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3. Deng also put forward ideas about the future of Hong Kong that have not been formulated in exactly the same way before; they, however, are not altogether reassuring (though he clearly intended them to be). He spoke of Hong Kong moving to a special status under which, while continuing to function as a capitalist economy, it would be subject to Chinese sovereignty. As the Governor points out, the Chinese will have to do a lot more to establish confidence in what such sovereignty is likely to entail before we can be sure that proposals on these lines would not cause investors to take fright. Deng was vague about when the change to this new status might take place, and in the meantime the Governor has suggested, I am sure rightly, that we should avoid making public this aspect of Deng's proposals for Hong Kong's future.
4. On the crucial question of the New Territories leases, it would have been too much to expect an immediate and positive' response. But at least there was not a strong negative reaction. Our proposals are now on record with the Chinese (in a separate telegram Dr Wilson drew particular attention to the fact that Liao Chengzhi, did not demur when the Governor specifically referred to Deng's having understood the leases problem), and
we await their reaction. The Governor expects to have some indi-
cation of the Chinese attitude by the end of this month, when he will discuss the next moves with Mr McLaren and Mr Samuel (who will both then be in Hong Kong). In the meantime, he has suggested in his letter of 10 April that we should try to think of an alternative
wording for the proposed new leases that would not mention continuing British administration. I am pursuing this question separately with the departmental Legal Adviser, and hope to be able to send some suggestions to Hong Kong by the end of next week.
5. On the face of it, the visit also achieved a satisfactory response on the other major outstanding problem, immigration into Hong Kong from China, though it remains to be seen whether the
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