VZCZCXRO6684
RR RUEHCHI RUEHCN RUEHDT RUEHGH RUEHHM RUEHNH RUEHVC
DE RUEHHK #1747 2631042
ZNR UUUUU ZZH
R 191042Z SEP 08
FM AMCONSUL HONG KONG
TO RUEHC/SECSTATE WASHDC 5833
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS HONG KONG 001747 
 
SIPDIS 
 
STATE FOR EAP/CM AND EEB/OMA, TREASURY FOR OASIA 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV ETRD HK CH
SUBJECT: BEIJING INCREASES STAKES IN MAINLAND BANKS, HANG SENG 
RISES SHARPLY 
 
REF: A. HONG KONG 1746; B. HONG KONG 1728; C. HONG KONG 1737 
 
 
¶1. Summary: Hong Kong's Hang Seng Index (HIS) closed up 9.6 
percent on September 19 and ended the week down only 25 points 
at 19,328.  Market gains were heavily influenced by Beijing's 
publicly announced purchase of shares in three large state-owned 
banks.  Short-term interbank loan rates eased and market 
liquidity improved.  HKG officials urged investors to calmly 
assess market conditions and remember lessons learned from the 
Asia financial crisis ten years ago.  Analysts expected more 
market stimulus measures from Beijing, and they reacted 
positively to Secretary Paulson's September 19 meeting with U.S. 
lawmakers to discuss the USG's next steps in dealing with 
deflating property prices.  End summary. 
 
Central Government Stimulus 
--------------------------- 
 
¶2. Hong Kong's Hang Seng Index (HSI) opened 7 percent higher on 
September 19 and closed up 9.6 percent at 19,328, following the 
Central Government's announcement that it would increase its 
holdings in three state-owned banks -- Industrial and Commercial 
Bank of China (ICBC), Bank of China (BOC), and China 
Construction Bank (CCB) -- and cut share trading taxes.  The 
three banks rose 16-17 percent on September 19, as the HSI's 
trading volume rose to US$ 16 billion (HKD 125 billion; double 
the average of the past few months). 
 
¶3. Short term HIBOR rates eased and interbank market liquidity 
improved, compared with the previous trading day.  As of 1753 
HRS local time on September 19, the overnight HIBOR rate fell a 
full point to 2.5 percent, while the one week and one month 
rates declined to 3.25 percent and 3.5 percent, respectively. 
 
HKG Officials Continue to Calm Investors 
---------------------------------------- 
 
¶4. Financial Secretary John Tsang reiterated that the Hong Kong 
government has no plans to intervene in the stock market, and he 
told the media on September 19 that he would brief Hong Kong's 
Legislative Council members that evening about current market 
conditions.  He refused to comment about the Central 
Government's new market stimulus measures.  Secretary for 
Financial Services and the Treasury K.C. Chan stated that market 
sentiment would not fundamentally improve, until the USG 
introduces "real measures" to save its financial market.  Chief 
Executive Donald Tsang said local investors should remain calm 
and use the lessons learned from the Asian financial turmoil ten 
years ago.  Hong Kong Monetary Authority Chief Executive Joseph 
Yam warned investors to take note of the change in the global 
economic climate, saying three of the five top American 
investment banks were eliminated by a "Financial Tsunami."  See 
reftels A and B for Post reporting about recent private 
conversations with senior HKG officials about the financial 
crisis, including a conversation on September 19 with Joseph 
Yam. 
 
More Stimulus Measures From Mainland Expected 
--------------------------------------------- 
 
¶5. JP Morgan China Equities Head Jing Ulrich told pro-Beijing 
Chinese language newspaper Wen Wei Po on September 19 that she 
expects the Central Government to launch more measures to boost 
the stock market, such as liberalizing stock trading 
regulations.  Respected free-lance local economist Andy Xie 
(formerly of Morgan Stanley) dismissed the Central Government's 
share purchases of the Mainland banks as a temporary expedient 
that will, at most, "prevent Mainland stocks from falling too 
far and too fast."  Xie told the Hong Kong Commercial Daily on 
September 19 that Beijing has been devising means to "rescue" 
the market, but he said the measures would fail as long as the 
global economic environment remains unfavorable. 
 
Bank of East Asia Shares Unscathed 
---------------------------------- 
 
¶6. Shares of Bank of East Asia (BEA) rose 12 percent on 
September 19, as trading resumed in its shares.  Trading of BEA 
shares were suspended on September 18, after the company 
disclosed unauthorized manipulation in the valuation of its 
equity derivatives and restated its earnings (ref C).