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RECEIVED
RS-7 NOV 1990
DESK OFFICER
INDEX
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During the Lord President's visit to Australia, he had occasion to look through the report to Prime Minister Hawke and Senator Evans prepared by Ross Garnaut (now Chairman of the R & I Bank in Perth, formerly, of course, Australia's Ambassador in Peking), about the implications for Australia of economic growth and structural change in East Asia. This includes a section on China and Hong Kong, which concludes that the integration of Hong Kong into the Chinese economy "has been substantially completed". On our return, the Lord President was struck by an article by Christopher Smith in the Financial Times of 3 September, which again underlines the reality of economic links between Hong Kong and China. (I enclose a copy of the two references, though the extract from Garnaut's report obviously needs to be set in the wider context of the whole report he produced).
The reason for writing to you is that the Lord President was struck by the apparent contrast between these two references and the emphasis - entirely appropriate - in his briefing and in his speeches in Australia, on the importance of securing Hong Kong's role as an independent player in the regional economy, with a separate seat in the MFA negotiations, and hopefully separate membership of APEC etc.
The Lord President thinks that the difference is one of emphasis as much as anything else. There is no sign of China beginning a process of disintegration similar to that we may now be seeing in the USSR (and there would clearly be considerable dangers in that as well as short-term economic turbulence). But he thinks that the point developed by Garnaut and Smith justifies the conclusion that Hong Kong's role as a separate economic player in the region could be enhanced by taking into account in its developing role in the region, the strength of the links with China - be it one China, or a more fragmented association of provinces. At all events, he thinks that the idea may be worth encouraging, as a counter-weight to the stress on Hong Kong's continued economic
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