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FM PEKING
TO DESKBY 26110OZ F C O
TELNO 208
OF 260935Z FEBRUARY 91
INFO IMMEDIATE HONG KONG, UKREP JLG HONG KONG, WELLINGTON
Q DIST?
TOP COPY
ра
PERSONAL FOR BURNS, AUSS.
HONG KONG PERSONAL FOR GOVERNOR.
WELLINGTON PLEASE PASS TO PS/LORD CAITHNESS.
2173 1175
178
HONG KONG TELNOS 580 TO 582 AND YOUR TELNO 381 TO HONG KONG :
PADS: THIRD ROUND OF EXPERT TALKS.
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THE SUBJECT HAS NOW ASSUMED ADDED SIGNIFICANCE AS A TEST OF WHO IS TO BE IN EFFECTIVE CONTROL OF HONG KONG UNTIL 1997, AND THE DEGREE OF PRACTICAL AUTONOMY TO BE EXERCISED BY THE SARG THEREAFTER. CHINESE CONCERNS ON THE FINANCIAL SIDE NOW APPEAR TO
HAVE COALESCED AROUND CHINESE FEARS THAT THERE WILL NOT BE SUFFICIENT FISCAL RESERVES IN 1997 TO SUPPORT HONG KONG'S ECONOMY (IN PARTICULAR THE STOCK AND MONEY MARKETS) IN THE EVENT OF A MASSIVE COLLAPSE OF CONFIDENCE. TO THE EXTENT THAT THIS REFLECTS A CERTAIN, ALBEIT NEGATIVE, PRAGMATISM ON THE CHINESE SIDE IT IS NOT NECESSARILY A BAD SIGN.
THE PROBLEM IS TO FIND AN
ARRANGEMENT THAT WILL ASSUAGE CHINESE FISCAL CONCERNS, WHILE AT THE SAME TIME PRESERVING HKG'S FREEDOM OF ACTION AND ALLOWING THE NEW AIRPORT TO PROCEED IN A NORMAL BUSINESS-LIKE FASHION. WE SHOULD ALSO MAKE CLEAR TO THE CHINESE THAT THE VERY PROBABILITY OF THE INSTABILITY THEY FEAR IN 1997 WILL BE INCREASED UNLESS WE FIND A SATISFACTORY RESOLUTION OF THE PADS ISSUE.
2. ON TIMING, THE REFERENCE TO A FOURTH MEETING OF EXPERTS IN LATE MARCH SUGGESTS THAT LU PING'S VISIT MAY NOT MARK A DECISIVE STEP FORWARD AND THAT THE CHINESE SIDE HAVE ALREADY BUILT INTO THEIR TACTICAL PLAN THE ASSUMPTION THAT THE SUBJECT OF PADS WILL LOOM LARGE ON THE AGENDA OF A PROBABLE VISIT BY THE SECRETARY OF STATE IN EARLY APRIL.
3. AGAINST THIS BACKGROUND, WE AGREE THAT THE WAY FORWARD IN PARA
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