TNAG-2422-FCO40-3524-Hong-Kong-Her-Majesty-s-Overseas-Civil-Service-(HMOCS)-poli-1992 — Page 189

CONFIDENTIAL

24-26 March meeting of the Joint Liaision Group, where the senior Chinese representative made a strong attack on Hong Kong's privatisation plans: he urged that Hong Kong should

take no steps before 1997 to privatise the Kowloon and

Canton Railway Corporation (KCRC), or otherwise unilaterally

to dispose of the assets of the Hong Kong Government which must be tranferred to China (and the SAR) on 1 July

1997. The Chinese are wholly indifferent to the economic

benefits of such a privatisation, which they explicitly stigmatized as selling off the family silver. When they take this attitude to such a straight-forward proposal,

which would involve no transfer of funds outside Hong Kong,

what prospect is there of their taking a dispassionate view

of the transfer to HMG of the capital value of HMOCs

pensions?

8. I conclude that there is now no prospect of the HKG

providing the sterling safeguard or an adequate substitute

for it. This is not a question of any lack of will on the

part of the Governor or his government. Even if we

collectively judged it right to provoke the crisis with

China that capitalisation would entail, it would not simply

be a question of instructing the Governor to make the necessary arrangements: it would require an Order-in-Council over-riding the Hong Kong legislature's powers over finance.

This would cause a [grave] constitutional crisis and set a

deplorable precedent for Hong Kong's financial autonomy

after 1997 as laid down in the Joint Declaration. It would

also go against the whole pattern of our constitutional

history and our relations with overseas territories.

9. There is no dispute that, because of the general

assurances originally given by Robert Carr and Reginald

Prentice, we already have a large contingent liability in

respect of Hong Kong HMOCS pensions. I strongly believe that we should now openly accept the limited contingent liability of our sterling safeguard proposal. This would be good for the morale of key Hong Kong officials and police

NOCACF/4

CONFIDENTIAL