TNAG-1168-FCO40-1448-Future-of-Hong-Kong-1982 — Page 86

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Mr Edgar

Mr McQu

Mr Williamson

McQu4

Mr Clift

HK k 040/1

Reference

LOGA..

SECRET

HKK

040/1

P402313

See (112)

THE FUTURE OF HONG KONG AND POSSIBLE SLIDE IN CONFIDENCE

1. Mr Clift has: asked for views on Mr Mallaby's minute of 26 February. Earlier correspondence is also attached

~ARK 040/1 (84) 1981

16 2. We have no quarrel with the greater part of his para 2 but I am not sure that the fear expressed about distress signals in the last sentence of that paragraph is justified.

3. Given the huge amount of foreign exchange which China earns through Hong Kong and the ever growing two-way traffic in trade and other fields, I find it hard to believe that the Chinese do not themselves keep a sharp look out for any sign of cracks in the plaster. It is true that, for reasons of their own, the Chinese may prefer to move more slowly than we would like on the future of Hong Kong, but from what they told the LPS in January they:

(a) are aware of, and regard as very important, Hong Kong's

value as a free port and a centre of commerce and trade;

realise that something has to be done before 1997; and

(b)

(c)

4.

do not want the prosperity of Hong Kong damaged (my underlining.)

I think that we should latch firmly onto (c) and that the Prime Minister should not miss the opportunity to remind the Chinese that all parties would suffer - not just China, the UK and Hong Kong but other investor countries too - if the problem of the future was allowed to drift on to the point where cracks became inevitable.

5.

In his para 3 Mr Mallaby asks:

(a)

(b)

whether a slide in confidence in the next two or three years would inevitably be uncontrollable and

whether, as we have implied, contingency plans are bound to be ineffective.

6. I am not at all sure that anyone can offer guarantees on these two related points. We could certainly ask Hong Kong for their views on contingency planning in the event of a slide, but money markets are unpredictable beasts and I should be surprised if Hong Kong could provide a very confident answer.

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