-

We are committed to including in the review the question of

direct elections. At the same time the Chinese Government and

the BLDC will be considering the structure of Government for

the SAR in 1997. The first draft of the Basic Law will be published in 1988. It is very important that there should be

no conflict between the outcome of these two exercises.

Particular difficulty would be caused if there was

inconsistency between decisions taken by the British side at

the end of 1987 and the provisions in the draft Basic Law published by the Chinese Government in the following year. This would call into question "convergence" and a smooth

transition in 1997 greatly damage confidence in Hong Kong:

and weaken the basis for the co-operation between the Chinese

Government and HMG which will facilitate the transfer of

sovereignty.

The Chinese attitude

23.

Over the past year the Chinese have on many occasions

made known their concern at the direction and pace of constitutional development in Hong Kong. In November 1985

their de facto representative in Hong Kong publicly accused us of "deviations from the Joint Declaration", a statement which

seriously jolted confidence. Although we have now done much

to re-establish a relationship of mutual trust over these

issues, Chinese nervousness remains.

24.

The Chinese concerns appear to be twofold. The

Chinese do not want us to announce decisions about major

constitutional change (in particular over direct elections to

the Legislative Council) in advance of the promulgation of the Basic Law in 1990. They fear that the impression could be given that important provisions in the Basic Law had been imposed on them by our pre-emptive action through the review. They want to avoid a choice between making stipulations in the Basic Law which are in actual or potential conflict with the

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