TNAG-0944-FCO40-1163-Future-of-Hong-Kong-1980 — Page 4

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ESSENTIAL FACTS

UK Objectives

1. To make the Chinese focus on the problem and its comparative urgency,

and to explain distinction between short-term issues such as land

leases, and long-term future of Hong Kong.

Chinese Attitudes

2. Present Chinese Government do not recognise 19th century treaties

establishing British administration in Hong Kong. But Hong Kong is

valuable to them (between one-third and one-half of China's foreign

exchange is earned through Hong Kong).

3. Chinese have made general statements about maintenance of the

status quo and the prosperity of Hong Kong (Vice Premier Deng Xiaoping

asked the Governor in March 1979 to tell investors in Hong Kong to 'put

their hearts at ease'); but they have not clearly indicated their

views on the long-term future. Hua Guofeng agreed with the Prime

Minister in November 1979 that we should keep in touch on the matter.

4. In May 1980, Deng Xiaoping's assurance was reaffirmed by Vice

Premier Gu Mu during the visit to China of Hong Kong's Financial

Secretary.

But he was not specific about the future. He referred to

Hong Kong's continuing 'as a capitalist society', but said that the

time was not yet ripe to make concrete proposals. He claimed that the

Chinese Government would find a solution in accordance with the

principles laid down by Vice Premier Deng.

Land Leases in New Territories

5. The most pressing issue is that of the leases in the New Territories

At present, all land leases in the New Territories are written to expire

in 1997; there is a risk that, as this date draws closer, businessmen

will cease to invest there leading to a serious loss of confidence. A

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