5.
SECRET
The present situation, in reverse order, is as follows:-
(a)
(b)
The Governor has decided not to despatch his message to Lu Ping until his return to Hong Kong on 17/18 March. He judges rightly that it is not very satisfactory to try to compose messages of this importance while on the move in Germany and Holland.
The Governor fully accepts that the Secretary of State's visit to Peking constitutes the maximum point of leverage over the Chinese. He wishes to build up to that visit by seeking agreement with Lu Ping if he can. He suspects this may not be possible. He therefore, I think, shares the view expressed from Peking that it may be necessary to have a parallel negotiation on this subject during the Secretary of State's visit to Peking. The Governor is very clear that, if we do not wrap up this negotiation by the end of the Secretary of State's visit, then we will find great difficulty in doing so thereafter.
(c) The strongly expressed consensus from Peking,
Hong Kong and the Governor is that the assurances about Chinese support for the airport project and non-interference in Hong Kong's financial procedures would be not only very substantial gains for PADS but crucially important precedents for the future. They do
(d)
(e)
not think that we should add to the burden of the package by seeking more general assurance about Chinese willingness to avoid similar conflicts in the future. They do all recognise, however, that the deal will be far stronger if it is done against the background of greater understanding between the Chinese and HMG following the Secretary of State's visit.
We have not yet got the right language about the assurance of Hong Kong's firm intention to maintain the fiscal reserves at a certain level. Exco are pressing for language which sounds more like a guarantee. The language proposed by Sir David Ford leaves the point ambiguous. There must be no doubt left about the position of HMG.
There is a general acceptance that it may be premature to be too specific about the level at which the reserves would be maintained.
The
/Governor's
SECRET
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