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4. Conversations with officials of Ministry of Foreign Affairs indicate that they are no longer thinking in terms of compromises (a) and (b) but generally of (c). They would, so they have assured Counsellor, be quite unable to hold the extremists unless they could at least boast of a compromise over the jurisdiction issue which (a) docs not give them. I gather however, that they would be prepared to accept something in the nature of (d) i.e. entire area to be nade into a house and garden for Mr. Kwok (I have mentioned this possibility in conversation to the Minister for Foreign Affairs but he did not comment).
5. Lattor proposal, as stated in paragraph 2
of Hong Kong telegram to Secretary of State for Colonics No. 147, would seen to be the least
objectionable alternative particularly inasmuch as
grant of quasi extra-territorial status inherent in this
scheme would absolve us from the charge that we have slipped back [ep. undoc. neutrality over jurisdiction issue.
Moreover it might achieve the objective of placing
the status of Kwok [gp. undco. ?on] more satisfactory basis.
6. It would howovor, be essential that settlement should contain a statement on lincs suggested in paragraph 6 of Hong Kong telegram mentioned above, ording of which will be of obvious importance fɔr mutual face saving.
7. I fool it important that we should start negotiations soon and I should welcome your instructions to go ahead on this basis.
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