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of commercial judgement. If anything involved official problems they

could be discussed but I did not foresee any real difficulties. I

mentioned the need to ensure that the requirements of Certificates of

Origin were met if joint production for eventual export from Hong Kong

was involved.

But all

I do see scope for development of joint production.

this of course is a matter for the commercial judgement of the private

sector.

I should say that I continually stressed the point that there

will be no advantage to China in displacing Hong Kong products in third

markets. The value of the increase in Chinese exports to third markets

would simply be offset by the decrease in prosperity and purchasing power in Hong Kong and therefore of Chinese exports to it. We could

both profit only by considering our mutual benefit.

In response to Chinese exhortations for greater economic

cooperation and the greater deployment of Hong Kong's industrial, commercial and financial capability for the mutual benefit both of China's modernisation programmes and Hong Kong, I stressed the unique capacity

which Hong Kong and her businessmen possessed and the very great

contribution they could make given commercially attractive contracts,

security for investment and reasonably quick decisions.

We were briefed in detail by the Guangdong Water Engineers

on their latest thinking on how to solve our need for increased water

supplies after 1982. They have done a lot of work on this and their

Alternative new schemes which would serve both their need for irrigation

/and ours