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what would happen to their investments in the end? In China all commerce was run by the Government. Did they therefore imagine that the Chinese would run Hong Kong in the same way and that their
property would be confiscated? Was this why they would lose confidence? The Chinese had hade clear that this was not their
intention and what Vice Aremier Deng told the Governor should be
sufficient to maintain confidence. He would be interested in the PFS' views. The FS said he would deal with the technical points first. He agreed that these could be solved by cooperation between the two sides. The question of water had already been solved. China would meet 60% of Hong Kong's needs by 1990. It would also be very natural for China to sellHong Kong electricity. The financing of a nuclear power plant would require a large amount of foreign exchange and by taking supplies from this plant Hong Kong could help China meet the debt servicing costs. Hong Kong would be prepared to discusi an airport as a joint project. It was a complicated question, but it might bẹ a cheaper solution than the Lantao alternative and the Hong Kong side would be ready to talk about the various possibiliti a As far as the general problem of confidence was concerned, the various assurances that had been made, in particular Vice Fremier. "Deng's atatement to the Gove mor last year, had been very helpful. Confidence was at present very high and this was evidenced by the present buoyant economic situation. A feature of the last years had been the excellent relations between the UK and China including questions involving Hong Kong. But the people of Hong Kong and investors there were naturally concerned about the future status of the place where they lived and worked. Before very long they would nued to see the general assurances that Vice Premier Deng nad made translated into practical arrangements. In this connection, he wished to raise one practical problem. This concerned the length of the land leases issued for individual pieces of land in the New Territorie As the years went by, the indeasingly short period of these leases Awould inevitably discourage investment and have a damaging effect on
the growth rate of the economy as a whole. The FS went on to SAY that he knew this problem was well known to the competent authorities in Faking and he realised it was a problem for discussion between Feking and HMG in London. But, as the official in Hong Kong responsible for maintaining the growth and stability of the Hong Kong economy in the interests of Hong Kong and China, he felt he had to stress that the problem of these leases would affect confidence more and more as time passed by. Sooner rather than later investment intentions would be affected and so would the exchange value of the Hong Kong dollar; and there could even be an outflow of funds.
Mr Gu said that as far as the technical problems were conce med including the nuclear power station and the airport, contact should continue and that complicated as the questions were they should be able to be resolved in a reasonable way. The FS commented that he had no doubt that the construction of a new airport as a joint venture with China would have 2 very beneficial effect on confidence but there were unfortunately some complicated problems involved. For example responsibility for the management of sugli an airport.