TNAG-2469-FCO40-3593-Most-favoured-nation-status-for-China-Hong-Kong-interests-1992 — Page 70

CONFIDENTIAL

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MDLIAN 9471

CONFIDENTIAL

FM SINGAPORE

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OF 030614Z DECEMBER 92

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INFO PRIORITY GOVERNOR HONG KONG, WASHINGTON

MIPT: LEE KUAN YEW'S VIEWS ON HONG KONG AND CHINA

I HAVE OBTAINED FROM A VERY RELIABLE SOURCE A MORE DETAILED ACCOUNT OF LEE KUAN YEW'S THINKING AS EXPRESSED AT A SMALL PRIVATE DINNER OVER THE WEEKEND.

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LEE BELIEVED THAT THE CONFRONTATION HAD A VERY COMPLEX BACKGROUND. HE PROCEEDED FROM THE BASIS THAT BRITAIN DID NOT HAVE STRONG ENOUGH CARDS TO PLAY FOR MR PATTEN TO PUSH DEMOCRATIC REFORM FOR HONG KONG IN THE FACE OF CHINESE OPPOSITION. AND WAS IT NOT ODD THAT BRITAIN SHOULD TAKE A STRONGER LINE UNDER MAJOR THAN THATCHER? BEHIND JOHN MAJOR, THEREFORE, MUST BE THE AMERICANS NOTABLY BUSH AND, PERHAPS EVEN MORE SO, BAKER. THE AMERICANS WISHED TO ENSURE THAT IF THERE WAS A DANGER THAT CHINA WOULD CHALLENGE THE US FOR SUPREMACY IN THE REGION, BECOMING TOO POWERFUL IN THE PROCESS, THE ONLY WAY TO DEFUSE THE RISK WAS TO ENSURE THAT THE CHINESE BECAME MORE DEMOCRATIC, MORE LIBERAL, MORE CONCERNED WITH HUMAN RIGHTS AND THEIR OWN ECONOMIC DEVELOPMENT AND SOCIAL HARMONY, MORE PRAGMATIC AND LESS IDEOLOGICALLY MOTIVATED. IF THE CHINESE PERSISTED ON A COURSE OF COMMUNIST INTRANSIGENCE, THE US WOULD WITHDRAW MOST FAVOURED NATION STATUS FROM CHINA. IF THE CHINESE REFORMED, MNF WOULD CONTINUE. THIS WOULD BE THE SLIP-KNOT (NOT HIS PHRASE) FOR KEEPING CHINA IN HAND, AND COULD BE LOOSENED OR TIGHTENED ON A YEAR TO YEAR BASIS. WITH AN ADVERSE TRADE BALANCE APPROACHING 15 BILLION DOLLARS, THE CHINESE WOULD HAVE TO THINK CAREFULLY. THEIR CURRENT BARRACKING OF MR PATTEN WAS NOT NECESSARILY INDICATIVE OF WHAT THEY MIGHT DO.

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IT WAS ESTIMATED THAT THE WITHDRAWAL OF MNF MIGHT COST CHINA UP TO FOUR PERCENT OF ITS GROWTH A YEAR, ENTAILING AS IT WOULD A FALL IN CONFIDENCE AND THEREFORE IN TAIWANESE AND HK INVESTMENT. CHINA WAS LARGELY AUTOFINANCED FROM WITHIN, THE SOURCES OF FOREIGN EXCHANGE WERE TRADE WITH THE US, AND INVESTMENT FROM TAIWAN AND HONG KONG. AND FOREIGN EXCHANGE WAS VITAL TO CHINA FOR PURCHASING CAPITAL EQUIPMENT AND GOODS FROM ABROAD (INCLUDING RUSSIAN ARMS).

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