CONFIDENTIAL

VISIT OF MR GOODLAD TO JAPAN, 21-24 JUNE

China/Hong Kong: International Support

Points to make

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Prospects for Hong Kong look good. South China economic development irreversible. Hong Kong's success hinges on its

economy. But we also need to create the right political

environment.

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As Douglas Hurd told Mr Watanabe in Washington on

22 January, we are grateful for Japan's efforts to influence

China. His comments on democracy particularly helpful.

Not a message that China wants to listen to, but important that she is told frankly that the developing democratic system is essential to the maintenance of Hong Kong's

stability and prosperity and that Chinese attacks on it undermine business confidence in the One Country Two Systems policy.

Helpful if Japan could encourage China to talk more to the 18 directly-elected LegCo members instead of showing public suspicion and hostility. China will win more with a smile

than with a frown. We encourage LegCo to reciprocate.

Also important to continue to remind China (as Mr Watanabe

has been doing) that a confrontational policy towards

Hong Kong could discourage foreign investment.

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