TNAG-1172-FCO40-1453-Future-of-Hong-Kong-1982 — Page 89

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4.

I personally have never thought it would be practicable to try to negotiate with the Chinese a list defining the powers which we would continue to exercise, as in Annex B to your paper. When I was first shown the list it seemed to me that the best for which we could hope for would be agreement with the Chinese in general terms that British conduct of the internal and external affairs of Hong Kong would continue.

5.

I am glad to see that Sir P Craddock (his teleletter of -22 May) shows interest in Option E (recognition of Chinese

sovereignty over the whole territory with a lease back to the UK). He confirms what I guessed would be the case, ie that recognition of Chinese sovereignty over the whole of Hong Kong is a major objective for the Chinese, and that on that account the idea would be attractive to them. I am not sure, however, why he refers to a "financial lease" and it may be that there has been some misunderstanding of what we mean by a lease. I do not use the term in any technical sense. I envisage some kind of international agreement between us and the Chinese whereby it would be made clear that we recognised Chinese sovereignty over the whole territory and whereby the Chinese would agree that the UK could continue to conduct the internal and external affairs of Hong Kong for an indefinite period, but terminable on, say, 15 years' notice by either side. I have never envisaged the payment of "rent" or the inclusion of any other kind of financial provision in the agreement. I wonder therefore whether Sir P Craddock would take the same view of this kind of arrangement, even though he considers "that a financial lease would be a grosser violation of Chinese sovereign territory than a purely political arrangement".

6.

Now that we are being urged to consider the addition of further options I wonder whether it would be useful to deal in the paper with the option of independence for Hong Kong, either with or without the leased territories, if the Chinese will not allow us to remain in the latter. As you know I have so far accepted the policy view that without the leased territories Hong Kong would not be viable, either as a colony or as an independent state, although at my suggestion an explanation of that conclusion was inserted into the paper. On re-reading that explanation it occurs to me that neither Monaco, San Marino, Liechtenstein nor Andorra have airports of their own. Moreover I suspect that they too rely on their neighbours for the supply of basic needs such as energy. I wonder therefore whether it would be worthwhile asking Research Department to prepare some material about micro-states which might be used as precedents in order to build up at least a plausible case for telling the Chinese that independence is a possible option, even without the leased territories and a fortiori with them. I realise that neither we nor the Chinese, nor even the inhabitants (whose interests are paramount under the UN Charter) might want any such independence. But even if that were the case,

we might be able to refer to this option - a highly respectable

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