TNAG-2243-FCO40-3224-Most-favoured-nation-status-for-China-impact-on-Hong-Kong-1991 — Page 42

CONFIDENTIAL

IMMEDIATE

encompass the general question of how to manage Hong Kong up to 1997. Vietnamese migrants continue to pour in. Inflation is

high and growth low. Non-renewal of China's MFN status would

therefore come at a particularly difficult time.

Hong Kong's economy is now inextricably linked with that of China's. More than two thirds of Chinese exports to the United States are routed through Hong Kong. We estimate that

non-renewal of China's MFN would result in a loss of some 43,000 Hong Kong jobs, a drop of up to half in Hong Kong current GDP growth and a loss of US$ 9-12 billion in trade.

I appreciate that there are a number of other important factors which Congress will doubt take into account in reaching a decision, not least the Chinese record on human

rights and the US trade deficit with China. There have been calls for renewal to be made subject to conditions. This would

be bad news for Hong Kong. There would be doubt as to whether China would accept them, whether China could meet them and what further conditions might be imposed in later years. The resulting uncertainty would be a major disincentive to investment in Hong Kong.

I believe that both the wider international interest in supporting those in China committed to the policy of opening out to the West, and the Hong Kong points I have set out above, outweigh the arguments against renewal or for conditional renewal.

Our Embassy and the Hong Kong Government will continue Lobbying on the Hill, especially with Senators, for a favourable

vote.

Contest

And I would be happy for the Administration to draw on the contents of this letter if it would help.