TNAG-2892-FCO40-4165-Transfer-of-assets-from-the-Hong-Kong-Government-to-the-Spec-1993 — Page 5

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"Documents, certificates, contracts and rights and obligations valid under the laws previously enforced in Hong Kong shall continue to be valid and be recognised and protected by the Hong Kong Special Administrative Region, provided that they do not contravene this law."

In response, the Chinese maintain that this paragraph applies only to private contracts and not those entered into with the Hong Kong Government.

4. We think there is no realistic chance of persuading the Chinese to sign any undertaking that the SARG will inherit all of the obligations of the HKG as this would remove from them one of the most effective levers which they have over the actions of the HKG during the remaining years of the transition.

5.

One point which you might make after reading the above is that if the Chinese maintain that the SARG does not necessarily inherit the obligations of the HKG then it should not automatically receive the assets. We have consciously avoided deploying this argument as to do so would only feed Chinese suspicions that we intend running down or even transferring to the UK the financial assets of the HKG before 1997.

Yous

اسمه

N Whitney

vil.

Hong Kong Department

It.wood.ADMIN

JEB

CONFIDENTIAL