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THE CHINESE IMMEDIATELY ON HIS RETURN, EMPHASISING THAT ITS PURPOSE IS TO MAINTAIN CONFIDENCE AS THEY SAY THEY WISH WITHOUT REVEALING ANY DETAIL ABOUT THE DISCUSSIONS. WE HOPE THEY WILL

SIMILARLY EXERCISE RESTRAINT.

(BEGIN UNDERLINING) DISCUSSION WITH EXCO (CEASE UNDERLINING) 4. MY SECOND IFT CONTAINS NOTES ON WHICH MR LUCE COULD DRAW AT THIS MEETING. AS YOU SEE THESE CONCENTRATE MAINLY ON OUR

ASSESSMENT OF THE POSITION. WE DO NOT THINK THAT IT WOULD BE

HELPFUL TO GO INTO TOO MUCH DETAIL ON DISCUSSION OF POSSIBLE

OPTIONS AT THIS STAGE. NEVERTHELESS WE THINK THAT EXCO SHOULD BE

LEFT IN NO DOUBT THAT THE NEXT ROUND OF TALKS IS LIKELY TO BE CRITICAL AND THAT THE NEGOTIATORS' INSTRUCTIONS WILL HAVE TO BE VERY CAREFULLY DEVISED IN ORDER TO AVOID A BREAKDOWN. THEY SHOULD BE ENCOURAGED TO COMMENT AND PRODUCE IDEAS THEMSELVES. THE PRIME MINISTER HAS ONLY HAD TIME TO CONSIDER THE QUESTION BRIEFLY ON THE EVE OF HER DEPARTURE FOR NEW YORK. SHE WOULD WELCOME EXCO'S VIEWS ON THE PRESENT POSITION AND ON THE TIMING OF A POSSIBLE

FURTHER DISCUSSION IN LONDON BETWEEN MINISTERS AND UNOFFICIALS.

די

HOWE

FUTURE OF HONG KONG

LIMKLED

ED/HKD

COPIES TO

SIR IAN SINCLAIR LEGAL ADVISER

MR BURROWS

LEGAL ADVISER

HD/FED

MR ROBERTS

NEWS D

ED/PLANNING STAFF

MR MARTIN

EDD/PUSD

PS

PS/LADY YOUNG

MR FLOWER

PS/MR LUCE

MR COLES

PS/PUS

SIR J BULLARD

MR GIFFARD

MR DONALD

WRIGHT

ASSESSMENTS STAFF

CABINET OFFICE

PUSD

NO 10 DOWNING SUREEN

STR A PARSONS NO 10 DOWNING STREMENT.

MR WALKER RESEARCH D OAB 2/82

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