26-NOV-1992 12:30
BRITISH TRADE COMM
P.05
(sometime in early 1993), the attacks from across the border will doubtless intensify and of proposals the room for manoeuvre will inevitably narrow. A compromise would be the most palatable produces outcome from a market standpoint but even under this scenario a high level of uncertainty four might prevail and procrastination on the airport front would remain a feature of the scenarios... situation.
There is simply not enough time to strike a bargain before LEGCO gives the proposals its seal of approval. Yet, one should not rule out the possibility of a compromise emerging during the period preceding the 1995 elections. Despite the deterioration in Sino-British relations and evidence that the two sides are digging their heels in preparation for a lengthy and bloody battle. this is to all appearances the most realistic scenario. The protagonists' positions are divergent rather than diametrically opposed, the costs of headlong collision are prohibitively high and if the LEGCO vote is regarded as an interim rather than final step. time is by no means running out.
However, given the fundamental nature of the disagreement, erosion of trust and growing antipathy between the key players in the competing teams, progress could continue to elude the negotiators. If this scenario were to materialize. Beijing would probably refuse to engage in a constructive dialogue with the Hong Kong/British government and proceed to formulate plans for dismantling (after 1997) the institutional framework erected by Patten and implementing one consistent with its narrow interpretation of the Basic Law.
The degroo of uncertainty associated with such an outcome would be considerable and substantial costs would be incurred in specific areas due to lack of official Chinese cooperation. Nevertheless, business relations at the micro level would not necessarily be seriously affected and the private sector would not be greatly handicapped in pursuing opportunities in the mainland. Further, the demise of Deng Xiaoping and other influential octogenarians could propel to the top of Bejing's power structure more enlightened and tolerant leaders who might be willing to allow Hong Kong a significant measure of autonomy and democracy.
The least likely and most unpalatable scenario would feature an attempt by Deng to force the governor to jettison his reforms through the use of strong-arm tactics (see Table 1). This could prove very costly for China, as well as the territory, but the ruthless old warrior did not hesitate to plunge his country temporarily into an economic crisis when he had his back to the wall in 1989 and is capable of a repeat performance. Our Western logic leads us to the conclusion that the consummate bridge player will stop chort of resorting to his ultimate weapon yet in the past we were better served on such occasions when we tried to simulate the workings of the Eastern mind.
It is comforting to note that susceptibility to Western forms of reasoning is not a characteristic of the authors of this report alone. The crowd which plays the local stock market has driven prices to a level which leaves almost no margin of safety in the event of the worst-case scenario materializing (see Figure 1). History teaches us that the crowd's judgement on such occasions is decidedly poor (May 1989 is a case in point) but we wish to believe that the stock market is acting rationally in focusing on China's future potential rather than its past misdeeds. Still, it would be unwise to throw caution to the winds.
...eventual compromise before 1995 elections
...continued
stalemate...
...a change of heart on China's
part...
1
...or, least
likely, resort to strong- arm tactics by Beijing
Market focus on China's potential rather than its past may be unwise
4
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