SECRET AND PERSON AL
and the better information fed in via various contacts in Hong Kong, the Chinese leaders still do not understand the problem of confidence, or, if they do understand it, suspect that it is something of a put-up job intended by us as a cover for seeking extension of our tenure.
6. The impression left by this interview was that the Chinese leaders at present find the Hong Kong issue too difficult, even where they understand it. They will therefore be very disinclined to take any action in advance of a financial crisis damaging their interests. When such a crisis occurs it is
But we have to allow
possible they may be more ready to act.
for a real possibility that even in such an event they may still find it too hard to give the considerable assurances required to correct the situation and bring back the investors. Their warning in 1979 that if we persisted in our course without regard to their views they would be obliged to react in a way that would not assist confidence indicated a readiness to subordinate economic damage to political requirements. Equally they could feel in 1982 or 1983 or whenever the slide occurs that economic loss over Hong Kong is a price worth paying to keep principles intact and avoid encouragement to the Taiwan regime or criticism from domestic opponents, particularly when following such a course requires no action on their part.
7. If the problem remains too difficult and nothing is done, there will be great pressure on the Chinese to accept the 1997 date, taking over the New Territories, and in consequence Hong Kong, at that time, though they would no doubt try to ensure a very liberal regime and a high degree of local autonomy as an example and inducement to Taiwan. By the same token, the only way out of the difficulty before then will almost certainly involve a concession on sovereignty on our part.
8.
We have to set against this the exploratory activity undertaken by Ke Hua and Song. This presumably reflects a wish by at least Huang Hua to learn more about the immediate problem. It could lead to some Chinese response and some discussion and ideally point the way to an eventual solution. On the other hand it could be no more than reconnaissance, which, even if it ensured a better Chinese understanding, would not necessarily prevent the problem remaining too difficult for the Chinese to resolve. It is too early to judge; for the present it would be best to assume that China will remain immobile at least until a slide occurs, and perhaps even then.
We
9. What should we do in this situation? First, we should encourage the Chinese to be as open with us as possible. should give the Chinese time to respond to the conversation
/with
-2-
SECRET AND PERSONAL