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resumption of sovereignty by China, pass to the PRC which will
then grant them to the SARG. The Chinese have stated in the
JLG that HKG's reserves should pass to Peking before being
granted to the SARG, and they have asked for a full list of
HKG's assets. They have, however, assured us that the PRC
would hand over to the SARG all the assets of the HKG.
Chinese leaders have said in public that China will not touch
a penny of Hong Kong's reserves.
5. The Chinese view of the constitutional position underlies their demand that HKG should not assume obligations extending beyond 1997 without their agreement, and that the PRC can
decide which obligations should be assumed by the SARG after
1997. It may also explain their objection to our proposal on
midnight adaptation of laws.
The Legal Position
It
6. The customary international law position is that assets
which are the physical and fiscal property of an extinct or
totally absorbed state are assumed by the absorbing state.
is for the successor State's laws to determine whether the
property becomes vested in the State itself or in a component
part of the State such as a territorial subdivision. Although
Hong Kong is not a state the Chinese may argue by analogy that this requires that all physical property which makes up Hong Kong, and its financial assets be passed to them on 30 June
1997 and that it is for the PRC to decide to endow the SAR
with these assets. We could maintain that Hong Kong is a
unique case governed by the JD and that the JD contains no
requirement for HKG assets to be passed to the PRC and that
this is therefore a matter to be resolved in the JLG. The
logical extension of this argument is that in the absence of
an agreement, we reserved the right to transfer HKG's
assets.paper/MONEY/bp
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