TNAG-1038-FCO40-1288-Future-of-Hong-Kong-1981 — Page 64

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Mr Donald

FUTURE OF HONG KONG

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We spoke

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Wed 1191 16 2075

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You will have seen the record of the Secretary of State's discussion with Deng Xiaoping on the future of Hong Kong and the impressions of HM Ambassador in Peking (his letter of 13 April).(119

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Sir P Cradock's analysis is very helpful. The following tentative conclusions can be drawn:

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a) The Chinese Government continue to reserve their

position on the timing and substance of any change in Hong Kong's status;

b) They have however gone a little further in outlining the way the position may evolve. Deng's emphasis on their Taiwan statements and in particular on the question of 'the flag' ie sovereignty is very significant.

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c) Deng however indicated clearly that the Chinese

Government are not interested in initiating or discussing change at present. More than that, the Tibet analogy looks like a warning to Britain to continue on the present course. The Ambassador may well be right that the Chinese, if pushed too far into a corner on the awkward Hong Kong issue, might feel no alternative to putting politico before economic interests. In other words, they might be driven into a premature take-over.

Where do we go from here? Sir P Cradock recommends that the dialogue between the Chinese Ambassador in London and the Song Zhiguang on the one hand and himself on the other should be followed up although without any pressure if the Chinese appear unwilling. This is reasonable. The contact can probably most easily be maintained in London than in Peking. It would be natural, as Sir P Cradock suggests, to ask Ke Hua if he had any comments after two or three months.

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I do not believe we should expect too much from this, although, as Sir P Cradock says, it is important at least to keep the channel open. I believe that Deng's fairly strong warning off' is probably a more significant guide. We are likely therefore to face a period in which the Chinese regard substantial approaches by us with suspicion, while uncertainty about the future continues in Hong Kong although without necessarily any early slide in investors' confidence. Indeed the main symptoms of unease during this period are more likely

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