HKMA WORRIED ABOUT FSB SEAT, ASIAN CENTRAL BANKS

C O N F I D E N T I A L SECTION 01 OF 02 HONG KONG 001423

SIPDIS

STATE FOR EAP/CM AND EEB/IFD/OMA

E.O. 12958: DECL: 07/31/2034
TAGS: EFIN ECON PREL PGOV HK CH KS
SUBJECT: HKMA WORRIED ABOUT FSB SEAT, ASIAN CENTRAL BANKS
ABOUT ASSET PRICES

REF: A. HONG KONG 438

B. HONG KONG 530

HONG KONG 00001423 001.2 OF 002


Classified By: Acting Consul General Christopher Marut, Reason 1.4 b/d


1. (C) Summary: In an introductory meeting with the new
Hong Kong Consulate General Economic and Political Chief July
29, Hong Kong Monetary Authority (HKMA) Deputy Chief
Executive Peter Pang raised his concerns about Hong Kong,s
future participation in the Financial Stability Board (FSB).
Hong Kong is a valuable member of the FSB in its own right
and, as an international financial center, has a very
different perspective from that of China. Pang cited Hong
Kong,s active participation in global financial architecture
discussions and pressed the United States to support Hong
Kong,s continued independent FSB membership. The HKMA
hosted the annual meeting of East Asian Central Bank
Governors July 21-23. Governors region-wide expressed their
concern over rapidly rising asset prices and warned that a
correction is coming. End summary.

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Asian Central Bank Governors Worried About Regional Asset
Bubble
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2. (C) The HKMA hosted the annual Executives Meeting of East
Asia and Pacific Central Bank Governors (EMEAP) on July
21-23. Eleven Central Banks and Monetary Authorities
participated in this meeting, including representatives from
Japan, Korea, China, Australia, Hong Kong, Indonesia, New
Zealand, Malaysia, the Philippines, Thailand, and Singapore.
Typically a technical discussion focused on regional
cooperation on banking supervision, payment and settlement
systems and information technology, this year's meeting also
discussed reforms of the international financial regulatory
system and the possible impacts on participating economies.
Although the public statement was typically anodyne, Pang
said that senior financial officials from across Asia are all
worried that asset prices in the region, particularly stock
and property markets, are moving ahead of regional
fundamentals. The rapid gains of recent months are not
supported by additional activity in the real economy and will
eventually be reversed, said Pang.

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"Please Support Hong Kong's FSB Seat"
=====================================


3. (C) Pang noted that the HKMA has been an active
participant in international financial forums, both as a
long-time member of the Financial Stability Forum (now known
as the FSB) and as a member of the Chinese delegation at G20
meetings since fall of 2008. He thanked the United States
for our support for their participation in those meetings,
adding that Hong Kong,s seat at the FSB should not be
hostage to concerns about Chinese representation. With the
expansion of the FSB to include G20 members, including China,
Hong Kong has been put on a two year "probationary period",
said Pang. FSB members will have to decide in 2011 whether
to allow Hong Kong to continue to hold an independent seat in
the FSB or be subsumed into the Chinese delegation. He asked
that the U.S. support Hong Kong,s continued independent
participation in the FSB. (reftel b)


4. (C) China supports a separate seat for Hong Kong, Pang
said. When asked which nations might oppose Hong Kong's
independent participation, Pang offered that South Korea had
expressed concern that China, with three seats, plus Hong
Kong's one seat, would have undue weight in FSB decisions.
Pang dismissed this concern for two reasons. As a
consensus-based decision-making organization, additional
representatives from any country or economy cannot unduly
influence consensus decisions of the entire body. Secondly,
the Hong Kong and Chinese financial systems are at different
levels of development and may often have different
perspectives and concerns. Although China is becoming a more
important player in international financial discussions, Hong
Kong is already a sophisticated international financial
center with a history of productive and independent
participation in financial forums such as the FSB, said Pang.
HKMA representatives are active members of two FSB
committees, one discussing regulatory reforms and
international standards and another on financial sector
reforms (reftel A); the HKMA also coordinates East Asian

HONG KONG 00001423 002.2 OF 002


surveillance work for the EMEAP and has been actively
engaging in training for the People's Bank of China and the
Chinese Banking Regulatory Commission.


5. (C) Hong Kong will continue to be an active participant
in FSB meetings and committees over the next two years, said
Pang, as it attempts to demonstrate it's usefulness to the
rest of the Board. The Hong Kong government will also be
quietly lobbying FSB member economies for their support for
Hong Kong,s continued participation. Pang asked for U.S.
support for Hong Kong,s continued FSB participation,
particularly with other members of the G7.
MARUT