CONFIDENTIAL
FM FCO
TO IMMEDIATE WASHINGTON
TELNO 1156
OF 261445Z JUNE 91
AND TO IMMEDIATE HONG KONG
CONFIDENTIAL
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011021
MDHOAN 6133
Whiz 090/4 HOP COPY
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Q DIST?
MIPT: CHINA/US RELATIONS: MFN STATUS: INSPIRED PQ AND PRIME MINISTER'S STATEMENT
QUESTION
TO ASK THE PRIME MINISTER IF HE WILL MAKE A STATEMENT ON HMG'S POSITION REGARDING THE RENEWAL BY THE US GOVERNMENT OF CHINA'S MOST FAVOURED NATION STATUS.
ANSWER
RENEWAL BY THE UNITED STATES GOVERNMENT OF MOST FAVOURED NATION STATUS FOR CHINA IS OF GREAT IMPORTANCE TO HONG KONG. I THEREFORE WARMLY WELCOMED THE RECENT DECISION BY THE PRESIDENT OF THE UNITED STATES TO RENEW MFN UNCONDITIONALLY. I HOPE THAT BOTH THE HOUSE OF REPRESENTATIVES AND THE SENATE WILL GIVE THEIR SUPPORT TO THE PRESIDENT ON THIS ISSUE.
HONG KONG'S ECONOMY IS NOW INEXTRICABLY LINKED WITH THAT OF CHINA'S. MORE THAN TWO-THIRDS OF CHINESE EXPORTS TO THE UNITED STATES ARE ROUTED THROUGH HONG KONG. WE ESTIMATE THAT NON-RENEWAL OF CHINA'S MFN COULD RESULT IN A LOSS OF SOME 43,000 HONG KONG JOBS, A DROP OF UP TO A HALF IN HONG KONG'S CURRENT GDP GROWTH AND A LOSS OF USD 9-12 BILLION IN TRADE. THE SUBSTANTIAL US INTERESTS AND INVESTMENT IN HONG KONG WOULD ALSO BE ADVERSELY EFFECTED BY NON-RENEWAL OF MFN.
NATURALLY CONGRESS AND THE SENATE WILL TAKE INTO ACCOUNT OTHER IMPORTANT FACTORS IN REACHING A DECISION, NOT LEAST THE CHINESE RECORD ON HUMAN RIGHTS AND THE US TRADE DEFICIT WITH CHINA. WE BELIEVE THAT THE WIDER INTERNATIONAL INTEREST IN SUPPORTING REFORM IN CHINA AND THE POTENTIAL DAMAGE TO HONG KONG ECONOMY OUTWEIGH SUCH ARGUMENTS.
THERE HAVE BEEN SOME CALLS FOR RENEWAL TO BE MADE SUBJECT TO CONDITIONS. BUT THIS TOO WOULD BE BAD NEWS FOR HONG KONG. THERE WOULD BE DOUBT AS TO WHETHER CHINA WOULD ACCEPT THE CONDITIONS OR COULD MEET THEM AND WHETHER FURTHER CONDITIONS
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