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moment it is obviously aimed at a maximum contribution to the modernisation programme. However it may go deeper than this. For instance their surprising interest in establishing a nuclear power station near Hong Kong would be a very major development since its financial viability would depend upon the foreign currency earnings from sale of electricity to Hong Kong. On a less dramatic scale there is the development of the Shenzhen special municipality and industrial zone which in part seems designed to draw on Hong Kong capital and expertise, and in part to divert to Guangdong some of Hong Kong's industry and potential investment through the attraction of not only cheaper land and labour, but also the longer time scale of the arrangements. They have said that the average joint venture contract will be for 25 years and leases for longer periods of up to 50 years have been mentioned. All this may prompt, or may be prompting, new thinking about the relationship between Hong Kong and Guangdong.
16. As you know the First Director of NCNA here told me that while he accepted that in spite of Deng's assurance the hearts of people in Hong Kong were not at ease, he thought that progress on either the legal or political planes was blocked, and that for the time being the best way forward was through economic cooperation.
17. I do not pretend to foresee what political influence these economic developments will have, but they represent a new factor to which the Chinese clearly attach importance (vide Governor Xi's press statement during his visit to Hong Kong). The fact that the intention of these developments and their eventual impact on Hong Kong are unclear is yet a further argument in favour of taking things slowly, and seeing how Chinese ideas develop while continuing to nudge them on the issue of the leases in the way I have proposed.
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18. We must face the fact that our nudging over the leases and public speculation in Hong Kong about the future, coupled with these cross-border economic developments, may well stimulate the MFA to consider some political move that could offset a move to provide the economic assurance which we need. But I am coming to the conclusion that while on the one hand we should put off any political change as long as possible, on the other hand a bankable assurance about leases, or of course about the future of Hong Kong generally, would be worth some political price. In other words we should be prepared to contemplate giving ground on an Official Representation or even ultimate sovereignty over Hong Kong; but only in return for genuinely bankable assurances about post 1997 leases and only if we are making no progress on alternative short term solutions.
19. If you agree with this general approach we then face the question of where and how to begin the thickening out process referred to in paragraph 9. Some preliminary work