TNAG-2451-FCO40-3568-Future-of-Hong-Kong-constitutional-development-1992 — Page 62

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(suggesting that investors are taking a long term view of the potential of Hong Kong and 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. Chinese officials have threatened that if these are implemented unchanged, China will begin to make arrangements for establishing the Legislature, Administration and Judiciary on a new basis after 1997. This may be bluff. Insofar as the Civil Service and Judiciary are concerned it seems somewhat unlikely that they would openly flout the provisions of the Joint Declaration and Basic Law which assure continuity. But we cannot rule out that they may be able to engineer a collapse of business confidence in Hong Kong if they push hard enough (and are prepared to sacrifice their own economic interests), or that they may unwittingly create such a collapse by miscalculation. At any rate we would expect them to declare they will set up different electoral arrangements for 1997. It also seems very possible that they will threaten that anyone who becomes a member of the 1995 Legco will by definition have failed to uphold the Basic Law and will thus be ineligible to participate in political life after

1997".

In the third line of the last paragraph on the third page of the minute, we suggest deleting "during negotiations with the Chinese". The necessity to make changes to the Governor's proposals is far more likely to be as a result of pressures in Hong Kong than to meet Chinese objections.

We suggest that the end of the final paragraph on the fourth page of the minute be redrafted to read: "I am at present planning to see him for the next of our six-monthly meetings next March. But it could, if necessary, be brought forward to the Christmas recess, before firm proposals in the form of législation are put to LegCo". We believe that the Chinese would regard consultations as concluded when we put firm legislative proposals to LegCo. A meeting in March could thus be too late.

Yours sincerely

Linian

(W G Ehrman) Political Adviser

c.c.

Sir Robin McLaren KCMG, HMA Peking

A C Galsworthy Esq CMG, UKREP JLG Hong Kong M CC Sze Esq, SCA, HKG

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