TNAG-1041-FCO40-1291-Future-of-Hong-Kong-1981 — Page 77

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16 DEC1981

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1

I saw these papers in draft and agree with the recommendations. They have their origin in the Secretary of State's agreement after his last visit to China and Hong Kong in the spring that we should put our heads together with the Governor and the Ambassador in Peking on what action should be taken if confidence in Hong Kong began to falter or the Chinese showed willingness to talk realistically about the problems of the future.

2

The issues are major ones. The question of whether we could agree to recognise Chinese sovereignty over Hong Kong island and Kowloon is politically charged both here and in Hong Kong. To concede it could well have implications in other colonies and there is no knowing whether the negotiations based on such a concession would succeed. Yet without it we would lack any bargaining counter with the Chinese beyond their economic interest in the colony which, though strong, may not be over-riding given the political difficulty of the issue for them. A false step, or premature publicity about concessions, could precipitate a lack of confidence which we need to avoid with the consequent risk of the colony becoming ungovernable.

3 If what is proposed is accepted, the Secretary of State will wish to consider at what stage any paper might be put to OD. It is not necessary and, in any case, not practicable to do so before the LPS's visit. But at some stage OD approval would be necessary for what is proposed and if the conclusions are judged politically unacceptable then there will be a need to consider alternative courses of action.

3 December 1981

Edward Youde

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