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Convergence rules on HK economic future

AGAINST a backdrop of a dispute over democratic reform in Hongkong, China and Britain are quietly laying the groundwork for the territory's economic future.

While the prospects for ''convergence'' - the term coined by Beijing for agreement over interpretation of treaties between the two countries - on the political front appear dimmer by the day, convergence on matters monetary appears entirely seamless.

Epitomising this is the formation of Hongkong's de facto central bank, which marks its formal establishment today in what is viewed as a sign of Beijing's unequivocal support of the territory's financial system and the British-formulated policy which underpins it.

''On monetary management, the objective is quite clear,'' says Mr Joseph Yam Chi-kwong, chief executive of the new authority.

''We are talking about stability and prosperity. There's no scope for different interpretations of what that should be.

''There is no difficulty at all, which is a clear indication that rather technical matters like monetary management, reserve management and banking supervision can actually be separated from politics.'' Perhaps this is not surprising given what some might view as a culturally ingrained penchant for pragmatism where money is concerned among the Chinese and British.

Whatever the rationale, the Sino-British economic operations are viewed as encouraging by those looking past the daily gyrations of the Hang Seng Index, the ultimate barometer of short-term sentiment.

Bankers Trust economist Bill Overholt, who is putting the finishing touches on a book on China's economy, says it was China's ''tremendous'' interest in Hongkong's prosperity which led to Beijing's endorsement of the ''one country, two systems'' concept.

''It wasn't any kind of compromise with Britain; it was that Deng Xiaoping understood that having a highly prosperous Hongkong sparking the Chinese economy was the best thing that could possibly happen to China,'' he says.

''They will do whatever is necessary to gain full sovereignty, but they're absolutely determined to make the Hongkong economy work. And I think at this point their people are just as sophisticated on technical issues like currency matters as [Western monetary authorities] are.

''So it's not surprising that they come to the same conclusions.'' The Hongkong-based Political and Economic Risk Consultancy writes in its fortnightly bulletin released yesterday that, to date, there is every reason to believe that China will try to promote Hongkong's regional financial role rather than reduce it.

''Provided the economy keeps growing at its current pace, and the local stock market is holding its own, business and Hongkong residents may start becoming more comfortable with the prospect of the switch in sovereignty,'' the report says.