TNAG-1038-FCO40-1288-Future-of-Hong-Kong-1981 — Page 20

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REGISTRY

INDEX

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Action Taken

GOVERNMENT HOUSE

HONG KONG

18 May 1981

Mr Dgald. Andmed 2815

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Mr. Williamon

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131 83

FUTURE OF HONG KONG CONTINGENCY PLANNING

Percy Cradock's comments in his telegram 356 are quite acceptable to me apart from some nits which I will not pick.

He points out that we appear to have changed our position on the value of an agreement limited to extension of leases in the New Territories. We do not think extension of leases would amount to more than a temporary palliative if already confidence had started to slide, though conceivably it could be of value if done very quickly before the slide had developed. But we have in the past been keen on the idea of lease extension as a means of gaining time which might be of value in the political circumstances of China. I think if adopted now, when confidence is reasonably high, it could probably carry us through well into the second half of the decade if not actually to its end. If conceded in present.circumstances it would be seen as a concrete measure" firming up Deng's assurances. However if once a situation had developed in which confidence in those assurances was evaporating and the market was slipping I do not think it would be enough. In other words it is of much less value in a contingency plan which is what I thought the S of S wanted than in a stop-gap measure which the Chinese could be persuaded to adopt while confidence was still high.

J

While the paper's references to leases are

quite correct under the heading of

contingency planning",

/ 2

Sir Edward Youde, KCMG

Foreign and Commonwealth Office

London

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