TNAG-1041-FCO40-1291-Future-of-Hong-Kong-1981 — Page 30

SECRET

-2-

agreement to continuing British administration after 1997. But

we need to edge them in this direction because the Hong Kong

population and investors in the Territory would regard anything

less as insufficient reassurance. (Recent Chinese history gives no encouragement that a Chinese administration would provide the economic and political framework within which Hong Kong could

thrive).

7.

Prospects in Hong Kong. Although the Hong Kong economy

remains remarkably buoyant and there is so far no sign of major

investment decisions being held up, there is concern about the

prospects after 1997, particularly as Crown land leases in the

New Territories are timed to expire by the end of June 1997.

is also widespread anxiety over such questions as citizenship.

There are increasing demands for an agreement between Britain

and China.

There

8.

A slide in confidence would create major problems for

Hong Kong and HMG. On the other hand, it might also encourage the Chinese to engage in substantive discussions, because of the

economic risk for them. It is nevertheless unlikely that we would

get anything like a final solution to the problem in such circum-

stances and there is always a strong possibility that the Chinese,

for political or other reasons, would not be ready to go beyond

general statements on current lines.

9.

Possible Options. The contingency paper outlines options

which might provide at least medium-term reassurance. Probably

the best prospect would be an undertaking by the Chinese to give

some form of advance notice (say 15 years) of any change in the

Territory's status (Option D) or statements by both sides that

Hong Kong is Chinese territory temporarily under British administration with no intention to change this for many years

to come (Option C). The latter would require a change in the

treaty status of the Territory and thus a technical renunciation

of sovereignty by HMG. The Chinese would almost certainly expect

a similar price for the first arrangement as well.

SECRET

/10.

Page 30Page 31