TNAG-0616-FCO40-764-Policy-of-UK-on-status-of-Hong-Kong-1977 — Page 101

CONFIDENTIAL

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2 NOV 977 Separate copies DESK VI INDEX

CHINESE POLICY ON HONG KONG

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Before Dr David Wilson went off to be Political Adviser in Hong Kong, he called for a general chat with Mr Ken Walker and myself. Not surprisingly, he did not foresee any particular or urgent require- ment over which Research Department might expect to be asked to help him.

However, casting further ahead, we had considerable discussion

on the termination of the Lease in 1997.

2. On the hypothesis that the Chinese would insist on the formal termination of the Lease at the due date in 1997, we thought it reasonable to assume that it would be in the Chinese interest that Hong Kong should still be a going concern when they took over. In other words, it would not be in the interest of China for investment in Hong Kong to peter out in the middle of the next decade, which was about the length of time that investors would require to ensure that they got their money back. From this we went on to deduce that some time in the middle of the next decade, say between 1985 and 1987, an understanding would have to be reached between the CPG and ourselves as to what arrangements would be made for the final decade of the Lease, to prevent a total collapse of confidence.

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3. Thus there would have to be negotiations (though they might not be so called) between the Chinese and ourselves. Our negotiators would need to be extremely well briefed for such an operation. could be assumed that the Chinese would be fully aware of any authoritative statement made on their own side on the subject since the communists came to power, and we should need to be equally aware of any such statements. It would be no good, for example, if we were to make some sort of proposal which it was known that someone with the authority of, say, Chou En-lai had at some time or another said would be unacceptable to China.

4. From this it was but a simple step to suggest that Research

Department might, on a low priority, start preparing a paper which gave all the relevant background material. I subsequently asked Mr Walker, before he left for the Assessments Staff, to jot down some notes on this. I attach a copy of the outline he produced of the shape a paper on this subject might take.

5. I should be grateful for your views on the idea of preparing for such a paper.

Obviously it would have to take a very low priority in our work and would depend on the available manpower.

But I see some merit in starting on it before the earlier material gets com- pletely buried in our files. I visualise this as a draft only (although the introductory section in Mr Walker's skeleton could probably be written now), consisting of a lot of disjointed sections on each of the subjects proposed, which could be added to as time went on so that if the need were to arise suddenly for a paper it would

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