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their investments overseas, mentioning the Hong Kong/Shanghai Bank, YK Pao, Li Ka-Shing and Run Run Shaw. There was a grain of truth in their defence that this was simply commercial diversification, but despite their denials, these investments were also indicative of political uncertainty in Hong Kong.
4. Statements by Deng Xiaoping, said Warden, far from boosting confidence, served only to underline the fact that the Chinese were not prepared to take the concrete steps needed to maintain confidence. There were rumours of a decline or reversal of Chinese investment in Hong Kong (this point is new to me and, I suspect, incorrect). The British were reluctant to press the Chinese to do what was required of them, for fear of "upsetting the equilibrium".
5.
Warden noted that there had been a considerable shift of economic power in Hong Kong from the British "hongs" to Chinese entrepreneurs. He thought that this would continue during the next decade. At the same time Britain would tend more and more to concentrate on matters nearer home. There might be a number of issues which, like the Nationality Bill and the treatment of Hong Kong students as overseas students in the United Kingdom, would further distance Britain from Hong Kong. As the British responsibility and economic presence declined, so the Chinese would probably feel that events in Hong Kong were going their way.
6. However, at some point in the next few years, the decline of British interest and influence in Hong Kong and the lack of any firm assurances about the future beyond 1997 could lead to a crisis of confidence which would be catastrophic for the economy of Hong Kong. A solution had to be found before that happened. The best that might happen would be an agreement to maintain the economic status quo with a British presence beyond 1997, along the lines of Macao. This would involve a measure of humiliation for the British which they might not be inclined to endure.
7. Warden concluded by reiterating his pessimism, and the dramatic change of mood about the future in Hong Kong since he had first taken up his post. It was a complicated problem but, he said, offering a glimmer of hope, probably no two peoples were better suited than the British and the Chinese to cutting the Gordian knot.
8. Warden made no recommendation in his report for any action by his government. However, in view of the considerable Canadian investment in Hong Kong a substantial two-way trade
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