CO537-2188 — Page 5

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Indeed, if we were still free to consider the question whether there should be any substantial constitutional changes at present, I think that a strong case could be made out against our embarking on a policy of constitutional advance, on the grounds that Hong Kong, which, with its present Constitution and Administration, has attracted and retained a large Chinese population, which presumably prefers conditions in Hong Kong to those in China, is essentially a territory where constitutional advance should be governed and regulated by public demand. There is the further point that by adopting a policy of constitutional development, in the absence of any public demand for it in Hong Kong, we a are in effect making a definite/move in the direction of the return of Hong Kong to China.

However, we are committed to the general policy, and as the Governor, after consideration of the doubts raised here, adheres to his original proposals for an elected Municipal Council and, to my mind, now gives a much more encouraging picture of the attitude of the population towards them, I agree that they should now be accepted.

I also agree generally with the drafts which Miss Ruston has submitted, at my request, based on the assumption that the proposal for an elected Municipal Council and also the Governor's proposal for a variation in the composition of the legislature will now be accepted. I see no reason, however, why the announcement should be deferred while we take up with the Governor the detailed points raised by Sir Thomas Lloyd in his minute of the 12th December. And I would not attempt to deal in the present telegram with the machinery for working out the details and making the necessary arrangements for the creation of the elected Municipal Council. The suggested Commission may be the right way to go about it, but we must make sure that the arrangements interfere as little as possible with the work of the officers of the Administration in relation to rehabilitation and development. I imagine that the Governor will require some additional staff, at any rate for a period. I have amended the draft in these two and certain other minor respects.

As to the point raised in paragraph 5 of Miss Ruston's minute, in my view we are bound to consult the Treasury on the Municipality proposal, as Hong Kong is Treasury controlled and the proposal undoubtedly involves the transfer from the Central Government to the Municipality of certain property and revenues and the delegation to it of powers to raise taxes and expend public funds. There is thus an extremely important and far reaching financial aspect to this proposal. I think it would meet the case if after the draft telegrams have gone, we send to the Treasury as quickly as possible copies of all the relevant correspondence, saying that if they have any comments on the financial aspect of the arrangements for an elected Municipality we should be glad to have them as soon as possible.

The action proposed is, of course, also based on the assumption that the Secretary of State will not wish to refer this matter to the Colonial Affairs Committee of the Cabinet or the Cabinet itself before taking a decision. This assumption

is

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