TNAG-1168-FCO40-1448-Future-of-Hong-Kong-1982 — Page 41

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launch of his ship on 12 March.

She had replied that she would tell Sir E Youde about the Hong Kong point (but Sir Y K had himself spoken to Sir E Youde on this on 13 March). She had also arranged that Sir Y K should talk to the Chancellor of the Exchequer about the loan question. He had therefore had breakfast with Sir Geoffrey Howe that morning (16 March).

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4. Lord Carrington asked what Sir Geoffrey Howe had said. Sir Y K Pao said they had talked about Hong Kong. Sir Y K's personal view was that the loan question was very difficult. Chinese were not prepared to say what precisely they wanted. for understandable domestic reasons were they prepared to be specific about a link with the Hong Kong question. This would open them to domestic criticism for selling out Chinese interests. Sir Y K recognised that this made the issue particularly difficult but it was his strong personal feeling that the Chinese did see some link between a loan and the future of Hong Kong. A possible way forward would be if the Hong Kong Government were to guarantee a loan.

5.

Lord Carrington asked whether Sir Geoffrey Howe had undertaken to do anything.

Sir Y K Pao said that he had undertaken to look into the matter. Lord Carrington said that he would have a word with Sir E Youde on the Hong Kong angle. He enquired whether during Sir Y K's most recent visit, besides asking Sir Y K whether he had any suggestions, the Chinese had themselves made any suggestions about the future of Hong Kong. In particular, did they realise that it was not sufficient for the future confidence of investors and others to agree to Hong Kong's self-government as a separate entity? Did they understand, as we firmly believed, that some form of British involvement in Hong Kong for the future was essential?

6. Sir Y K Pao said that there was no doubt of this. They certainly understood the point. Lord Carrington pointed out that the Taiwan solution was not on all fours with the situation in Hong Kong. In Taiwan the local authorities were all Chinese but it might be more difficult politically for the Chinese Government to swallow the implications of a continued local administration in Hong Kong run by the British. Sir Y K Pao said that on this point. a conversation he had had in Peking might be relevant. He had dined with Han Kehua, former Ambassador in Paris, former Vice Minister of Foreign Affairs and now Head of the China Travel Service. Han had been involved in the negotiations with Portugal and had advised Sir Y K to study the Macao precedent. Sir Y K said that the crucial element here was China sovereignty. This had not been mentioned in the public documents but it was his understanding that the private arrangement between the Chinese and the Portuguese had included Portuguese acknowledgement of Chinese sovereignty over Macao. Lord Carrington enquired whether we knew the details of the Portuguese agreement with China. Mr Davies said that the agreement related to the establishment of diplomatic relations. We understood that there had been an additional secret agreement of which we had no specific details; we believed that this included a Portuguese acknowledgement of Chinese sovereignty.

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