TNAG-1238-FCO40-1551-Future-of-Hong-Kong-1983 — Page 68

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4.

Chinese leaders also are almost certainly aware that Western busi-

ness leaders will take into account PRC handling of Hong Kong issues as

they begin consideration of possible large scale investment in the PRC

itself. Thus, a PRC policy toward Hong Kong that serves to undermine

business confidence and leads to economic decline there could serve to

make Western investors more cautious in pursuing closer ties with the PRC.

Despite these strong economic incentives encouraging a restrained PRC

approach toward Hong Kong, however, there are economic factors that might

prompt Beijing to take a more active and direct role in managing the ter-

ritory's affairs. Thus, PRC leaders may judge that they now have built

up sufficient expertise in working with Western business interests over the

effectively past few years that they can now afford to manage enterprises in Hong Kong

more directly, just as they have recently managed Western style enterprises

in the four Special Economic Zones that have been set up in the PRC over

the past few years. They may also judge that profits from enterprises in

Hong Kong should be controlled and channeled more directly to the benefit

of the Chinese state, rather than having the PRC benefit only indirectly

from Hong Kong's prosperity. Meanwhile, if conditions in Hong Kong were to

deteriorate caused perhaps by a run on the Hong Kong dollar despite

Beijing's best efforts to reassure the Hong Kong people of China's future

intentions, Beijing may judge that a rapid assertion of Chinese control

well before the 1997 deadline would provide the best means to preserve the

territory's prosperity and value to China.

U.S. Interests and Options

In recent years the United States has remained Hong Kong's largest

foreign investor and trading partner. At the end of 1981, according to

U.S. Department of Commerce statistics, U.S. investment in Hong Kong reached