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the 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, including the length of time for which this
would be guaranteed.
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 Chinese Government
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 Chinese will be
prepared for full scale negotiations then but you will not be able
to avoid raising the subject. There is a reasonable chance that
you would be able to get agreement at least on continuing
C).
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/discussions