SECRET
China's GNP, so from Peking's perspective the amounts involved were relatively small; but this did not mean that they were insignificant, or that the Chinese did not understand the considerable economic value.
6.
Mr Bailey said Mr Alexis Johnson had claimed that Macao could form a precedent for solving the Hong Kong question. Mr Donald, stressing that he was speaking in the strictest confidence, said that when the Red Guards had invaded Macao in 1967, the Portuguese had offered to abandon Macao. Peking had refused since it would have affected confidence in Hong Kong. Diplomatic negotiations had begun in 1978, leading to an open agreement that Macao was Chinese territory administered by Portugal. However, it was not fanciful to assume, although there was no proof, that there was probably a confidential agreement by which the Portuguese conceded that the right of administration was also Chinese and could be exercised whenever they decided to do so. Once Hong Kong had been settled, therefore, the Chinese could be expected to bring the situation in Macao into line. The main point was that Hong Kong was not likely to be settled on the parallel of Macao, but rather the other way round.
Distribution:-
Mr Gomersall,
Mr Galsworthy, Mr Maclaren,
Mr Donald
V Mr Clift, HKD
Mr Elliott, FED
WASHINGTON
PEKING
HONG KONG
SECRET
-2-