CONFIDENTIAL
CONFIDENTIAL
FM HONG KONG
TO DESKBY 01090OZ FCO
TELNO 2797
OF 01080OZ DECEMBER 92
INFO IMMEDIATE TOKYO, WASHINGTON, PEKING, MOSCOW
INFO IMMEDIATE UKREP JLG HONG KONG
37
120315
MDHIAN 0059
International support.
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YOUR TELNO 638 AND TOKYO TELS NO 832 AND 835 TO YOU: JAPANESE CONSULTATIONS WITH INCOMING US ADMINISTRATION.
WE SUGGEST THE FOLLOWING POINTS WHICH THE JAPANESE MIGHT MAKE CONCERNING HONG KONG/CHINA/MFN:
PROCESS OF SIGNIFICANT ECONOMIC LIBERALISATION NOW CLEARLY UNDER WAY IN CHINA ('SOCIALIST MARKET ECONOMY LINE AGREED AT 14TH PARTY CONGRESS). GOOD FOR REGIONAL AND WORLD ECONOMY.
IN TIME THIS WILL BRING LIBERALISATION IN OTHER AREAS: AS OLDER GENERATION DIE OFF AND ARE REPLACED BY A MORE TECHNOCRATIC
LEADERSHIP.
GRADUAL CHANGE IN CHINA PREFERABLE TO SUDDEN CHANGE, WHICH, GIVEN THE RECORD OF CHINA'S RECENT HISTORY, WOULD PROBABLY BE DE- STABILISING: BOTH IN CHINA AND POSSIBLY ALSO THE REGION.
ATTACKING CHINA'S ECONOMIC DEVELOPMENT (E.G. BY REMOVING MFN) WOULD SET BACK BROADER PROGRESS TOWARDS MORE FREEDOM IN CHINA: AND STRENGTHEN THE HAND OF REMAINING HARD-LINERS.
HONG KONG ESPECIALLY VULNERABLE. BASTION OF FREEDOM AND THE RULE OF LAW BUT DEPENDENT ON ITS ECONOMIC PROSPERITY. (TO BOLSTER INHABITANTS: AND DEMONSTRATE USEFULNESS TO CHINA).
SANCTIONS AGAINST CHINA WOULD HIT HONG KONG HARDEST, E.G. REMOVAL OF MFN COULD MEAN: REDUCTION OF C. US DOLLARS 14 BILLION IN HONG KONG'S OVERALL TRADE (7 PERCENT): LOSS OF C. 50,000 JOBS: LOSS OF C. 2 AND HALF PERCENT GDP GROWTH (FROM TREND RATE OF 5 PERCENT). PLUS FURTHER DAMAGE FROM SUBSEQUENT KNOCK-ON EFFECTS TO LONGER TERM GROWTH PROSPECTS.
US/CHINA CONFLICT REBOUNDING ON HONG KONG WOULD ALSO DAMAGE CONFIDENCE OF OUTSIDE INVESTORS, INCLUDING JAPANESE, WHO HAVE SO
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