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4. If this is in the minds of the Chinese, they have clearly
misunderstood the basis of Hong Kong's prosperity. Confidence in the
Territory, particularly among investors, is likely only to be mai
tained if autonomy is guaranteed by the administration continuing
on the same lines, ie through the British.
5. In my view, our own interests point to the need to keep
Hong Kong going on that basis. The option of unilateral withdrawal
is not really open to us. From the most negative viewpoint, a
British pull-out would create enormous problems for us. Our political
and economic interests in the Far East would suffer and we would
be faced with demands from Hong Kong people for guarantees of
protection and, more than likely, for the right of admission of
fairly large numbers to this country.
6.
We therefore need to try to bring the Chinese to agree to
continuing British administration, not indefinitely but for a
sufficient period of time to maintain confidence. They will not
of course agree to this without a price; that is likely to focus
on the question of sovereignty, on which their recent remarks
put much stress. Here I think it would be in our interests to be
flexible. We can only maintain sovereign powers in the New
Territories up to 1997 in any case and the rest of the Territory
is not viable on its own. The fact that we entered into a lease
on the New Territories in 1898 was a recognition that ultimate
sovereignty in these areas rested with China. If we could come
to an arrangement whereby we made some sort of recognition of
Chinese sovereignty over the rest of the Territory' (ie Hong Kong
Island and Kowloon) while still retaining the right to administer
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/the