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5.
China as having "ultimate sovereignty") would be bound to have an adverse affect on confidence unless it was coupled with a very firm Chinese assurance that they expected the status quo to continue for a long time to come. We should avoid making any such statement if we possibly can. Furthermore, we would have to look into the legal implications very carefully indeed. Essentially it is a card, which if played at all, should be held for an explicitly post-1997
situation.
(b) Response. We accept that the Chinese and ourselves have different views about the status of Hong Kong. From our point of view the problem does not immediately arise. Nor should it arise until 1997 at the earliest. We do not
wish to take issue with the Chinese over the long-term question
of sovereignty. We accept that one day Hong Kong will inevitably revert to China. Nearer 1997 we might be prepared to consider such a statement provided it was coupled with clear Chinese assurances about long tenure. For the present we see no need for a statement on sovereignty. The present problems are practical. Were we to make such a statement, it would be interpreted as a preliminary to handing back Hong Kong to China. The effect on confidence and the economy would be very serious. (As an ultimate fall-back position, to be used only if unavoidable) We can only make such a statement now if the Chinese will make it absolutely clear in public that they expect the present system of British administration to continue for a very long time to come, and certainly long
after 1997.
7.
Customs. The Chinese say that for ease of handling goods being transhipped to or from China, they would now like to revert to the old system by which the Chinese customs had offices, and carried out its functions, in Hong Kong.
(a) Comment. Not a very likely demand as a general proposition, but possible in relation to specific facilities, such as the through train to Canton or shipping services to Chinese coastal ports. There can be no great objection in principle to conceding such a demand (particularly since the
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/contd....
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