TNAG-1445-FCO40-1929-Constitutional-development-in-Hong-Kong-1986 — Page 20

ADVANCE COPIES

HONG KONG AGREEMENT

13

PS

PS/MR RENTON

PS/PUS

MR. GILLMORE.

DH WILSON

HD/ HKD

CONFIDENTIAL

FM HONG KONG

TO DESKBY 181000Z FCQ

TELNO 4186

OF 180935Z DECEMBER 86

INFO IMMEDIATE PEKING

FIFOOT

MR BURROWS, LEGAL ADVISERS MR OSBORNE, NEWS DEPT

JMMEDIATE

HONG KONG • THE CURRENT SITUATION.

SUMMARY.

1. A GREAT LOSS. BUT LIFE GOES ON. CONFIDENCE UNDIMINISHED BUT

TESTS AHEAD.

2. THE WORD MOST OFTEN USED IN DISTRICT OFFICE REPORTS ON SIR E

YOUDE'S DEATH WAS **A BOMBSHELL''; AND THERE HAS BEEN AMPLE DEMONSTRATION IN THE PAST TWO WEEKS THAT THE PUBLIC HELD HIM IN

DEEP AFFECTION. THERE ARE OFFSETTING POINTS TO MAKE. BALANCING THE ACUTE SENSE OF LOSS, AND THE CONCERN OF SOME THAT HONG KONG MIGHT NOW BE MORE VULNERABLE THAN BEFORE TO CHINESE PRESSURE, THERE IS LOCAL PRIDE IN THE SOLEMN GRANDEUR OF THE FUNERAL AND PRAISE FOR AND PRIDE IN THE ADMINISTRATION.

3. HONG KONG IS OF COURSE HIGHLY ADAPTABLE (AND THERE IS FORTUNATELY NO CURRENT ACUTE POINT OF FRICTION WITH CHINA). MATTERS HAVE INDEED ALREADY RETURNED TO NORMAL. THE STOCK MARKET IS HOLDING UP. THE CURRENCY IS STABLE. CHRISTMAS SHOPPERS ARE OUT IN FORCE. NCNA HAVE BEEN SAYING AND DOING THE RIGHT THINGS (TA KUNG PAO, IN A GOOD OBITURARY, DESCRIBED SIR E YOUDE AS A MAN OF CONVICTION AND DEPTH'' AND QIAO ZONGHUAI HAS MADE IT PUBLICLY CLEAR THAT THE APPOINTMENT OF THE NEXT GOVERNOR IS FOR HMG ALONE.)

4. NON COMMUNIST PRESS COMMENT IS A MORE MIXED AFFAIR. MOST PAPERS WROTE WITH REAL WARMTH ABOUT SIR E YOUDE'S ACHIEVEMENTS AND

THERE HAS BEEN A WARM WELCOME FOR THE CONCEPT OF A MEMORIAL FUND. BUT THE FAR EASTERN ECONOMIC REVIEW TOOK A PREDICTABLY SOUR

LINE ON SIR E YOUDE'S RECORD AND HONG KONG'S LATEST PROSPECTS:

AND OTHER ENGLISH LANGUAGE COMMENTATORS HAVE MANAGED TO SUGGEST

THAT HMG HAVE MISREAD CHINA AND ARE LIKELY TO GET IT WRONG ON THE NEXT GOVERNOR. THE PRESS AS A WHOLE HAVE HAD A FIELD DAY WITH FORTHCOMING APPOINTMENTS.

5. ON THE GROUND, THE BEST NEWS IS ECONOMIC. HERE PROSPECTS REMAIN HIGHLY ENCOURAGING (BAR PERHAPS SOME SIGNS OF INFLATION). INVESTMENT IN PLANT AND MACHINERY RECOVERED IN 1986. TEXTILE PLANTS IN PARTICULAR ARE RE-EQUIPPING. OUTSIDE ANALYSTS EXPECT AS MUCH

AS 3 PERCENT GROWTH (REAL) IN GDP FOR 1986. WE ARE PRETTY SURE

OF 7 PERCENT. A NOTABLE FEATURE HAS BEEN THE SHARP REVIVAL, AGAINST PREDICTIONS, OF DOMESTIC EXPORTS TO CHINA. TRADE PERFORMANCE IN EUROPE HAS ALSO BEEN MOST ENCOURAGING.

B.

"