TNAG-1169-FCO40-1449-Future-of-Hong-Kong-1982 — Page 30

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FM PEKING 07084OZ APR 82

TO PRIORITY F C O

TELNO 209 OF 7 APRIL

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INFO PRIORITY HONG KONG (PERSONAL FOR GOVERNOR).

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MY TELNO 2021 MR HEATH'S CALL ON DENG XIAOPING: FUTURE OF HONG KONG

1. THIS IS MUCH THE MOST IMPORTANT AND REVEALING STATEMENT WE HAVE HAD FROM THE CHINESE SIDE ABOUT HONG KONG. DENG HAS CLEARLY BEEN GIVING SOME THOUGHT TO THE ISSUE AND IN OBLIQUE CHINESE FASHION WAS USING THE VISIT OF A DISTINGUISHED, BUT NON-GOVERNMENT, VISITOR, TO PUT FORWARD WHAT IS IN EFFECT A TENTATIVE OFFER IN ADVANCE OF THE PRIME MINISTER'S VISIT.

2. AS MIGHT BE EXPECTED, IT HAS GOOD AND BAD PARTS. THE GOOD IS THAT, AS WE GUESSED, THE CHINESE LEADERS ARE READY TO PUT HONG KONG IN THE FRAMEWORK OF THEIR LIBERAL TAIWAN PROPOSALS, NO DOUBT HOPING THIS MAY BE AN INDUCEMENT TO TAIWAN. THIS HAS ADVANTAGES FOR US IN THAT THE CHINESE WILL HAVE AN INTEREST IN SHOWING THEMSELVES GENEROUS.

3. THE BAD IS THAT, ALTHOUGH DENG'S PROPOSALS DO NOT ENTIRELY PRECLUDE THE POSSIBILITY OF CONTINUED BRITISH ADMINISTRATION, THEY SHOW CONTINUED MISUNDERSTANDING OF THE WAY THE HONG KONG ECONOMY WORKS AND WHAT INVESTORS WILL ACCEPT. THERE IS ALSO THE DELUSION THAT THE UK TREASURY RECEIVES TAXATION REVENUE FROM HONG KONG. WE MUST CORRECT CHINESE MISCONCEPTIONS AND TRY TO EXPLAIN TO THEM HOW TO AVOID KILLING THE GOOSE THAT LAYS THE GOLDEN EGGS.

4. DENG'S REMARKS ON SOVEREIGNTY FURTHER UNDERLINE THAT THIS WILL BE FOR THE CHINESE AN ESSENTIAL CONDITION OF PROGRESS.

5. MR HEATH UNDERTOOK TO CONSIDER DENG'S IDEAS AND MAY BE IN TOUCH WITH YOU, BUT IN ANY CASE WE CANNOT IGNORE WHAT IS IN EFFECT AN OFFER MADE AT THE HIGHEST LEVEL. FORTUNATELY THE IDEAS IN IT STILL LOOK TENTATIVE AND WE SHOULD GET BACK AND FEED IN OUR OWN THOUGHTS BEFORE THE CHINESE IDEAS CONGEAL. AS A FIRST STEP I RECOMMEND THAT I SPEAK TO HUANG HUA SOON, SAYING THAT WE HAVE NOTED WITH INTEREST DENG'S WORDS TO MR HEATH WHICH WE THINK MIGHT PROVIDE A BASIS FOR DISCUSSION. AS A FIRST STEP WE SHOULD LIKE TO GIVE THE CHINESE SIDE A FULLER PICTURE OF HOW HONG KONG'S FINANCES WORK. HERE I SHOULD LIKE TO HAND OVER A PAPER WHICH NO DOUBT YOU AND HONG KONG COULD PREPARE SETTING DOWN THE ESSENTIALS AND IMPLYING, THOUGH NOT NECESSARILY STATING, THE CRUCIAL VALUE OF BRITISH ADMINISTRATION IF PROSPERITY IS TO BE MAINTAINED. SOMETHING IN WRITING ON THE FINANCIAL SCENE IS, I THINK, NEEDED TO AVOID THE HAZARDS OF ORAL TRANSMISSION.

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