RESTRICTED
was made of the port and airport: there were investment spin-offs. In short, China had a vested interest in stability; China would be caused unacceptable damage if Hong Kong ceased to exist in its present form. In the distant future the Chinese might foresee some kind of special zone status but for the foreseeable future Hong Kong would have a separate economic system and currency. China had other problems and it did not see the Hong Kong issue as pressing. The business community there accepted the Chinese government's line and the assurances given by Vice-Premier Deng Xiaoping but speculation would increase as 1997 approached. As far as the UK's interests were concerned, business prospects despite a forecast downturn in 1981 were better than for most Asian markets. 1997 represented a legal problem for the UK but now was not the time to make an approach to China. There was no likelihood of dramatic moves and the most damaging aspect would be speculation. As regards the line to take with enquiries, this was set out in Mr Clift's letter to Mr Dick on 19 January (circulated to the group).
Mr Dick said an enquiry by the previous Secretary of State for Trade had prompted him to ask what consideration was going on in Whitehall on the whole subject. Mr Clift said that they would consider issuing a confidential brief to interested ministers. Meanwhile, the UK would keep in touch with Chinese attitudes. Mr McLaren said that the Chinese, while recognising the problem, did not want to deal with it before they had to; there were delicate considerations involved including inter-alia Taiwan and the border disputes. Mr Clift said that any "Whitehall Master Plan" for post-1997 was out of the question; there were too many uncontrollable variables. Mrs Gingell pointed out China's export dependance on Hong Kong; it was impossible to disturb this. Mr McLaren agreed so long as rational thinking prevailed in China; he noted that no decisive action had been taken during 1967. Mr Lowry asked if another 100 years of the status quo would be in the UK's interest: Mr Clift said that the balance sheet was about neutral whereas disengagement would raise considerable short-term problems, especially in immigration requests. Mrs Gingell said that the nature of Hong Kong's business fast in-out trade meant that the problem of 1997 was less acute. Mr Thompson thought there was a problem in Whitehall's overcaution. Mr Field denied that there was overcaution in ECGD they were underwriting eontracts just as in the past. In the case of Castle Peak the final repayment would be in 2000. Mr Lowry said that anything short of hostile annexation would surely include satisfactory arrangements for taking over projects etc.
Pater Libum.
PL BUNN
Secretary to the Working Group
17 February 1981
1
3
RESTRICTED