investors there.'
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General assurances of this kind have had
a favourable short-term effect. But there is a practical
problem about land leases in the New Territories, all due to
end in 1997, which cannot be dealt with in this way.
Following initial soundings by Sir M MacLehose during his
visit to China, HM Ambassador in Peking outlined a possible
solution to the Chinese early in July. This was to issue
future leases in the New Territories without a fixed term; to
convert existing leases into indeterminate leases; and to take
legal steps to enable British administration to coninue after
1997, should the Chinese (and, of course, the British
Government) so wish. We thought and explained to the Chinese
that the proposed action was entirely consistent with the
Chinese position and did not prejudice their freedom of action
with regard to the future of the territory. However, the
Chinese have given a negative response: on 24 September
HM Ambassador was handed a written reply which referred to the
legal steps we had in mind as 'unnecessary and inappropriate';
urged us not to proceed with them; and warned of adverse
reactions should we persist.
11. [Not for use] The reasons for the Chinese response are
not clear. They may consider that Deng Xiaoping's remarks,
and now Hua's, have dealt with the short-term problem of
confidence and that proposals looking ahead to the medium-term
are premature. They may also be disinclined to tackle a
sensitive problem before it becomes unavoidable; and they may
have the implications for Taiwan in mind. Whatever the reason
the message is plain and we clearly cannot proceed with the
original plan. But it is important to reiterate the point.
that there is a short-term problem; that it cannot be dealt
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