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compensation payments for U.K. property seised in Hong Kong) the effects, depending on the precise terms of any deal, could range from beneficial to the U.X.
economy to marginally damaging.
19. The foregoing is hypothecated on a situation of a forcible take over (or analogous situation) which would
Hong Kong's balances Justify the immediate blocking of/sterling/ Even in
however
these circumstances..G. might feel constrained to
make economic concessions for strictly political
purposes perhaps the most obvious possibility is to release some part of the blocked sterling as "ransom" money for U.X. citizens "captured" in Hong Kong by the
Chinese.
20. The loss of Hong Kong might however take place in
quite different circumstances - i... there might be a
negotiated withdrawal in the context of which blocking
the balances would be inappropriate not least because
our readiness to let the balances, or some part of then,
accrue to China would be a major, if not the major, U.K.
bargaining counter in any negotiation.
21. We might therefore be faced with a situation in
which after the loss of Hong Kong, China held a
substantial part of the balances at present held by the
colony. Depending on the proportion in question this could represent a substantial deterioration on the 1966 situation. In the first instance (and not least because
of the loss of the foreign exchange receipts which she currently gets from Hong Kong) China would be much more
likely to run down ler reserves to pay for imports than
Hong Kong: and in the second instance sterling balances
in her hands would be much more volatile than in the
hands of the Hong Kong colony. How far a run down of
sterling balances held by China (or the expectation
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