TNAG-2913-FCO40-4188-International-support-from-the-USA-regarding-the-future-of-H-1993 — Page 97

25 JAN '93 13:27 M & CO 3 LOMBARD ST.

P.3/5

while no-one wants to see Hong Kong's interests harmed by action on MFN, it's hard to see how some damage can be avoided. Disentangling Chinese and Hong Kong exports is increasingly difficult;

there is strong support in Washington for the Governor's reforms and a wish to see them succeed (together with some criticism of the UK for not introducing democracy earlier). But it is also recognised that any attempt by the US to become directly involved could be counter- productive;

Jardines' support for the Governor's proposals and the NCNA attack on us are surprisingly widely known. There is an almost embarrassing degree of enthusiasm for us;

the Americans continue to find the Chinese very difficult to negotiate with on trade issues, but claim that by and large they are implementing their commitments on intellectual property and non-use of prison labour. There has, however, been very little progress on market access (by which the Americans do not mean joint ventures but direct sales);

one hears criticism within the Administration and on the Hill of the quality of the lobbying effort, in particular that mounted by the Hong Kong business community. Assertions such as that "people in Hong Kong are not interested in democracy" or that "human rights are not relevant to China” - which were quoted to me as examples - go down badly with Congress and indeed with most American audiences;

I argued against attaching specific conditions to MFN this year. The looming threat of such conditions would give the US leverage over the Chinese: but once they were actually applied, the Chinese would only become more defiant. I also pointed out that this summer would already be a difficult and sensitive time for Hong Kong opinion with continuing pressure from the Chinese over the Governor's constitutional proposals: an additional simultaneous row over MFN would be more than Hong Kong could take.

My conclusion is that we are heading for a fraught patch in relations between the US and China. There is a fair chance of getting through one more year without Congress or the Administration attaching conditions to MFN renewal. But unless Congress sees the Administration undertaking strenuous efforts behind the scenes to get concessions from the Chinese on human rights etc, they will insist on conditionality in 1994. Either way business prospects and market sentiment in Hong Kong are likely to be adversely affected.

2