By 1967 Hong Kong had already established itself as an important international financial centre, but this status depended on confidence in the rule of law, the continuation of British sovereignty and relative political stability.2 Beijing's acquiescence to British sovereignty in turn relied partly on the financial services that the colony provided for the Chinese Mainland. These fundamental elements in the continued prosperity of Hong Kong were all challenged during the riots of 1967. This chapter uses previously unpublished archival material from Hong Kong and London to assess the impact of the 1967 riots on Britain's view of Hong Kong's economic prospects, on the Hong Kong banking system, and to illuminate the role of mainland Chinese banks in Hong Kong. The analysis reveals that the economic impact of the 1967 crisis on the banking and financial system in Hong Kong was tightly intertwined with the role that Hong Kong played in the sterling area system as the second largest holder of overseas sterling in the world, as a major supplier of foreign exchange to mainland China, and as a nascent international banking centre. This created tensions between loyalty to the metropole and obligations to the Mainland at a time when confidence in British rule had already been undermined by the Defence Review of 1966 that forced Hong Kong to contribute significantly more to its defence costs. The impact on the banking system brought into question the activities of mainland Chinese banks in Hong Kong, but the resilience of the banking system as a whole to the crisis enhanced confidence in the colony'S future, although the market share of the mainland banks declined steadily until the launch of the Open Door Policy. © 2009 by Hong Kong University Press, HKU. All rights reserved.
