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to appear in poor relations between Hong Kong and the UK (eg suspicion of our good faith over the Nationality Bill etc) than in precise fears about Chinese intentions,
5.
We need therefore to time the next step with the Chinese very carefully. As Sir P Cradock says, we must prepare contingency proposals to deal with a slide in confidence in Hong Kong. Hong Kong are drafting a paper on these lines. I shall discuss it when I go to Hong Kong next week and Sir P Cradock's comments will then be obtained. It is premature to discuss its substance but, judging by Deng's remarks, we may need to look for firm guarantees of continuing British Administration (perhaps with a period of notice of any change) in return for some kind of statement on our part on Chinese sovereignty.
6.
7.
Two other points need consideration:
a) How do we get over to the Chinese more precisely
the message about confidence? The Ke Hua channel may be one way. Another, which has been considered in the past but not pursued so far, is the use of Hong Kong Chinese intermediaries. I propose to see how the Governor's views stand on this at present when I visit Hong Kong.
b) The promotion of 'non-political' confidence building
projects, mainly major ventures in the New Territories. There are some indications that the Chinese may prefer this sort of approach, although the Tin Shui Wai project has not lived up to expectations. The new airport may be a help here. Hong Kong are considering approaching the Chinese to discuss financing of this major undertaking. If the latter were prepared to participate, even with a nominal stake, it could encourage outside investment and this in turn would be a major boost. I will discuss this in Hong Kong as well.
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I think we should wait until the contingency paper is ready and until we have further views from the Governor before submitting recommendations to Ministers. Nevertheless you may think that Mr Blaker should see these papers in order to know how matters stand.
8 May 1981
cc Mr McLaren, FED
R D Clift
Hong Kong and General Department
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