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DSR 11C
Territory beyond 1997, we should get a very good deal
and achieve a real foreign policy success. Without it
we would have little effective bargaining power beyond
China's own perception of its economic interest in the
Territory. I therefore think that it would be sensible
for us to clear our minds on this issue of sovereignty
in order to be ready with a flexible response if the
Chinese show themselves ready for realistic negotiations.
At the same time we should of course avoid making any
premature offers on the subject of which they could take
advantage, and we should only agree to consider a transfer
of sovereignty in return for a satisfactory undertaking
from them on continuing British administration.
7. There is of course the idea put to you by Sir Y K Pao
of a possible linkage between loans to China and a solution
on Hong Kong. I do not know whether this represents firm
ChineseGovernment thinking and I am sceptical of our
getting a deal on Hong Kong on this basis. But we are
looking at the Pao ideas in order to get a clear view of
the advantages and disadvantages of a loan to China both
from the Hong Kong angle and on its own merits.
8.
The next step will be to form a clear view of our own
aims before your visit in September. I doubt if the
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