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7. Mr Luce asked how Mr Wolfowitz saw the Chinese Government
after Deng Xiaoping. Mr Wolfowitz said it was in the nature
of such regimes for transitions to be unstable. They had seen
reports, which they could not assess, that Hu Yaobang was
coming under fire, and that Deng was having second thoughts
about him as a successor. This might give Deng an incentive to try to settle the Hong Kong question while he was still in control. Once jockeying began to replace him, it would be
difficult for the leadership to make decisions on Hong Kong.
During such periods of internal debate, there was a tendency
for nationalism to be neglected in foreign policy.
8.
Mr Luce said that, despite recent alarms, the Hong Kong economy was performing well; exports were up, and the Hong Kong Government were investing heavily in long term infrastructure
and other public sector projects. There was some drain of entrepreneurs overseas but not yet on a worrying scale. How
were US investors reacting? Mr Wolfowitz said he was unaware of any major loss of confidence, but the Administration were planning to take a close look at the economic questions surrounding Hong Kong. Mr Luce said he hoped they would do what they could to encourage their own investors. Mr Wolfowitz said that in speaking to the Chinese, Shultz made clear US interest in its prosperity and stability and had found a way to comment on the delicacy of business confidence. Beyond that, they were not sure that a US role could be helpful, though they were prepared to look at anything which we thought they could usefully do. For the time being they believed they could best contribute by improving their own relations with China without getting directly involved in the Hong Kong question.
g.
Mr Wolfowitz had one idea, however, which might be relevant to our case. This was based on US experience over the problem of the Huguang railway bonds, which also had a historical legacy and elements of sovereignty. The problem was not yet solved and still potentially troublesome. But one device which had enabled them to make progress had been Shultz's offer to send a legal team to Peking to explain the US system.
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