TNAG-1168-FCO40-1448-Future-of-Hong-Kong-1982 — Page 56

7.

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Sir Y K suggested that after his meeting with Ministers he might send back a message to say that HMG were consulting the Hong Kong Government on the idea. I said that, subject to what Minsiters said to him next week, it would be safer to confine himself to confirming that he had again reported the Chinese interest. It would be best not to give the Chinese prematurely the impression that the idea that the proposal was a starter.

8.

Sir Y K recognised that if a formal invitation was extended to Gu Mu (as he would like), the latter might come expecting more substantial discussions on the possibility of a loan.

9.

It is not at all easy to disentangle whether the running is being made by Sir Y K, or whether there is a genuine probe by the Chinese, and if so whether there really is a link with the future of Hong Kong (at one point Sir Y K suggested that the interest on the loan might be regarded as rental for an extension of the New Territories lease but it would be politically very difficult for the Chinese if it were presented as such).

10.

I think it reasonable to conclude that Gu Mu is shopping around for loans on soft terms. Whether he sees a real link with the future of Hong Kong (or has any authority to suggest such a link) is an open question, as is the question of whether HMG or the Hong Kong Government could contemplate an economic package as an element in any settlement which might be needed on Hong Kong.

11. The immediate question is whether a formal invitation should be extended to Vice Premier Gu Mu. Other departments and the Ambassador in Peking will have views on this. My own view is that it would be a risky move if Gu Mu were led to believe that in doing so we were ready to discuss a loan. If there are other reasons for inviting him (eg for a discussion on general trade questions and the Guangdong nuclear power station) the balance could swing the other way not least because it would open a direct channel for the Chinese to use, if they wanted to, rather than operating through intermediaries.

14 March 1982

coprès sent

ما

Дир for

Edward Youde

Sir M. Mashehare

and Sir P Cradock 17/3

CONFIDENTIAL