CONFIDENTI L
any guarantee required, which is connected with the basic issue of confidence i deal with below, Unless this position of stalemate is soon resolved, the project must collapse.
4. The prime objective of our policy in Hong Kong is to sustain public confidence; if the commercial community or the man in the street is moved to doubt the ability or the resolution of the authorities there, and particularly of H.M.G., to withstand the present Communist challenge, or comes to feel that H.M.G. has doubts about the future of Hong Kong, then the situation in the Colony will deteriorate immediately and drastically. In this context the Tunnel project has now come locally to acquire an entirely new significance. Whereas previously it was a purely commercial project on the value of which to Hong Kong it was perfectly legitimate to have doubts or reservations (and frankly we did feel some, as did the Hong Kong Government themselves) it is now seen in the business world in Hong Kong, and also amongst & very wide section of the local community, as a supreme test of the confidence and determination of both the Hong Kong Govemment end of H.M.G. The Governor's conclusion (which we share) is that
on this ground the project must go forward. It follows that the guarantee required by E.C.G.D. must be fo nd.
5. No doubt it could be argued that, if the project has now acquired such puilic and political importance, it would not be
reasonable for us to bring further pressure to bear on the Hong Kong Government for them to bear the whole of the liability for the guarantec. But this overlooks one basic point in all this, namely that public opinion in Hong Kong and I think also in a vider area of South East Asia has come to regard this project af a touchstone of the attitude of H..G. towards the Colony's fature. We have indeed for some time been casting round for some way of making a tangible gesture of support towards Hong Kong and of confidence in its future. We feel that this project provides the opportunity to make a gesture which would be of the greatest political value in Hong Kong at this present time, and which might cost us nothing at all in the final outcome. it would give a considerable fillip to public confidence, strengthen pro-British
sentiment.