lt.wood.ADMIN
JEB
26 October 1993
S N Wood Esq
HM Treasury
CONFIDENTIAL
Foreign & Commonwealth
Office
London SWIA 2AH
FILE
8
îte with Chules.
HUB 370/23
2.uci 1993
Telephone: 071-
་
Dear Stephen
1
HONG KONG: TRANSFER OF ASSETS TO THE SARG IN 1997
1. Thank you for your letter of 25 October.
2. You raised in your letter the question of transfer of liabilities on 1 July 1997 from the Hong Kong Government (HKG) to the Special Administrative Region Government (SARG). Unfortunately, this is a far more difficult issue than transfer of assets and that is why we have decided to tackle assets first. The problem with liabilities is that the Chinese refuse to accept that the SARG is obliged to inherit liabilities assumed by the HKG. They argue that as the HKG and the SARG are different entities it is not possible for the former to bind the latter. This accords with their position that it is the Chinese side which speaks on behalf of the unborn SARG. They have used this argument to force us to consult them on important matters straddling 1997 such as the award of major franchises and contracts. Whatever international law may say on this subject, the tactics adopted by the Chinese have been effective as few companies (or their bankers) will commit to a government contract straddling 1997 if the Chinese state that the contract will not be honoured by the SARG. It was for this reason that we secured in the Airport Memorandum of Understanding inclusion of the following paragraph:
"The Chinese Government will support the construction of the new airport and related projects. It will indicate clearly to interested potential investors in accordance with the principles enshrined in this Memorandum that obligations related to the airport projects entered into or guaranteed by the Hong Kong Government will continue to be valid and be recognised and protected by the Hong Kong Special Administrative Region from 1 July 1997."
3.
We have not accepted the Chinese view of the legal position and have maintained in discussions with them that the Hong Kong Government is legally entitled to take decisions binding the SARG. We have supported this view by reference to Article 160 of the Basic Law. This states that:
CONFIDENTIAL