EAP ASSISTANT SECRETARY HILL IN HONG KONG

C O N F I D E N T I A L SECTION 01 OF 03 HONG KONG 004214

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DEPT FOR EAP AND EAP/CM
NSC FOR WILDER

E.O. 12958: DECL: 10/25/2031
TAGS: PGOV PHUM PINR PREL HK CH TW KN
SUBJECT: EAP ASSISTANT SECRETARY HILL IN HONG KONG

REF: A. HONG KONG 3840

B. STATE 172816

Classified By: Consul General James Cunningham. Reasons: 1.4 (b,d)


1. (C) Summary: EAP Assistant Secretary Christopher Hill,
accompanied by EAP Special Assistant Thomas Gibbons,
exchanged views on local and regional issues with a broad
spectrum of key Hong Kong contacts, during an October 21-23
visit. William Ryback, the Deputy Chief Executive of the
Hong Kong Monetary Authority, suspected that relationships
between Banco Delta Asia's Hong Kong subsidiary and North
Korean entities existed, but said that a review of the books
had not yet uncovered clear substantiating evidence. One
Hong Kong observer opined that Chief Executive Donald Tsang
had had a rocky first year in office and Beijing might be
considering replacing him; another observer disagreed and
argued that, despite some political missteps, Tsang had not
done anything serious enough to warrant his removal from
office. Former Democratic Party Chairman Martin Lee was
pessimistic about Hong Kong's future and believed that Hong
Kong was increasingly yielding its political and economic
autonomy to Beijing. On North Korea, one media tycoon
espoused the theory that North Korea was more of a domestic
political problem for PRC President Hu Jintao than a foreign
policy issue. He believed that for many Chinese
conservatives, North Korea was the last area of meaningful
foreign policy confrontation. If this point of confrontation
disappeared, their role in foreign policy would weaken. End
Summary.

Dinner with Political and Business Leaders
--------------


2. (C) The Consul General hosted a dinner with Deputy Chief
Executive of the Hong Kong Monetary Authority (HKMA) William
Ryback, legislator and National People's Congress deputy
Sophie Leung, Executive Director of Strategic Access David
Dodwell, "South China Morning Post" commentator Frank Ching,
Asia Chair of Spencer Stuart Martin Tang, and Professor David
Zweig of Hong Kong University of Science and Technology in
honor of EAP A/S Hill on October 21. A/S Hill opened the
dinner with USG perspectives on the North Korea nuclear
issue, and briefed the group on the Secretary's meetings in
Tokyo, Seoul and Beijing last week. According to Zweig and
Ching, prior to the nuclear test, China had hoped three
policy options remained available for dealing with North
Korea: 1) allow the DPRK to collapse, 2) allow North Korea to
test a nuclear bomb, or 3) find a "middle way." When it
became clear to Beijing that North Korea was no longer
interested in a "middle way," China appeared to prefer a DRPK
nuclear test to the potential collapse of North Korea on its
border. While acknowledging the seriousness of the North
Korea nuclear issue, Dodwell hoped the USG also would focus
on the many positive economic developments occurring in Asia.



3. (C) During a private conversation following dinner, A/S
Hill asked Ryback about Banco Delta Asia (BDA). Ryback noted
the HKMA has had a manager placed in BDA's Hong Kong
subsidiary (Delta Asia Credit) for over a year. Though
Ryback suspected that Delta Asia Credit had relationships
with North Korean entities, a scrub of the books has not
uncovered clear substantiating evidence -- likely because
transactions were two or three steps removed. Ryback
repeated his earlier requests for intelligence and other more
specific information available for release to Hong Kong (see
Ref a). As for BDA in Macau, Ryback noted that the Macau
Government was under some political pressure, given BDA owner
Stanley Au's connections. Macau's action on BDA will in turn
affect HKMA's steps in Hong Kong. Separately, Deputy
Principal Officer Sakaue conveyed Ref b points on UNSCR 1718
and asked Ryback about the results of HKMA's first-level
review of Hong Kong banks. Ryback commented that, with
regard to exploring correspondent banking relationships, HKMA
had much more work to do.

