TNAG-1317-FCO40-1720-Future-of-Hong-Kong-meetings-of-the-Cabinet-Defence-and-Over-1984 — Page 9

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scheme (and therefore extent of HMG's possible contingent liability).

6. [If suggested that HMG should force Hong Kong Government to make more radical changes].

Agree we should encourage Hong Kong to move as far as possible to

reduce contingent liability after 1997. But this would involve

considerable additional short-term costs. Hong Kong already running almost unprecedented deficit budgets. Also significant political

considerations. Chinese have made clear their sensitivity about any apparent draining of Hong Kong's reserves before 1997. Moreover by not accepting contingent liability we have lost most of our leverage on Hong Kong.

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