TNAG-1040-FCO40-1290-Future-of-Hong-Kong-1981 — Page 228

PS/Mr Ridley

Ricky thank

You

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MKK 040/!..

RECEIVED IN REGISTRY NO. 51

10 SEP 1981

DESK OFFICER INDEX

PA

REGISTRY Action Tuke

No

Mas

10.9

8

261819

194

SIR P CRADOCK'S CALL ON MR RIDLEY, 27 AUGUST: FUTURE OF HONG KONG

1.

Mr Ridley may wish to seek the Ambassador's general views about the handling of this problem over the next few years.

2.

The basic problem is that the bulk of the territory of Hong Kong is leased from China under a Treaty of 1898 which expires in 1997. Uncertainty over what will happen in 1997 is already causing speculation in Hong Kong and could lead to a slide in public and business confidence there at some point in the next few years if nothing is done. A particular difficulty relates to land leases in the New Territories which are all written to end in 1997.

3.

The Chinese government have neither formally accepted nor abrogated the 19th century treaties on Hong Kong. Their position is that all of Hong Kong (they make no distinction between that part of the territory which was ceded in perpetuity and that part which is leased) is Chinese territory temporarily administered by Britain. It is clear that in their view Hong Kong must eventually return to China but they are in no hurry to see this come about. For economic and other reasons the status quo suits them well and

relations between Hong Kong and China, and between Britain and China over Hong Kong have never been better. But they have shown no disposition to discuss the problem of the future partly because it is a potential rather than an actual problem and partly because it has implications for Taiwan, which is politically a problem of the highest sensitivity for China.

4.

We put specific proposals for dealing with the land lease problem to the Chinese in 1979, when the Governor visited China, but these were rejected. Vice Chairman Deng told the Governor to make it clear to investors that they should put their hearts at ease and repeated these general assurances to Lord Carrington in April this year. There is so far no evidence to suggest that the Chinese understand or accept that more than this will be required if confidence is to be preserved or that they understand our particular legal problems.

5.

A paper is in preparation which considers what action HMG might take to deal with two contingencies:

(a)

a collapse of public and business confidence in Hong Kong;

(b)

a readiness by the Chinese to discuss more concrete ways of bolstering it.

/6.

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