SECRET
2
DSR 11C
3. Any initiative on Hong Kong might also have consequences
for their policy on unification with Taiwan: they will do
nothing over Hong Kong that would make this more difficult.
Increasingly, the Chinese see a connection between policy
towards Taiwan and Hong Kong. When Lord Carrington was in Peking in
April 1981, Deng Xiaoping said that we should study Chinese
policy 'towards Taiwan when considering Hong Kong. The
recogi 0766
A.
(the
essentials of present Chinese policy (see Annex A for
details) are that Taiwan mist give up its claim to statehood
and its flag but will then be allowed a large degree of local
autonomy, including its own armed forces. The parallel for
Hong Kong would be, as a minimum, (the relinquishing of
sovereignty in return for a negotiable degree of autonomy.
Current pressures on the Chinese leadership are such that
they are likely to do the minimum necessary to preserve the
advantages they gain from Hong Kong. They will avoid
specific agreements if they can. They may even be prepared
to suffer severe economic loss rather than take political
risks. Moreover we clearly cannot rely on the leadership
in Peking remaining constant. We cannot exclude the emergence
of a more ideologically and less pragmatically inclined
power group.
5. The Chinese apparently believed in 1979 that Deng's
general assurances about the interests of investors being
safeguarded would be sufficient to deal with the problem
of confidence for some time to come. This formula allowed
for what were, to them, significant guarantees about the
Hong Kong economic system and its probable continuity
(capitalism well into the next century) without giving
away anything on political control. They probably still
think this type of general assurance should be sufficient,
although there are some indications that they are beginning
to realise this is not so. Their initial remedy for a
slide in confidence is likely to be to repeat the
assurances more forcefully and more directly to leading
investors in Hong Kong.
I