TNAG-2892-FCO40-4165-Transfer-of-assets-from-the-Hong-Kong-Government-to-the-Spec-1993 — Page 13

CONFIDENTIAL

DISCUSSION PAPER ON TRANSFER OF ASSETS FROM HKG TO SARG

Problem

1. We need to put in place a mechanism which ensures that the

SARG inherits the assets of the HKG.

Background

The JD and Basic Law

3. The JD is ambiguous on whether the SAR has to be

established on 1 July 1997. The English version states that

"...the People's Republic of China shall, upon the resumption

of the exercise of sovereignty over Hong Kong on 1 July 1997, establish the Hong Kong Special Administrative Region...". The Chinese version of this sentence is, however, more splet conclusive in requiring the PRC to establish the SAR on 1 July 1997. Also, the Decision of the National People's Congress on the Establishment of the Hong Kong Special Administrative

Region adopted on 4 April 1990 provides that the SAR "is to be

established as of 1 July 1997".

Discussions with the Chinese

4. It is clear from statements made by the Chinese in the JLG

and during the negotiations on the airport that they do not

see the SARG as the direct successor to the HKG. Their

position is that upon the end of British sovereignty, the HKG

will cease to exist and the PRC will then create the SAR and

the SARG. It follows from this that in the Chinese view, the assets of the HKG should, upon resumption of sovereignty by China, pass to the PRC which will then grant them to the SARG.

The Chinese have stated in the JLG that HKG's reserves should

pass to Peking before being granted to the SARG, but have

assured us that the PRC would hand over to the SARG all the

assets.paper/MONEY/bp

CONFIDENTIAL

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