TNAG-1038-FCO40-1288-Future-of-Hong-Kong-1981 — Page 40

Possible, particularly if done in

the form of automatically renewable periodic leases and with no mention of 1997. Chinese might see it as a necessary way of preserving investor confidence.

(ii)

Problems for HMG.

DAMONU KAN NAMA SE S

Only a temporary palliative unless coupled with power of continuing administration.

(iii) Effect. If done now, a short-term beneficial

effect. But lacks long-term credibility unless coupled with arrangements for administration after

1997. Not sufficient to halt a slide of confidence.

Unilateral action by HMG to remove the limit in the

1898 Order in Council on powers of administration in the New Territories; tacit Chinese approval

Sage Mayan ki ka s TAPA Sanda ke

(i) Likelihood. Part of the rejected 1979 proposals. Chinese not likely to accept unless coupled with other concessions e.g. on sovereignty. Would therefore

lead to solution similar to D.

(ii)

Problems for HMG. As in D(ii) above.

(iii) Effect. If achieved with no signs of Chinese disapproval or counter-demands, a major boost to

confidence sufficient to halt a slide. Otherwise

SECRET