TNAG-2892-FCO40-4165-Transfer-of-assets-from-the-Hong-Kong-Government-to-the-Spec-1993 — Page 8

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Miss Brooks

Legal Counsellor

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370/23

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1993

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TRANSFER OF ASSETS FROM HKG TO THE SARG

1.

As you know, we have recently sent our draft paper on this subject to Hong Kong, UKRep JLG and Peking for their comments. I attach copies of the telegrams which we have received in response.

2.

Paragraph 5 of Peking telno 1044 asks whether Legal Advisers have been able to prepare a first draft of the instrument which we proposed in paragraph 6 of our paper as recommendation to this solution. I would be grateful if you could provide us with a first draft of the instrument when you have time.

As you will see from the telegrams, there is no rush as we all agree that the subject should not be raised with the Chinese for some time.

John's

Bridget Paris

Hong Kong Department

WH303

2702652

27 July 1993

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Ms Paris HKD

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26 JU 1993

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TRANSFER OF ASSETS FROM HKG TO SARG

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1. Thankyou for sending me a copy of this paper (your minute to Miss Brooks of 16 July). It is a problem we need to tackle, and one that is bedevilled by the lack of trust on both sides. Put at its most simple, both we and the Chinese suspect the other side of wanting somehow to draw off the assets of the present Hong Kong government to the benefit of the sovereign state and to the detriment of the SARG. On the face of it, it should be desirable for both us and the Chinese to reach some sort of agreement whereby we both agree to refrain from so doing.

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2. The phrase you quote from the JD in paragraph 3 is from the Annex (JD 41). I agree with your interpretation of the Chinese text. It is as if the word order of the English phrase were changed to read "...the PRC shall on 1 July 1997 upon the resumption...establish the HKSAR" There is another reference to the establishment of the SAR in the JD, JD 6: ..the PRC has decided to establish, in accordance with...the Constitution of the PRC, a Hong Kong SAR upon resuming sovereignty over Hong Kong". This is less clear on the timing of the establishment of the SAR, although it could be said to be related to JD 3 which puts the resumption of sovereignty by the PRC on 1 July 1997. This is all slightly academic. As your paper argues there is clear evidence that the Chinese do intend to establish the SAR, and thus the SARG, on 1 July 1997. Our problem is not so much with that as with the possibility that there might be a period (it perhaps does not really matter whether of hours or minutes) between the dissolution of the present HKG (presumably at midnight on 30 June) and the establishment of the SAR during which the assets of the HKG would formally be in the hands of the Central People's Government of the PRC and thus liable to remain there after the establishment of the SAR.

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3. The argument in your paragraph 6 is rather weak. Granted that the JD contains no requirement for HKG assets to passed to the PRC, it is equally silent on whether HKG assets should be passed directly to the SARG. Secondly is it a practical possibility even to suggest that we might consider either transferring HKG's financial assets to the UK or subsequently granting them to the SARG. I very much sympathise with the thought behind the paragraph. We do need to get the Chinese to see that it is in their interests to come to a satisfactory arrangement on the transfer of assets. To raise the possibility that we might somehow transfer the lot to the UK and thence to the SARG by-passing the PRC entirely would be certain to be seen by the Chinese as another blatant example of British trickery. I doubt whether, if put in so blunt a form, it would succeed in getting them to the negotiating table (especially if we were in some doubt ourselves as to whether such a procedure would be feasible).

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4. The difficulty with the solution suggested in paragraph 7 is that it would require the Chinese to be a party to an agreement to which the HKG was an equal partner. This is the three legged stool again, to which they object so strenuously. 30 June-1 July 1997 is a time of high symbolic significance to them. The whole issue is closely related to their reassertion of sovereignty over Hong Kong. It is hard to see how they could agree to an arrangement which would seem to imply some derogation from that sovereignty. would be difficult for them to enter either a negotiation or an agreement involving the rights of a sovereign state (Hong Kong's assets) to which a non-sovereign entity, the HKG, was a party. there any way in which an agreement could be reached over HKG assets in such as way as the HKG were not a formal party to it? If so, this might prove more attractive to the Chinese. But there would be problems with that approach as well. At least one of the difficulties here is that the Chinese have so far, to my knowledge, been unwilling to commit the future SARG to courses of action on the grounds that it is not yet in existence. Equally we would find it hard to negotiate over the head of the Hong Kong Government the disposal of its assets. As you say this would not go down well in Hong Kong.

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5. Timing is always a problem. It is obviously sensible to avoid giving the Chinese yet another potential hold over us which they could then tie up in the constitutional development and airport talks. There do seems to be signs of the Chinese taking a more accommodating attitude issues that are likely to be of direct economic benefit to Hong Kong (ie the airport). I do not believe that we have to wait for the airport to be settled before raising this particular issue. The burdens on the SAR would presumably be larger if we did what the Chinese suspect and removed some or all of HKG's assets to Britain. Neither of these outcomes would be welcome to the Chinese. There might therefore be arguments in their camp for them not to tie the two issues too closely together. The constitutional talks are more problematical. Your paper seems to assume that the will be an agreement from them. That is not necessarily the case. They could always reach an impasse. This would obviously have repercussions on other areas of doing business with the Chinese over Hong Kong, and an issue such as this would be an obvious casualty. The Chinese would presumably be blaming us for the breakdown of the talks and for whatever unilateral action they claimed we had made. They would be even more inclined to view a proposal along the lines you suggest over Hong Kong's assets as a further example of British treachery and double dealing. This is not really to argue for an earlier broaching of the matter. We do not want to shoot ourselves in the feet by giving, unnecessarily, reasons to the Chinese either to be suspicious of or to complain about us while the constitutional talks are going on. In the timing you suggest we would either have a slightly better political atmosphere in which to raise the question, or a much worse one. the latter case, to have raised it earlier would not materially improve our chances of reaching a satisfactory outcome. I do not think we would have time to reach agreement by the time proposed even if we started immediately, so we could not have it in the bag before the likely end of the constitutional talks.

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