TNAG-1040-FCO40-1290-Future-of-Hong-Kong-1981 — Page 30

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DSR 11C

The Chinese View and problems for HMG

6. Chinese assurances were sufficient to boost confidence

when they were first made. But this was only because they

were seen as a first step towards more concrete measures.

They take no account of the legal problems of a finite

and diminishing period in the New Territories as regards land leases future administration. Leases cannot be granted there

for Crown land for any period terminating beyond 1997 without

an unacceptable risk of legal challenge. Measures that would circumvent this problem would need at least tacit approval from the Chinese. A way of dealing with this problem was

put to the Chinese in 1979 but rejected.

7.

Chinese assurances appear to be based on the assumption that the difficult question of political control after 1997 can be avoided for many years to come. They also imply that

continuing prosperity of the economic system can be divorced

from the problem of political control. Neither is true,

Hong Kong's prosperity, and its value to China, depends on it having:

a)

a different currency from China and one that is readily

convertible;

b)

a legal system which gives confidence to investors, i.e.

at present, a non-Chinese legal system; and

c)

access to world markets based, at present, on international

agreements to which Hong Kong is a party as a British

dependency.

The currency and legal points might possibly be achieved

without British administration but the benefits of British

dependency status could not. In any case, until Chinese

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