TNAG-2892-FCO40-4165-Transfer-of-assets-from-the-Hong-Kong-Government-to-the-Spec-1993 — Page 32

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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, and they have asked for a full list of

HKG's assets. They have, however, assured us that the PRC

would hand over to the SARG all the assets of the HKG.

Chinese leaders have said in public that China will not touch

a penny of Hong Kong's reserves.

5. The Chinese view of the constitutional position underlies their demand that HKG should not assume obligations extending beyond 1997 without their agreement, and that the PRC can

decide which obligations should be assumed by the SARG after

1997. It may also explain their objection to our proposal on

midnight adaptation of laws.

The Legal Position

It

6. The customary international law position is that assets

which are the physical and fiscal property of an extinct or

totally absorbed state are assumed by the absorbing state.

is for the successor State's laws to determine whether the

property becomes vested in the State itself or in a component

part of the State such as a territorial subdivision. Although

Hong Kong is not a state the Chinese may argue by analogy that this requires that all physical property which makes up Hong Kong, and its financial assets be passed to them on 30 June

1997 and that it is for the PRC to decide to endow the SAR

with these assets. We could maintain that Hong Kong is a

unique case governed by the JD and that the JD contains no

requirement for HKG assets to be passed to the PRC and that

this is therefore a matter to be resolved in the JLG. The

logical extension of this argument is that in the absence of

an agreement, we reserved the right to transfer HKG's

assets.paper/MONEY/bp

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