TNAG-1167-FCO40-1447-Future-of-Hong-Kong-1982 — Page 148

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for what were, to them, significant guarantees about the

Hong Kong economic system and its probable continuity

(capitalism well into the next century) without giving

away anything on political control. They probably still

think this type of general assurance should be sufficient,

although there are some indications that they are beginning

to realise this is not so. Their initial remedy for a

slide in confidence is likely to be to repeat the

assurances more forcefully and more directly to leading

investors in Hong Kong.

The Chinese View and problems for HMG

7. 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

the future administration of land leases. Leases of Crown

land cannot be granted there 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.

8.

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 tha

continuing prosperity of the economic system can be divorce

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;

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/b)