From The Minister of State
Foreign and Commonwealth Office
London SW1A 2AH'
23 January 1987
Draw Chive,
Forgive me for not commenting sooner on your letter of 16 December. I was interested to read your record of comments made to you by the Chinese during your recent visit to Peking. I have to say. however that I do find some of them a little puzzling.
In
First, it is not really accurate to say that the "negotiation of the Hong Kong agreement led to considerable unhappiness in Hong Kong which in turn led to the flight of confidence and the collapse of the local markets". While there was inevitably a degree of uncertainty and concern in Hong Kong at various stages during the two year long Hong Kong negotiations, Hong Kong's economic position has steadily advanced ever since the draft agreement was initialled in September 1984. July 1984 the Hang Seng Index dipped below the 800 mark for several successive days. It has risen fairly steadily since then until it breached the 2600 barrier earlier this month. The property market has it is true never fully recovered to the very high levels it reached before its slump in 1982-83: but the market has improved its position to a very considerable extent since the signature of the Agreement at the end of 1984.
Secondly, we have not detected any drastic or sudden increase in Chinese investment in the territory since the conclusion of the Agreement. The trend is rather that Chinese investment in Hong Kong has increased steadily over many years, beginning well before negotiations on Hong Kong's future were launched in 1982. According to New China News Agency repors at the end of 1985, investments in Hong Kong by mainland institutions and PRC enterprises had then reached a total of HK$30 billion. Also on at least one recent occasion a Hong Kong bank in trouble has been assisted through emergency credit facility partly provided by the Bank of China. But there has never been any question of the PRC pouring money into Hong Kong in order to stave off economic collapse in the territory. While China is certainly committed to maintaining the future prosperity and stability of the territory, it is also clearly in China's interest to take advantage of the investment opportunities offered by the flourishing commercial and financial centres on its
doorstep.
/Finally,
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