CONFIDENTIAL
7.
Most Hong Kong people sceptical. Plan is superficially attractive, but lacks key ingredient for confidence: an insulator against Chinese interference in Hong Kong. At present this is provided by British administration. Problem is that Chinese appear to believe that by simply saying tht Hong Kong will continue as a commercial and financial centre, with an independent convertible currency, this will on its own maintain confidence and the Hong Kong dollar. We aim to find out more about the Chinese ideas in order to see what assurances they have in mind for Hong Kong. But we have sought to educate Chinese about basis for confidence and importance of continuity of current systems.
Confidence in Hong Kong Dollar
8. Despite healthy economic prospects, confidence hit by slow progress in talks and Chinese propaganda. Hong Kong dollar fell sharply in August and September. Measures introduced by Hong Kong Government in late September helped to stabilise local currency. Further important measures on 15 October have linked the Hong Kong dollar indirectly to the US dollar. This is working so far.
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9. Confidence in Hong Kong remains fragile. You are likely to come under much pressure from the media to comment on the situation. Grateful for your help in maintaining confidence and saying nothing that could damage it. It is the talks that count and, as the communiqué said after the latest round, they are proving useful and constructive.
10. Realise Parliamentary interest here growing, but for same reasons hope this and public interest can be kept to minimum given sensitive stage of the negotiations.
CONFIDENTIAL
Hong Kong Department
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