TNAG-1167-FCO40-1447-Future-of-Hong-Kong-1982 — Page 17

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4.

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.

5. 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.

6。

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 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 that 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 regares 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 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

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