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and
British administration has in fact provided efficient
consistent government policies and without them Hong Kong would
not have developed the way it has.
Mr. Deng went on to make several points to Mr. Heath. First he said that sovereignty over Hong Kong would have to belong to China. He raised the possibility of Hong Kong becoming a special administrative zone of China with the name "Hong Kong: China" and with a local government formed by the inhabitants (whether Chinese, British or other nationality). He also said that Hong Kong could remain a free port and an international financial centre and expressed the view that foreign investment would not be affected under those new arrangements. And he said that
the local government in Hong Kong could manage its own non- governmental trade and commercial relations with other countries.
I have to say that the changes envisaged in Mr. Deng's remarks to Mr. Heath are such that we are convinced that if that
plan were to be introduced or even announced as a decision of
your government, the effect on confidence in Hong Kong would be
disastrous. You will obviously wish to know why we came to that conclusion. If any drastic changes in the administrative control of Hong Kong by the UK were to be introduced or announced now there would certainly be a wholesale .flight of capital from Hong Kong. This is not something whi ch Britain would prompt: indeed we should do everything we could to prevent it because the difficulties which it would cause us are nearly as great as those it would cause you. But the simple truth is
that we could do nothing to control it.
4
I am referring not simply to British money, but to very large investments by local Hong Kong residents and to American,
Japanese, Australian and many other foreign investments, the great majority of which are controlled by private companies and
individuals and are free to move about the world.
having left Hong Kong, would not return.
/ It
This money,
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