CONFIDENTIAL
to the People's Republic of China with unquentifiable but potentially far-reaching effects on business confidence.
2. In raking their planning and investrent decisions the business community in Hong Kong must be able to assume that the present status of the Colony will be maintained for a considerable period of time; an otherwise inexplicable change in nomenclature at the present moment would create suspicions that the UK Government itself had doubts about the longer tera Prospects. Such a loss of confidence at this juncture could quickly lead to a drop in investment, with the prospects of an economic slump which would directly damage British interests 29 well as the interests of Hong Kong itself. Hong Kong is second only to Japan as a market for British exports in Asia outside the Middle East and British investment in the Colony is substantial. The British Government is also ultimately responsible for the well-being of the people of Hong Kong and any prospect of economic recession, particularly when the Colony is suffering from acute problems resulting from the refugee influx, would be of direct concern to the Government in London itself.
Any change would furthermore seriously affect proposed changes in the arrangements relating to the lease of the New Territories which are at present the subject of extremely delicate exchanges with the Chinese Government in Peking. The New Territories in Hong Kong, which make up over 90 per cent of the Colony's total land area, were leased, rather than ceded, by China to Britain in 1898 and the lease runs out in June 1997. Land leases in the New Territories drawn up by the Hong Kong Government have all been written to end in 1997 and unless arrangements can be made to extend them the increasingly short span of the current leases will soon begin to deter investors. Ministers therefore decided that the Chinese Government should be told of our intention to convert current leases into leases of
/indeterminate
CONFIDENTIAL