XN000022-1985-09-30 — Page 3

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MONDAY, SEPTEMBER 30, 1985

THIS ASSERTION BY CHINA CAUSED A MOMENTARY FLURRY OF APPREHENSIVE INTEREST IN HK. BUT IN THE SEVENTIES THE DRIVE OF ECONOMIC AND SOCIAL PROGRESS WAS SUCH THAT MOST PEOPLE DID NOT REGISTER THIS AS A FIRST STEP IN A CRITICAL PROCESS.

THE LATE SEVENTIES: GROWING CONCERN

HOWEVER, BY THE END OF THE SEVENTIES THERE WERE EXPRESSIONS OF CONCERN ABOUT THE FUTURE NOT ONLY BY LEADERS OF PUBLIC OPINION AND OTHERS IN HONG KONG BUT ALSO BY FOREIGN INVESTORS. A PRIME FACTOR IN THIS CONCERN WAS LAND--ONE OF THE VITAL INGREDIENTS IN HK'S STRUCTURE: FOR LAND LEASES IN THE NEW TERRITORIES ARE ALL SET TO EXPIRE THREE DAYS BEFORE THE END OF THE N.T. LEASE ON 30 JUNE, 1997.

H.M.G. CONCLUDED THAT CONFIDENCE IN HK WOULD BEGIN TO ERODE QUICKLY IN THE MID-EIGHTIES IF NOTHING WAS DONE TO ALLEVIATE THE UNCERTAINTY PRESENTED BY THE 1997 DEADLINE. SO WHEN THE GOVERNOR OF HONG KONG, SIR MURRAY MACLEHOSE, VISITED PEKING IN MARCH 1979, HE DISCUSSED THE QUESTION OF LAND LEASES EXPIRING IN 1997. BUT AT THAT TIME THE CHINESE WERE NOT READY FOR SUCH MATTERS AND LITTLE POSITIVE CAME OF THE MEETINGS OTHER THAN DENG XIAOPING'S ASSURANCE THAT THE PEOPLE OF HK COULD SET THEIR HEARTS AT EASE ABOUT THE FUTURE.

BUT OVER THE NEXT TWO YEARS THINGS CHANGED. WHEN THE LORD PRIVY SEAL, HUMPHREY ATKINS, VISITED PEKING IN JANUARY 1982, HE WAS GIVEN A CLEAR INDICATION OF CHINESE POLICY ON HK'S FUTURE. IT WAS THIS THAT CONFIRMED H.M. GOVERNMENT IN ITS VIEW THAT NEGOTIATIONS SHOULD BE OPENED WITH THE CHINESE.

PRIME MINISTER : FIRST VISIT 1982

AGAINST THIS BACKGROUND MRS THATCHER VISITED PEKING IN SEPTEMBER 1982. SUBSTANTIVE DISCUSSIONS TOOK PLACE BETWEEN HER AND CHAIRMAN DENG XIAOPING. IT WAS AGREED THAT TALKS SHOULD BEGIN THROUGH DIPLOMATIC CHANNELS TO MAINTAIN THE STABILITY AND PROSPERITY+ OF HK.

NEGOTIATIONS

VERY SOON AFTER THIS VISIT, PHASE 1 OF THE PRELIMINARY NEGOTIATIONS TOOK PLACE IN PEKING. THIS WAS FOLLOWED IN JULY 1983 BY PHASE 2 WHICH CONSISTED OF A SERIES OF FORMAL ROUNDS OF TALKS AT AMBASSADORIAL LEVEL SUPPLEMENTED WITH INFORMAL TALKS IN

THEY WENT ON UNTIL THE DRAFT AGREEMENT WAS COMPLETED.

BETWEEN.

/BY APRIL