TNAG-1256-FCO40-1589-Third-countries-and-the-future-of-Hong-Kong-1983 — Page 20

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continue as a commercial and financial centre, with an independent

convertible currency, this will on its own maintain confidence and the

the stability of/Hong Kong dollar.

7. The United Kingdom aims to find out more about the Chinese

ideas in order to see what assurances they have in mind for Hong Kong.

We have made no concessions. We have sought to educate the Chinese about the necessary basis for confidence and the importance of continuity of current systems.

8. Despite healthy economic prospects, confidence in Hong Kong is fragile. It has been hit by slow progress in the talks and by Chinese propaganda. The Hong Kong dollar fell sharply in August and September. Measures introduced by Hong Kong Government in late September helped to stabilise the local currency. Further important measures on

15 October have linked the Hong Kong dollar to the US dollar.

Historical Background

9. Although Hong Kong is a British Dependent Territory (an expression preferable nowadays to British Colony) the UK has sovereignty in perpetuity only over the Island of Hong Kong, one other small island (Stonecutters) and the Kowloon Peninsula. These were ceded to the UK by China under the Treaty of Nanking (1842) and the Convention of Peking (1860).

10. The new territories, which comprise more than half the

population and 92 per cent of the land area of Hong Kong, are held under an international lease from China, under the Second Convention of Peking (1898). This is due to expire on 30 June 1997. 11. Unless other arrangements can be made with the People's Republic of China (PRC) the UK will be obliged to relinquish the new territories when the lease expires in 1997. So great is the economic inter- dependence of the ceded and leased areas that the continued separate

existence of the ceded territories is not considered viable.

Chinese Position

12. The PRC has consistently maintained that Hong Kong is part of

China, and that the treaties under which it was ceded and leased

are 'unequal treaties' imposed by foreigners at a time of Chinese

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/weakness.