TNAG-0849-FCO40-1059-Future-of-Hong-Kong-New-Territories-leases-1979 — Page 29

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different from the situation on Hong Kong Island. The

remaining period of existing leases, and the period for

which new leases can be granted are therefore steadily

getting shorter.

This does not prevent speculative invest-

ment, which also has the effect of inflating the price of

land. But it is already beginning to deter the type of

industrial development of most value to the economy. Some

very large and beneficial long-term investments are being

made. But we know of many other cases in which the

comparatively short length of lease offered by the Hong Kong

Government has proved a deterrent. Such investors are not

generally deterred by their assessment of the future policy

of China towards Hong Kong. But they are concerned about the

legal limitation on their period of ownership imposed by the

terms of the leases they can be offered. Lawyers and

accountants for firms investing in Hong Kong, or interested

in doing so, are already getting worried about what value

should be plased on assets. In the British Government's

view it is desirable to remove this legal limitation as soon

as possible. At present this could be done relatively easily.

If we wait until a crisis of confidence has developed in a

few years time the problem will be more difficult to handle.

3.

In view of China's interest in the healthy development

of Hong Kong's economy a solution of the problem is in our

mutual interest. As the Governor explained to the Vice

Premier, the action to be taken must on the one hand maintain

confidence in investment, and on the other hand must not

contradict China's position on Hong Kong. The method we

propose is to remove the date from existing leases, and issue

new leases without a fixed date. This has to be done by

legislation.

O

There are two reasons for this.

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Firstly,

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