CONFIDENTIAL
The Stone
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130574 MDHOAN 5043
MATS 090/4...
TOR COPY DIST?
13 JG
CONFIDENTIAL
FM FCO
TO IMMEDIATE WASHINGTON
TELNO 1038
OF 07130OZ JUNE 91
INFO IMMEDIATE HONG KONG
INFO IMMEDIATE PEKING, UKREP JLG HONG KONG
MIPT: CHINA/US RELATIONS: MFN STATUS: DRAFT MESSAGE TO BAKER
BEGINS
I AM VERY PLEASED THAT PRESIDENT BUSH HAS DECIDED UNCONDITIONALLY TO RENEW MFN STATUS FOR CHINA. AS YOU KNOW JOHN MAJOR HAS BEEN KEEPING IN CLOSE TOUCH WITH THE PRESIDENT AND ALSO DISCUSSED THE MATTER WITH BRENT SCOWCROFT AND
LARRY EAGLEBERGER WHEN I MET THEM IN WASHINGTON AT THE END OF MAY. I KNOW THAT THERE IS OPPOSITION TO RENEWAL IN CONGRESS, SO I THOUGHT I SHOULD WRITE TO YOU TO UNDERLINE THE IMPACT ON HONG KONG IF CHINA MFN STATUS WAS NOT RENEWED, OR IF CONDITIONS WERE ATTACHED TO RENEWAL.
WE ARE CURRENTLY HAVING CRUCIAL TALKS WITH THE CHINESE OVER HONG KONG'S PLANS FOR A NEW AIRPORT. THESE HAVE BROADENED TO 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. I NEED HARDLY SAY THAT ALL THIS MEANS THAT CONFIDENCE IN HONG KONG IS AT A LOW EBB. 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 DOLLARS 9-12 BILLION IN TRADE.
I APPRECIATE THAT THERE ARE A NUMBER OF OTHER IMPORTANT FACTORS WHICH CONGRESS WILL NO 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
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