TNAG-1036-FCO40-1286-Future-of-Hong-Kong-1981 — Page 23

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3.

7b.

There have already been contacts at ministerial level and between the Governor of Hong Kong and Chinese leaders. These have produced general assurances for investors but no specific acceptance of lease extensions. In particular the Chinese rejected a British proposal in 1979 which would have eliminated the terminal date in the 1898 Order in Council in respect of the Governor's power to grant leases and exercise jurisdiction, while leaving it open to the Chinese to revert to the question of Hong Kong's future at any time. This would have allowed the Chinese to maintain their basic position on Hong Kong while giving them an option on drifting past 1997 if they wanted to.

Such an option does not exist at present because of the

restrictive effect of the 1898 Order in Council. When significant signs of lack of business confidence appear, the Chinese may be more ready to meet us than they were on the previous attempt.

7c.

We should make our approach to the Chinese

initially on the narrow issue of leases, and need to

consider what concessions the Chinese are likely to

demand in return for such a short-term holding measure. On the other hand the Chinese may not agree to such a step without dealing at the same time with fundamentals, and

since the latter have to be faced in any case within the

next 8 or 9 years, the longer action on the short-term issue

is delayed the smaller the concession it would be worth

making to secure it as a means of postponing the long-term

problem.

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