TNAG-2494-FCO40-3626-Future-of-Hong-Kong-constitutional-development-Chinese-reac-1992 — Page 10

26-NOV-1992 12:31

BRITISH TRADE COMM

1.

ABLE 1.

Scenario

Compromise

2.

3.

(to be reached in 1993-94)

Deadlock

(China starts from scratch

in 1997)

Change of heart

(enlightened and tolerant

leadership emerges in

Beijing and allows

Hong Kong enjoy

a measure of autonomy and democracy)

4. Coercion (Deng Xiaoping

employs strong-arm tactics in an effort to prevail)

POSSIBLE SCENARIOS

Probability

Costs

Reasonably nigh

Tolerable

Quite low

Fairly high

Moderately high

P.06

Tolerable (because change of heart is not immediate)

Very low

Extremely high

HONG KONG EQUITY RISK PREMIUM

FIGURE 1.

Standard

deviations

4

3

2

1

О

-1

-2-

-3

High risk premium

Low risk premium

86 87 88 89 90 91 92

5