TNAG-1036-FCO40-1286-Future-of-Hong-Kong-1981 — Page 131

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RECEIVED IN REGISTRY NO. 51

TELEGRAM NUMBER 40 OF 21 JANUARY 27 JAN1981

INFO PRIORITY HONG KONG (FOR GOVERNOR OFFICER

INDEX

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FOR YOUDE. YOUR LETTER OF 13 JANUARY: HONG KONG

REGISTRY Action Taken

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1. YOUR PARAGRAPH 3. I THINK MY LETTER MAKES CLEAR THAT WE SHOULD TRY TO CONFINE TALKS TO THE TECHNICAL ISSUE OF LAND LEASES, WE WOULD THEREFORE SPEAK TO THE CHINESE AS IN EXISTING BRIEFS (EG PARA 3 OF THE SECRETARY OF STATE'S BRIEF FOR OCTOBER) ABOUT THE PRESSING PROBLEM OF LAND LEASES IN THE NEW TERRITORIES AND GO ON TO SUGGEST THAT OFFICIALS EXCHANGE VIEWS (SEE PARA 4 OF THE OCTOBER BRIEF).

2. WE CANNOT, HOWEVER, BE SURE THE CHINESE WOULD BE WILLING TO CONFINE ANY TALKS TO THE NARROW ISSUE. IF THEY INSISTED ON WIDENING THE SUBJECT MATTER WE SHOULD PROBABLY HAVE TO COMPLY. IN ANY EVENT THEY ARE LIKELY TO WANT SOMETHING IN RETURN FOR WHATEVER THEY GIVE. THIS IS WHAT I MEAN BY CHINESE REQUIREMENTS,

IE THE CHINESE QUID PRO QUO FOR GIVING US THE REASSURANCE WE NEED.

I AM SORRY MY LETTER HAS NOT SUCCEEDED IN MAKING THIS CLEAR.

3. YOUR PARAGRAPH 5. OF COURSE THE CHINESE DOMESTIC SITUATION IS

NOT ENTIRELY CLEAR OR HEALTHY. BUT I AM AFRAID IF WE ARE TO WAIT

UNTIL POLITICAL IN-FIGHTING ENDS AND MAJOR ECONOMIC PROBLEMS ARE RESOLVED HERE, WE SHALL WAIT A LONG TIME. THE GOVERNING FACTOR IS THE ADVICE WE RECEIVE FROM HONG KONG THAT UNLESS WE

ARE ABLE TO PRODUCE BY THE END OF 1982 MORE PRECISE REASSURANCE TO INVESTORS THERE COULD BE A SERIOUS LOSS OF CONFIDENCE IN THAT

ECONOMY. IF THAT ADVICE IS CORRECT ANY CONSIDERATION OF THIS

ISSUE ON THE CHINESE SIDE IS BOUND TO TAKE PLACE WHEN THE CHINESE

DOMESTIC SITUATION IS FAR FROM IDEAL. CHINESE INTERNAL UNCERT- AINTIES (VERY RIGHTLY) DID NOT PREVENT US FROM PRESSING THE ISSUE ON HUANG HUA IN OCTOBER.

4. YOUR PARAGRAPH 5, LAST SENTENCE. WE SHOULD NATURALLY LIKE THE CHINESE TO BE UNDER MAXIMUM PRESSURE AT THE TIME OF ANY TALKS, BUT NOT, I SUGGEST, IF THIS MEANS THAT THE HONG KONG MARKET IS ALREADY SLIDING, A SITUATION WHICH ONCE BEGUN COULD DEVELOP VERY RAPIDLY AND WOULD REQUIRE MUCH MORE PROMPT AND SOLID CHINESE

ASSURANCES TO CORRECT. WE SHOULD BE THE LOSERS BY THAT KIND OF FINE TUNING.

5. YOUR PARAGRAPH 6. THE FACT THAT WE OURSELVES FIND IT HARD AT

THIS TIME TO PINPOINT THE LIKELY CHINESE REPRESENTATIVE HARDLY

INVALIDATES THE CASE FOR TRYING TO TALK.

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/6. I UNDERSTAND