TNAG-0848-FCO40-1058-Future-of-Hong-Kong-New-Territories-leases-1979 — Page 147

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THINK THE FIRST STEP IS TO ESTABLISH CHINESE CONFIDENCE OVER THE PART HONG KONG AND ITS GOVERNMENT IS WILLING TO PLAY IN THE MODERNISATION PROGRAMME AND ECONOMIC DEVELOPMENT GENERALLY. WE HAVE MADE GOOD PROGRESS ALREADY AND LI CHIANG'S VISIT WAS SPECIFICALLY ENCOURAGING, BUT THERE MAY WELL BE RESIDUAL SUSPICION OF THE HONG KONG GOVERNMENT WHICH IT WILL TAKE GESTURES, SUCH AS MY VISIT, AND TIME, TO DISSOLVE. HOWEVER ONCE THE NECESSARY CONFIDENCE HAS BEEN ESTABLISHED WHAT WE PROPOSE OVER THE LEASES FALLS INTO PERSPECTIVE AS AN INCIDENTAL (AND BRITISH DOMESTIC) PART OF A GENERAL DESIGN OF INDUSTRIAL AND OTHER DEVELOPMENT IN THE HONG KONG/CANTON REGION.

5. IN THE LIGHT OF THE FOREGOING I PROPOSE TO PICK UP IN PEKING AND CANTON WHERE LI CHIANG LEFT OFF IN HONG KONG AND ENCOURAGE A DIALOGUE ON DEVELOPMENT PLANS IN HONG KONG (OURS) AND IN KWANGTUNG (THEIRS), THEIR INTER-RELATIONSHIP (INCLUDING JOINT

IN THE PROCESS I VENTURES), AND HOW EACH COULD HELP THE OTHER. MUST BE READY TO TAKE IN SUBJECTS SUCH AS IMMIGRATION, TOURISM, LAND SEA AND AIR COMMUNICATIONS, WATER ELECTRICITY AND FUEL SUPPLIES, AND ALSO K.M.T AND SOVIET ACTIVITIES.

6. ASSUMING THIS ECONOMIC-SLANTED DIALOGUE PROCEEDS ALONG AMIABLE LINES, I SHALL THEN MENTION THE PROBLEM OF THE LEASES (IN THE FIRST INSTANCE ON AN INFORMAL OCCASION). THE EXPLANATION DIVIDES ITSELF INTO SEVERAL PARTS:-

(A)

SOMETHING MUST BE DONE QUITE SOON IF THE MORE VALUABLE TYPE OF LONG-TERM INVESTMENT IS NOT TO BE DETERRED. POTENTIAL INVESTORS DO NOT APPEAR TO BE WORRIED BY THE POSITION OF THE CHINESE GOVERNMENT ON HONG KONG, BUT ARE PUT OFF BY THE PROGRESSIVELY SHORTENING PERIOD OF THE LEASES WE ARE ISSUING. THIS RELATES PARTLY TO TECHNICAL ASPECTS (E.G BOOK VALUES OF ASSETS) AND PARTLY TO CONFIDENCE.

(B) THIS IS A PROBLEM OF HONG KONG DOMESTIC LAW RESULTING

THE HONG KONG FROM THE WAY IN WHICH LEASES HAVE BEEN WRITTEN. GOVERNMENT WILL HAVE TO FIND AN ANSWER FAIRLY SOON IF THE RIGHT SORT OF DEVELOPMENT IS TO CONTINUE.

(C) THE ANSWER WOULD OBVIOUSLY HAVE TO AVOID PREJUDICE TO CHINA'S WELL-KNOWN POSITION ON HONG KONG, AND NATURALLY THE AMBASSADOR WOULD BE IN TOUCH BEFORE ANY ACTION WAS TAKEN.

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