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5. DENG WENT ON TO SAY THAT THE PROBLEM OF THE EXODUS OF CHINESE FROM THE MAINLAND TO HONG KONG WOULD BE EASIER TO SOLVE UNDER SUCH A REGIME. THERE WERE NOW QUOTAS AND MANY PEOPLE WISHED TO SETTLE IN HONG KONG. UNDER SUCH AN ARRANGEMENT THE UK MIGHT SUFFER A LOSS OF TAXATION REVENUE FROM HONG KONG, I BUT TRADE AND COMMERCE WOULD NOT SUFFER.
6. MR HEATH SAID THAT BRITAIN RECEIVED NOTHING FROM HONG KONG AND SUGGESTED THAT BRITAIN MANAGED HONG KONG FOR THE BENEFIT OF CHINA AND OF MANKIND. DENG REPLIED THAT IN THAT CASE THE MATTER WOULD BE EVEN EASIER TO SETTLE, AS A FRIEND OF LONG STANDING HE COULD TELL MR HEATH THAT IF CHINA DID NOT RECOVER HER SOVEREIGNTY OVER HONG KONG SHE COULD NOT BE ACCOUNTABLE TO HER OWN PEOPLE. MR HEATH SAID THAT THE QUESTION OF SOVEREIGNTY WAS VERY CLEAR IN THE TREATIES. DENG SAID THAT HE WAS REFERRING TO SOVEREIGNTY OVER THE
WHOLE AREA OF HONG KONG AND NOT JUST THE NEW TERRITORIES. IT WOULD INVOLVE ABROGATING THE PAST UNEQUAL TREATIES.
7. MR HEATH CONCLUDED BY SAYING THAT THESE WERE INTERESTING IDEAS WHICH HE WOULD CONSIDER. HE HOPED THAT THE CHINESE SIDE WOULD
SHOW FLEXIBILITY IN NEGOTIATIONS.
8. I SHALL SEND CONSIDERED COMMENT TOMORROW AFTER MR HEATH HAS LEFT. MR HEATH AND HIS PARTY REALISE THE SENSITIVITY OF THE ABOVE, AND HAVE AGREED TO SAY NOTHING PUBLICLY. AT THIS MORNING7S PRESS CONFERENCE HE RECALLED THE 1977 MEETING WITH MAO, AND SAID THAT HE HAD REMINDED THE CHINESE OF THE URGENCY OF SUPPORTING CONFIDENCE
IN HONG KONG. HE REFUSED TO BE DRAWN ON DENG'S REPLY.
CRADOCK
LIMITED
HK-GD
FGO
PS
PS/PUS MR GIFFARD
NA DONALD MR URE
2 SECRET
THIS TELEGRAM
WAS NOT
ADVANCED
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