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standard of life in a desperately crowded community; but they want Hong Kong to remain British and they evidently expect HMG to do
all it can to ensure that it does not return to China. Any attempt at British disengagement would be bitterly resented by the majority in Hong Kong, so many of whom went there to escape the present regime in China, and an acute constitutional crisis would be expected to ensue.
III.The Chinese Interest
9. Although we believe that Hong Kong is not a political issue for Chinese leaders at present, there is nevertheless an element of political embarrassment in its continued existence. Hong Kong is a reminder of China's weakness in the 19th century and remains an area claimed by China outside her administrative control. The existence of the Colonies of Hong Kong and, to a lesser extent, Macao has been used by the Soviet Union in an attempt to undermine China's credentials with the Third World and in waging the ideological war of words between them. Its prosperity is a magnet for discontented elements in the neighbouring provinces, particularly Kwang Tung, and a measure of the gap in living standards China still has to
make up.
10. Nevertheless the great practical value of Hong Kong at present outweighs these nationalist and ideological considerations. Of first importance is the Colony's value as a source of foreign exchange. Imports from China were about £600m in 1974, a rise of 6.3% over 1973. As a proportion of China's total foreign exchange earnings, however, earnings from Hong Kong on present trends may decline from 40% annually in the decade prior to 1973 if Chinese oil exports gather momentum. We know that earnings from Hong Kong are specifically mentioned as a factor in the Chinese five year plan now beginning and we can assume that they will continue to be significant up to and beyond 1990. Hong Kong is also of value to China as an entrepôt centre for Chinese foreign trade; as a centre of financial and technical expertise servicing Chinese trade in invisibles; as an international point of exit and entry; as an observation post on the outside world, particularly in the Far East
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