TNAG-1167-FCO40-1447-Future-of-Hong-Kong-1982 — Page 18

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a) a different currency from China and one that is readily

convertible;

b) a legal system which gives confidence to investors,

at present, a non-Chinese legal system; and

ie

c) access to world markets based, at present, on international

agreements to which Hong Kong is a party as a British dependency.

The currency and legal points might possibly be covered without British administration but the benefits of British dependency status could not. In any case, until Chinese policy had been seen to be consistent and stable over a considerable period investors would have no faith that any of these conditions would be met under Chinese rule.

9. A solution to the Crown land leases problem might in the short term boost confidence in Hong Kong's future, but it will be insufficient as a confidence-builder. Although business confidence is reasonably high at present, it is brittle, and already under pressure, largely as a result of world economic uncertainty.

In addition, there are other, non-commercial political causes of

Without clear evidence strain (eg worry over nationality status). of Chinese acquiescence in continuing British administration after 1997, disinvestment will start probably by 1985 and possibly at any time from 1982 onwards.

10. An obvious slide in confidence and in particular a collapse of the Hong Kong dollar, might shock the Chinese leadership sufficiently to make them ready to discuss practical ways of bolstering confidence (although we have to accept the possibility that they might be prepared to lose most or even all of their present conomic advantages from the Territory if they found the

An alternative possibility question politically too hot to handle).

is that the Chinese may be ready to enter a dialogue without such a threatening incentive. There have been some signs of this, ie during the visit of the Lord Privy Seal in January 1982.

Actions to halt a slide in confidence or to respond to a Chinese initiative

11. The following possible actions are graded in a rough order of ascending difficulty for the Chinese. An important feature of most of the proposals is that any action to extend British administration would require amendment or replacement of the 1898 Order in Council providing for and defining the length of jurisdiction in the New Territories (Annex B) (which in turn is directly related to the Convention of Peking 1898 (Annex C)). This would almost certainly need Chinese agreement or at least their readiness not to object to the legislation if challenged. The Attorney-General shares the opinion of our departmental Legal Adviser that any amendment would

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