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SECRET

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DSR 11C

committed to remain in Hong Kong for good. It does suggest

that change should come gradually in agreement with China

but above all without losing the confidence of the Hong

Kong population.

Possible Chinese Moves

31. The emerging Chinese administration will be preoccupied

with its economic and internal political difficulties for

several years. Nevertheless, by the early 1990s the

!

Chinese Government themselves will probably accept that

some action on their part will be necessary to prevent

a collapse of confidence. Annex E discusses a number of

options. They could overlap. It is possible that the Chinese

might find it convenient to acquiesce tacitly in the present

arrangements running beyond 1997. But they will not allow

matters to drift indefinitely: Deng Xiaoping remarked in 1979 that a political solution might emerge before 1997; in addition in May 1980, Vice-Premier Gu Mu told the Hong Kong Financial Secretary that the solution for Hong Kong 'may be for China to find', though 'the process of discovering it is a matter for reflection on both sides'.

32. There are some indications that the Chinese Government

may envisage a variation on the theme of a special zone

for Hong Kong, within the Chinese state but with a separate

Dd 0532000 400 M 5/78 HMSO Bracknell

/currener

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