SECRET AND PERSONAL
We have in the meantime been working with the Hong
Kong Government on ways of meeting what seems to be the central Chinese concern: that any callable equity should be extinguished on or before 30 June 1997 (my letter of 19 May). The Hong Kong Government have come up with a proposal which will achieve this. But it is essential that before we play this card, we should be clear on how all the remaining points of difficulty in the negotiation
are to be dealt with.
It looks as if the Chinese are waiting at least
until the Prime Minister's meeting with Premier Li Peng in Rio on 12 June before relinquishing their hold over the airport financing arrangements. We will let the
Prime Minister have advice on the line to take with
Premier Li Peng separately. But there is an opportunity to prepare the way for a productive meeting with Li Peng when the Governor makes his farewell visit to Peking on 7
and 8 June. The Foreign Secretary suggests that the Governor should draw on the following general points during his talks in Peking, making clear that he is doing so with the authority of the Prime Minister and the
Foreign Secretary:
the election result ensures continuity of British policy towards Hong Kong. As the Queen's speech made clear, Britain's policy is based on cooperation with
China on the basis of the Joint Declaration;
the Government has made clear since 1990 that they
will discuss with China all the issues involved in the
1995 elections. The Chinese side should not see this
as a threat. The objective will be, if possible, to agree with the Chinese on the component parts of the 1995 electoral system so as to achieve the continuity through 1997 that both sides seek;