Lunch with Hong Kong Observers
--------------


4. (C) During an October 22 lunch with Christine Loh, Chief
Executive Officer of Civic Exchange and Lawrence Lau, Vice
Chancellor of Chinese University, Loh told A/S Hill and the
Consul General that despite being a board member of Human
Rights in China (HRIC),a human rights group based in New
York and Hong Kong, she had never been denied entry into
China and did not expect her recent elevation to HRIC
co-chair to affect her trips into China. Nevertheless, Loh

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believed she was on an unofficial "grey list" and recounted
how each and every time she traveled to China, she was forced
to wait while immigration officers received an additional
approval for her entry, despite having a valid reentry
permit. On the political front, Loh opined that Chief
Executive (CE) Donald Tsang had had a rocky year in office
and said that there was a remote possibility that Beijing
might consider replacing him, as they had Tsang's predecessor
C.H. Tung. In particular, Beijing was irked by Tsang's
comments about the possibility of direct elections in 2012
for Hong Kong during an official visit to Singapore in July.
Regarding the CE election in March, Loh said it was unclear
whether Alan Leong, Civic Party legislator and democratic
challenger for the Chief Executive race, would get the
necessary 100 Election Committee nominations to stand in the
election.


5. (C) Lau said that what Beijing most wanted for Hong Kong
was for the city to run itself. Countering Loh's comments,
Lau said, while Tsang may have made some political missteps
this past year, he had not done anything serious enough to
warrant his replacement. Besides, said Lau, there was no
realistic alternative candidate for Chief Executive. Lau
cited recent requests from pro-Government political parties
to visit Beijing as a misguided attempt by Hong Kong
politicians to use their relationships with Beijing to
improve their own political fortunes. Chinese leaders have
enough worries and issues to deal with on the mainland
without dealing with the constant flow of Hong Kong
politicians visiting Beijing and asking for economic and
political "handouts," maintained Lau.

Meeting With Martin Lee and Jimmy Lai
--------------


6. (C) The Consul General hosted a private meeting with A/S
Hill, Gibbons, Democratic Party founder and former chairman
Martin Lee, Next Media Chairman Jimmy Lai, and "Apple Daily"
Director of Corporate Accounts Mark Simon on October 22. Lee
was (characteristically) pessimistic about Hong Kong's future
and believed that Hong Kong's political and economic agendas
increasingly had come under Beijing's influence. He cited
several recent indicators which showed PRC control creeping
into Hong Kong's economic decision-making process, including:
Hong Kong's first-ever inclusion into China's five-year
economic plan, the September 11 closed-door Economic Summit,
and Donald Tsang's announcement that the HKG would distance
itself from the city's unstated economic policy of "positive
non-intervention." Lee noted that Tsang and Beijing appeared
to be in agreement on their strategy to continue to ensure a
complacent electorate through economic good times and a
timely distribution of Government money as set out in Tsang's
policy address. Regarding the CE election, Lee expressed
pessimism that any candidate would mount a genuine challenge
to Tsang.


7. (C) Lai told A/S Hill that he recently had traveled to
Taiwan, where he had dined separately with Taiwan President
Chen Shui-bian and Kuomintang (KMT) Chairman Ma Ying-Jeou.
While Lai believed Chen was personally "clean," he said
Chen's family and associates likely were "riddled with
corruption." Nevertheless, Lai predicted Chen would survive
the current political turmoil. Ma also was personally
"clean," said Lai, but had not yet faced up to the task of
ridding the KMT of corruption. Ma does not want Chen to fall
now, but preferred a process of attrition while Ma tried to
get his own party's act together, according to Lai.
Separately, the lines were sharpening between those whose
goal was independence and the KMT, which still espoused
unification and was willing over time to foresee unification
on Beijing's terms. Lai's own view is that the long-term
goal for Taiwan should be independence with Beijing's
acquiescence as China liberalized.


8. (C) On the DPRK, Lai espoused the theory that North Korea
was more a domestic political problem for PRC President Hu
Jintao than a foreign policy issue. According to Lai,
supporting the DPRK was a matter of ideological principle and
history for the conservatives and the old guard -- a group
that Hu needs to co-opt. Lai believed that if the DPRK
regime were to fail and the two Koreas unified, this would
undercut the old guard and open the way for Hu to phase out
the conservatives and move ahead with liberalization. North
Korea was the last area of meaningful foreign policy
confrontation for Chinese conservatives; if this point of
confrontation disappeared, their role in foreign policy would
weaken, said Lai.


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Press Coverage of A/S Hill's Hong Kong Visit
--------------


9. (U) A/S Hill was interviewed by reporters from the "South
China Morning Post" (SCMP) newspaper and the weekly "Yazhou
Zhoukan" (Asia Week),and separately by CNN on camera. The
Asia Week article has not yet been published, but the CNN
interview aired several times on CNN International and the
SCMP interview generated several articles. The text of the
SCMP articles accurately reported what A/S Hill said, but the
headline spin (e.g., "US point man on N Korea in HK for talks
on bank freeze") led to numerous inquiries. We have
responded that the purpose of his trip was to consult with
Consulate staff and to meet with various members of the Hong
Kong Government, business and NGO communities.


10. (U) The delegation has cleared this cable.
Cunningham