TNAG-1172-FCO40-1453-Future-of-Hong-Kong-1982 — Page 82

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18.6

21/6

CHINESE ACTIVITY IN AND ATTITUDES TOWARDS HONG KONG

On your excellent draft paper on this subject I should like to make one general comment and pick up a number of detailed points.

1.

CODE 18-77

SS 8/78

2. I think it would be useful to refer at the beginning of the second half of the paper to the sense of national humiliation still felt by Chinese leaders over the unequal treaties of 1842, 1858, 1860 and 1898. It is this which underlies both the difficulty for Peking of agreeing at least at this stage to a continuation of the status quo; and the suspicion, referred to in para 15, of British intentions, which, as much as poor communication, explains the lack of understanding of British policy which you also mention. At the same time you could mention (though I think this is a secondary factor) the propaganda cost of too generous a settlement with the British for the post-1997 period.

3.

On detail I have the following comments:

(a)

(para 5, 5th sentence): I would suggest a slight reformulation on the following lines: 'Perhaps more significantly demoralisation amongst cadres involved in United Front work resulting from association with the excesses of the Cultural Revolution has recently been exacerbated by the ideological about-turn of 1977'.

(b) (para 7): trading activity of all provinces except Guangdong and Fujian is conducted by China Resources and its affiliates. Companies which have been set up to represent other provinces and municipalities are supposed to be commercial liaison offices only. China Merchants is supposed to confine itself to shipping agency business, ship procurement, and the development of the Shekou special economic sub-zone.

(c)

(para 9, first sentence): The Guizhou-related infrastructure projects to which Wang Kuang has been trying to attract Hong Kong companies are in Guizhou, Guangxi and Guangdong Provinces rather than Hong Kong, although Hong Kong is of course the notional customer for the coal which is to pay for the projects.

(d) (para 9, second sentence): Again a suggested reformulation for the end of the second sentence to read '.... investors that Hong Kong's future as at least a free currency zone is assured'.

(e) (para 10, second sentence): In my view not only is the level of foreign investment in the Shenzhen and Zhuhai too small, but the nature of that investment (property and light. industry) is too limited in scope for the zones to be of national economic significance.

SECRET

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