TNAG-0850-FCO40-1060-Future-of-Hong-Kong-New-Territories-leases-1979 — Page 142

SECRET

181A

GOVERNMENT HOUSE

HONG KONG

香港總督府

HKIL

RECEIVED IN REGISTRY NO.

1979

Jer Riten,

NEW TERRITORIES LEASES

-

5 SEP 1979

DESK OFFICER

INDEX

RECKTA

PA Action

See 183 184

186

1. There has been no response to Percy Cradock's approach on 5th July. Li Chu-sheng, Second Director of NCNA in Hong Kong, told David Wilson that a reply would be made in Peking or here in August, but obviously it will not. Li Chu-sheng himself will be away from Hong Kong until sometime in the first half of September. David Wilson will not be back until 15 September. I am not sure about Percy Cradock's movements.

2.

If a submission is to be made to Ministers to clear the way for agreement in principle before 10 October to an Order-in-Council, it would need to be made by mid- September.

3. The immediate question therefore is do we give the Chinese a nudge or not. By a nudge I mean remind them of the paper handed over at the beginning of July with its indication of my proposed statement on leases on 10 October, and say that we assumed that the two months' silence indicated acquiescence (or that they did not wish to comment).

4. The arguments against that or similar action seem to me to be:-

a)

Since the beginning of July I have been increasingly conscious of a new factor, namely the continuing sharp rise in land values, both in the New Territories and on the island, and in the excessively heavy demand for construction as two of the symptons of overstretch in our economy. We had hoped that the measures announced in the budget would have brought down de nand for land and construction as well as for other forms of domestic private consumption, but they have not so far. To include a statement on the leases in this year's LegCo speech, with Chinese consent, would give this already inflated demand a very strong push just at a time when our entire financial strategy is aimed at dampening down total final demand. So from this point of view I would prefer to postpone a statement on the leases until our attempts to cool the economy have succeeded.

RJT McLaren Esq

Hong Kong and General Department

/ b)

FCO

SECRET