TNAG-0381-FCO40-427-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1973 — Page 13

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if this appears as a Hong Kong rather than a Treasury proposal it

will enhance the risk, which we foresee, of the Treasury demanding

that Hong Kong should follow particular policies even in the absence

of an agreement.

5.

Meanwhile the Treasury's acceptance of Hong Kong's proposal Flag B20 for a reduced MSP has gone (FCO telegram no. 1133), the form of our

Flag C

20acceptance is deficient as I explained in my minute of 9 November,

but our interest is to present the substance as a success for

UK/Hong Kong relations. We should urge Mr Barratt to present it as

Flag D

such and to be ready to deal with the questions that were not

included in the telegram (whether there had been a technical

reduction of the MSP, whether newly acquired reserves have to be

RFC..

included).

6.

Finally there is the question of future financial arrangements

for Hong Kong. I think we should discourage Mr Barratt from putting

forward his views at this stage. Personal and political

sensibilities in Hong Kong could too easily be damaged. I suggest,

however, that, if Mr Holland agrees, we might give him for his

background information Mr Holland's interesting paper of 2 November

less the addendum. This sets out clearly the scope of the problem

and the difficulties of dealing with it. We should at the same time

make it clear that this is a preliminary draft which has not been

circulated and will need considerable further thought.

14 November 1973

сс

Mr Holland

Mr Youde

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DCSL

A C Stuart

Hong Kong & Indian Ocean Dept.