CONFIDENTIAL
24-26 March meeting of the Joint Liaision Group, where the senior Chinese representative made a strong attack on Hong Kong's privatisation plans: he urged that Hong Kong should
take no steps before 1997 to privatise the Kowloon and
Canton Railway Corporation (KCRC), or otherwise unilaterally
to dispose of the assets of the Hong Kong Government which must be tranferred to China (and the SAR) on 1 July
1997. The Chinese are wholly indifferent to the economic
benefits of such a privatisation, which they explicitly stigmatized as selling off the family silver. When they take this attitude to such a straight-forward proposal,
which would involve no transfer of funds outside Hong Kong,
what prospect is there of their taking a dispassionate view
of the transfer to HMG of the capital value of HMOCs
pensions?
8. I conclude that there is now no prospect of the HKG
providing the sterling safeguard or an adequate substitute
for it. This is not a question of any lack of will on the
part of the Governor or his government. Even if we
collectively judged it right to provoke the crisis with
China that capitalisation would entail, it would not simply
be a question of instructing the Governor to make the necessary arrangements: it would require an Order-in-Council over-riding the Hong Kong legislature's powers over finance.
This would cause a [grave] constitutional crisis and set a
deplorable precedent for Hong Kong's financial autonomy
after 1997 as laid down in the Joint Declaration. It would
also go against the whole pattern of our constitutional
history and our relations with overseas territories.
9. There is no dispute that, because of the general
assurances originally given by Robert Carr and Reginald
Prentice, we already have a large contingent liability in
respect of Hong Kong HMOCS pensions. I strongly believe that we should now openly accept the limited contingent liability of our sterling safeguard proposal. This would be good for the morale of key Hong Kong officials and police
NOCACF/4
CONFIDENTIAL