CONFIDENTIAL
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views of the Hong Kong people. To this end, at the invitation of the Prime Minister, I visited London early in September accompanied by a representative group of Unofficial members of the Executive and Legislative Councils so that she could hear their views first hand. The main concern of the Unofficials was to underline the importance which they attached to an attempt to persuade the Chinese that, without the continuation of British administration after 1997, confidence in Hong Kong would evaporate and that some way must, therefore, be found to permit it.
5.
The achievements of the Prime Minister's visit were real. The Chinese agreed to the commencement of official talks on the future with the common objective of maintaining the prosperity and stability of Hong Kong. But, as a consequence of exaggerated expectation, and public differences of view with the Chinese over sovereignty and the validity of the treaties on which the legality of our position in Hong Kong is based, this very substantial step forward did not have the positive impact which we sought. Disappointment was quickly transmitted to the market-place.
Present State of the Economy
6.
The mood of uncertainty coincided with evidence that world recession was beginning to make an impact on the Hong Kong economy. There was growing recognition that earlier forecasts of a mid-year upturn in the US economy, Hong Kong's largest market, were ill founded. The crumbling of property and land prices continued which caused serious difficulties for developer and for some deposit-taking companies. Shipping com- panies experienced cash flow problems.
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CONFIDENTIAL
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