domicile would actually strengthen Hong Kong for the future. But when the Mayor of Shanghai transitted Hong Kong in December on his return from his visit to London, he had made clear that he was not then ready to give the go-ahead. At that stage, the Hongkong Bank concluded that this must be related to Chinese concern about the move of domicile.

4.

Following the establishment of their Holding Company in London in January, Purves and John Gray had been in Peking and seen Lu Ping. Lu Ping had assured them that he fully understood the reasons for the move; he could not help regretting it; but he confirmed that there was no objection in political terms, from the HKMAO or elsewhere, which would in any way prevent the transfer of the former premises back to the Hongkong Bank in Shanghai.

5. It was against this apparently favourable background that John Gray had arranged to visit Shanghai at the end of June in order to carry forward discussions with the Shanghai Municipality. But at 48 hours notice Gray was advised that he should not pursue the matter with Shanghai at this stage and the visit was cancelled. It was made clear that the reason now was the UK/China dispute. It was clear that Shanghai did not wish to get out ahead in giving any favours to the Hongkong Bank until the political situation was more settled.

RESTRICTED

/Page 3