TNAG-0850-FCO40-1060-Future-of-Hong-Kong-New-Territories-leases-1979 — Page 60

investors there.'

SECRET

General assurances of this kind have had

a favourable short-term effect. But there is a practical

problem about land leases in the New Territories, all due to

end in 1997, which cannot be dealt with in this way.

Following initial soundings by Sir M MacLehose during his

visit to China, HM Ambassador in Peking outlined a possible

solution to the Chinese early in July. This was to issue

future leases in the New Territories without a fixed term; to

convert existing leases into indeterminate leases; and to take

legal steps to enable British administration to coninue after

1997, should the Chinese (and, of course, the British

Government) so wish. We thought and explained to the Chinese

that the proposed action was entirely consistent with the

Chinese position and did not prejudice their freedom of action

with regard to the future of the territory. However, the

Chinese have given a negative response: on 24 September

HM Ambassador was handed a written reply which referred to the

legal steps we had in mind as 'unnecessary and inappropriate';

urged us not to proceed with them; and warned of adverse

reactions should we persist.

11. [Not for use] The reasons for the Chinese response are

not clear. They may consider that Deng Xiaoping's remarks,

and now Hua's, have dealt with the short-term problem of

confidence and that proposals looking ahead to the medium-term

are premature. They may also be disinclined to tackle a

sensitive problem before it becomes unavoidable; and they may

have the implications for Taiwan in mind. Whatever the reason

the message is plain and we clearly cannot proceed with the

original plan. But it is important to reiterate the point.

that there is a short-term problem; that it cannot be dealt

SECRET

/with

Page 60Page 61