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Hong Kong: New Territories Leases
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1. When you saw the Governor of Hong Kong on 15 June, we discussed briefly the question of land leases in the New
Territories.
2. Most of the territory of Hong Kong (the new Territories) was leased from China for 99 years under an agreement signed in
1898. The Chinese consider all the treaties concerning Hong
Kong, including that one, as "unequal" and do not recognise their validity. However, because of the 1898 Agreement, the many thousand land leases granted by the Crown in the New Territories are all written to end in 1997.
3. The ever shortening period of these leases is beginning to affect investment decisions. Unless something is done within the next few years, investment and confidence will be seriously affected. The problem is not yet acute. Nevertheless now is a particularly good time to tackle it. Our current relations with China are good. Leaders such as Deng have made it clear that they need Hong Kong's contribution to China's modernisation and want to preserve investment confidence. Both the Governor him- self and our Ambassador in Peking strongly believe that such a favourable combination of circumstances may not recur.
4. The proposed solution to the land leases problem is that the Hong Kong Government should grant leases without a fixed term and alter existing leases to the same effect. At the same time, any legal obstacle on the British side to the Governor continuing to administer the New Territories after 1997 would be removed by an Order in Council. The Order would not have to be laid before Parliament. These moves would make it possible for
British administration to continue beyond 1997 if the Chinese so
wish. But they do not contradict the Chinese position on Hong
Kong. Nor do they call for any response from the Chinese or any action by them. Nevertheless, we need to know that the Chinese
are not going to give a public rebuff before going ahead.
SECRET
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