TNAG-0849-FCO40-1059-Future-of-Hong-Kong-New-Territories-leases-1979 — Page 127

SECRET

G

- 2

(a) the Hong Kong law officers believed that the Hong Kong

Government did not have the power to grant leases that would remain current beyond the end of the New Territories lease;

(b) in any case, we believed that the Chinese would think we were

taking too much for granted if we started issuing leases in the New Territories for terms of 99 years or 75 years or whatever.

5. We had doubts about the first of these points, but we did not argue them out with the Hong Kong Government because the second point was in any case assumed to be overriding. However, it seems to me that Deng's willingness to contemplate a situation under which Hong Kong, though nominally under Chinese sovereignty, could retain its present economic system, makes it unlikely that the Chinese would in fact object to our issuing leases for specific periods extending beyond 1997, provided we made it clear that, in doing this, we were only assuming that the Hong Kong economic system would continue for some time to come and that our action made no assumptions whatever about when political changes might

occur.

}

6. This being so, there is surely a case for reassessing the pros and cons of indeterminate leases versus ordinary leases with specific terms? The argument that the Hong Kong Government cannot grant the issue of land leases beyond the term of the New Territories lease is based on the assumption that the New Territories lease itself is no more than a glorified land lease. But this, as Mr Rushford pointed out on several occasions last year, is erroneous. Mr Gardner also shared this opinion. The New Territories lease is an unusual, possibly unique, arrangement under which one country ceded to another sovereignty over a specific part of its territory for a specified period. We asked Research Department last year whether they could find any precedent or parallels, but they were unable to do so (military base agreements are a very different matter). But perhaps the closest comparison to the situation we are now in is the period when a colony is coming up to independence and it is known that at a specific date in the future the territory is going to come under the sovereignty of a different government. That fact has never been held to invalidate leases and contracts extending beyond the point at which the change of political sovereignty is to take place: it is taken for granted that the new government will assume the obligations of its predecessor although of course from the moment it takes over it will then be open to the new regime to repudiate any obligations which it does not want to continue. But the fact that the new government will have the power to do that in no way detracts from the legal validity of the leases, contracts, etc. when first signed. Similarly in Hong Kong: the fact that the present government cannot guarantee that leases etc. issued now will not be repudiated after 1997 does not of itself make such leases etc. invalid.

7. It seems to me therefore that there is no longer any real objection to the Hong Kong Government's simply issuing leases in the New Territories on exactly the same basis as they already do in the rest of Hong Kong. This, surely, is greatly to be preferred to indeterminate leases, for the following reasons:-

(a) it would need no legislation in Hong Kong or the UK;

SECRET

/(b)