TNAG-2451-FCO40-3568-Future-of-Hong-Kong-constitutional-development-1992 — Page 31

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MDHO 3858

- A SUSTAINED CAMPAIGN OF INTIMIDATION AGAINST LEGCO MEMBERS. WE

HAVE ALREADY SEEN EVIDENCE OF CRUDE THREATS INVOLVING MEMBERS' BUSINESS INTERESTS IN CHINA, AND THEIR HOPES FOR PREFERMENT IN

HONG KONG POST-1997

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A SIMILAR EFFORT TO FRIGHTEN MEMBERS OF THE BUSINESS COMMUNITY.

WE HAVE ALREADY HEARD THE FIRST JITTERS FROM THAT QUARTER

- A CONTINUING REFUSAL TO AGREE FINANCING ARRANGEMENTS FOR THE NEW AIRPORT

- A FREEZE ON PROGRESS IN THE JOINT LIAISON GROUP.

BUT THE CHINESE ALSO NEED TO WEIGH UP THEIR OWN SIGNIFICANT ECONOMIC INTERESTS IN HONG KONG. I VERY MUCH DOUBT THAT THEY WILL DISRUPT TRADE OR FINANCIAL LINKS WITH SOUTHERN CHINA, OR TURN TO THE MORE EXTREME FORMS OF PRESSURE SUCH AS INTERFERENCE WITH SUPPLIES ACROSS THE BORDER. THEY ALSO SEEM TO BE READY SO FAR TO LET SINO/ BRITISH CONTACTS IN OTHER AREAS CONTINUE LARGELY

THE IMMEDIATE ISSUE IS WHETHER SUPPORT FOR THE GOVERNOR'S PACKAGE WILL HOLD UP IN HONG KONG UNDER THIS CHINESE ONSLAUGHT. AT PRESENT, THE HONG KONG GOVERNMENT CONSIDER THAT THEY CAN COUNT ON THE FIRM SUPPORT OF ABOUT HALF OF LEGCO. IT WILL BE VERY HELPFUL TO HAVE THE GOVERNOR'S ASSESSMENT ON 18 NOVEMBER. SO FAR THE MARKETS ARE RESILIENT (SUGGESTING THAT INVESTORS ARE TAKING A LONG TERM VIEW OF THE POTENTIAL OF HONG KONG AND SOUTHERN CHINA).

BUT THE CHINESE HAVE MANY FORMS OF ECONOMIC AND POLITICAL BLACKMAIL AT THEIR DISPOSAL. MEMBERS OF THE CONSERVATIVE PRO-BUSINESS GROUPING IN LEGCO ARE ALREADY BACKING AWAY FROM SUPPORT FOR THE GOVERNOR'S PROPOSALS. WE CANNOT RULE OUT THAT THE CHINESE MAY BE ABLE TO ENGINEER A COLLAPSE OF BUSINESS CONFIDENCE IN HONG KONG IF THEY PUSH HARD ENOUGH, OR THAT THEY MAY UNWITTINGLY CREATE SUCH A COLLAPSE BY MISCALCULATION.

THERE ARE REPORTS THAT DENG XIAOPING HAS RECENTLY WEIGHED

IN WITH AN INSTRUCTION THAT IF WE IMPLEMENT OUR POLITICAL PROPOSALS, CHINA SHOULD BE READY TO SET UP DIFFERENT ARRANGEMENTS IN 1997. THIS HAS BEEN REFLECTED IN PUBLIC COMMENTS BY CHINESE

OFFICIALS. SO EVEN IF WE SUCCEED IN GETTING LEGISLATION THROUGH LEGCO, THE CHINESE MAY WELL - DEPENDING ON THE EVENTUAL PACKAGE PASSED BY LEGCO SUSTAIN THEIR CAMPAIGN RIGHT UP TO THE LEGCO ELECTIONS IN 1995. THEY MIGHT WELL THREATEN THAT ANYONE WHO BECAME A MEMBER OF THE 1995 LEGCO WOULD BE EXCLUDED FROM PARTICIPATION IN PUBLIC LIFE AFTER 1997.

WE THEREFORE FACE A LONG PERIOD OF STRUGGLE. CALM NERVES WILL BE NEEDED. WE SHOULD CONTINUE TO SHOW THAT WE ARE READY TO

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