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The price of land in the New Territories is rising steadily, and investment is running at a comparatively high level.
5.
Consequently, I think that, even if we were satisfied that the Hua/Teng government was here to stay, it is still too early to present it with the problem of the Lease. This despite its generally friendly attitude as well as the importance it attaches to modernisation, and therefore presumably to the foreign exchange it can expect to draw from a prosperous Hong Kong.
Form of Approach
6.
Nevertheless, sooner or later the problem must be tackled, certainly by 1985, and preferably considerably sooner. There would be no problem if the Chinese, in the mid-80s, were prepared to extend the term of the Lease, but this seems very unlikely. So we must consider instead the form a tacit agreement might take.
7.
Looking at the alternatives set out in Annex B of the Planning Paper it has struck us that any tacit extension of tenure would run up against the legal problem that all leases in the New Territories are drafted to expire three days before the end of the Lease on 1 July 1997. Although the Chinese may not recognize the Lease, we do, and our right of jurisdiction is based on it. I am advised that, as things stand, we could not lawfully grant land leases beyond the term of our own Lease. Since the shrinking currency of present leases will start to erode land values and deter investment early in the 80s, no understanding with the Chinese about the future would be of any value unless it included an arrangement to break out of the legal straight-jacket of the present land leases,
8.
We suggest the arrangement least objectionable to the CPG would be for us normally to grant leases without a fixed term and to legislate to change the term of current leases from 28 June 1997 to "undetermined". Such wording could be interpreted as potentially shortening or lengthening the lease in accordance with one's view of potential probabilities, but at least it would get rid of the legal significance of 1997 in relation to land tenure. This would bring the expecta- tion of land tenure for land-owners into line with the CPG position that the problem of Hong Kong will be solved 'when the time is ripe'.
9.
At some point during the next few years encouraging remarks by the CPG about Hong Kong will not be enough. A step of this sort over leases will be essential if we are to maintain confidence after 1985 at the latest and probably several years earlier. In addition we think it is a particularly convenient peg on which to hang our approach to the CPG. It is a point whose importance would immediately be understood
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