TNAG-2419-FCO40-3521-Hong-Kong-Her-Majesty-s-Overseas-Civil-Service-(HMOCS)-poli-1992 — Page 162

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concern that civil service pay and pensions will be a heavy

burden after 1997 and suggested that to reassure local civil

servants HKG might "set-aside" a fund of HK$15 bn, on top of

the HK$25 bn laid down in the Airport Memorandum of

Understanding, which could be drawn on to help meet pensions in years of budgetary difficulty. HKG have explained that

it makes no sense to tie up funds in this way and that

pensions must continue to be met from (expanding) general

revenue. We have considered whether we could build on the

idea of set-aside to persuade the Chinese to accept the

capitalisation proposal for HMOCS officers. But whereas

set-aside would commit HKG to providing the SAR Government

in 1997 with an extra nest-egg (and thereby limiting HKG's

ability to disburse Hong Kong funds before 1997 on projects

of interest to British businessmen), capitalisation would

enable HKG to transfer to HMG in the UK (or perhaps to some

offshore fund) before 1997 a sum of money which would

otherwise have been available to the SAR Government in 1997.

The FCO therefore see no prospect of convincing the Chinese

that it would be in their or the SAR Government's interest

thus to discharge before 1997 their future liabilities for

expatriate civil servants. Instead the proposal would fuel their suspicions of British/Hong Kong asset-stripping. At the least they would engage us in lengthy dialogue: at the

worst they could accuse us of trying to renege on the Joint Declaration and could withdraw co-operation in other areas, despite the damage this would do to the prospects of a smooth transition in 1997 and to the authority of the Hong

Kong Government. If we sought to take unilateral action, the Chinese could frustrate it by announcing that this was a

major change in the arrangements existing in 1984, and that

the SAR Government after 1997 would be free to over-turn it

and/or to reconsider related provisions of the Joint

Declaration.

Comment: Departments differ on the political feasibility of this option.

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