TNAG-1040-FCO40-1290-Future-of-Hong-Kong-1981 — Page 95

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DSR 11C

of the public attention focussed on 1997, they could not

risk acquiescing in any formal or legal action that would

prolong British administration without a major political

concession on our part.

3.

Any initiative on Hong Kong might also have consequences

for their policy on unification with Taiwan: they will do

nothing over Hong Kong that would make this more difficult.

Increasingly, the Chinese see a connection between policy

towards Taiwan and Hong Kong. When Lord Carrington was in

Peking in April 1981, Deng Xiaoping said that we should

study Chinese policy towards Taiwan when considering Hong

Kong. The essentials of present Chinese policy (see Annex

A for details) are that Taiwan must give up its claim

to statehood and its flag but will then be allowed a large

degree of local autonomy, including its own armed forces.

The parallel for Hong Kong would be, as a minimum, the

relinquishing of sovereignty in return for a negotiable

degree of autonomy.

4. Current pressures on the Chinese leadership are such that

they are likely to do the minimum necessary to preserve the

advantages they gain from Hong Kong. They will avoid

specific agreements if they can. They may even be prepared

to suffer severe economic loss rather than take political

risks. Moreover we clearly cannot rely on the leadership

in Peking remaining constant. We cannot exclude the

emergence of a more ideologically and less pragmatically

inclined power group.

-5.

The Chinese apparently believed in 1979 that Deng's

general assurances about the interests of investors being

safeguarded would be sufficient to deal with the problem

of confidence for some time to come. This formula allowed

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