gave a heavy weighting to economic factors and thus to the fact that China draws about one-third of her total foreign exchange earnings either from sales of goods for consumption in Hong Kong or from various transactions in and through Hong Kong. This dividend to China of course depends on continuing prosperity in Hong Kong, and on Hong Kong remaining outside the Renminbi zone.
12.
We in Hong Kong have done our best to build on these favourable bases, and our direct relations with Chinese officials and leaders, and also our indirect ones through Hong Kong businessmen with the right access could not be better. Indeed the leadership's uninhibited acceptance in recent years of modern Hong Kong and its value to China, is exactly what we would want for the beginning of the count-down period - because that period has now started and all that we have worked for will shortly be put to the test.
Part II - Settlement of the Future
13.
Descriptions of the methods by which H.M.G.
might manage this negotiation have covered much paper. Here I will briefly describe the stage reached and my personal view of the lines along which agreement might be reached which would be acceptable to Hong Kong. We cannot drift on indefinitely as the Chinese once thought we could on the basis of general assurances. This is because whatever the Chinese view of the validity of the Peking Convention, the basis of British administration of the New Territories is the 1898 Order-in-Council, and this limits the Governor's jurisdiction to the term of the Lease itself, i.e. until July 1997. So some arrangement about the future that is bankable will have to be reached soon or confidence will slide or break with consequences as much to China's disadvantage as our own. It is not possible to put a date on the breaking point, but confidence cannot be stretched for more than two or three years more, and it could break sooner if something triggered disinvestment. Confidence is largely maintained now because
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