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Our
65. The weakness of our negotiating position is that we have many hostages in Hong Kong in terms of people and assets, a substantial proportion of which we shall find it very difficult (if not impossible) to move. We ourselves have no means of bringing substantial pressure to bear on China. Our trade with her is not significant; our exports are neither vital nor irreplaceable from other sources. Our military capability (including nuclear capability) could hardly be a factor in a situation in which we were trying to get China to the conference table - particularly since China's assessment is probably that we would not use it even in defence of Hong Kong against a military take-over. 66. The strength of our negotiating position lies in the economic value of Hong Kong to China as a source of foreign exchange. strongest card would be the possibility of handing over a buoyant Hong Kong economy for which we could hold out prospects that it would continue to earn foreign exchange in Chinese hands. Our ability to play this card postulates a very different attitude to trade with China on the part of the U.S.A. (which takes 37% of all Hong Kong' exports) and some understanding with our other Western allies and friends who trade with China and Hong Kong that they would not regard the change of administration as an opportunity to reduce drastically or cut off altogether their trade with the latter. If we cannot make use of this card then we shall be reduced to such economic
counters as continuing to give access to Hong Kong products in our own markets and the disposal of Hong Kong assets hel' in London. 67. Overt American involvement in negotiations for handing-over Hong Kong seems out of the question given present U.S. policies. In this situation the best we could expect would be that fear of American reaction to a forcible take-over might be a factor inclining China to seek a negotiated solution and, in doing so, not to press
us too hard. On the other hand, if American attitudes were to
change to the extent of lending their weight to a negotiated transfer, it seems likely that there might already exist a climate in U.S./Chinesc relations in which the Chinese would judge that they had no reason to fear strong American action or pressure on our
behalf.
68.
It is unlikely that we could make any play with the fact that in international law Hong Kong Island and the tip of Kowloon peninsula were ceded to us in perpetuity (see paragraph 1 of Annex A), in the face of China's attitude that these were "unequal treaties" an attitude for which there could be considerable support from other countries, particularly those disputing ceded areas with us. (Russia would however be reluctant no doubt to accept the proposition that treaties with China involving the transfer of territory are all "unequal").
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