HONGKONG'S FUTURE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00153R000100040003-4
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 4
• Document Creation Date: December 20, 2016
• Document Release Date: January 14, 2008
• Sequence Number: 3
• Publication Date: March 12, 1983
• Content Type: OPEN SOURCE

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TRANSMITTAL SLIP DATE 16 Mar 83
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HONGKONG'S FUTURE
That ring of confidence is fading
Talks between Britain and China over the future of Hongkong are
deadlocked.The ' negotiations that started after Mrs Thatcher's visit to
Peking last September have not proceeded beyond discussions about
what the two sides should, discuss. Hongkong's governor, Sir Edward
Youde, and Britain's ambassador to Peking, Sir Percy Cradock, are in
London for talks with. the prime minister. Hongkong's most valuable
asset-confidence in the future-is already seeping away. For the first
time China seems to be worried.that its golden goose may be ailing. But
it is planning a unilateral solution, one that it believes will be welcomed
in Hongkong.. The British think otherwise. Can the world's mighty
midget of free enterprise be saved?
Some time in the next few years China's
leader, Mr Deng. Xiaoping or, ,his. succes-
sor, could have to make one of - the
following uncomfortable statements to
his politburo:.
Comrades, we have run into serious difficul-
ties with our modernisation programme.
Since we decided to end the. British adminis-
tration of Hongkong 'our foreign earnings
from it have decreased. The capitalists have
moved* to Singapore. All we stand to inherit
is 5m troublemakers and a plot of land not
much bigger than Peking's suburbs.
Or:
Comrades, 'while our sovereignty over
Hongkong is sacred and now undisputed, we
have asked 'the British to remain there for
the foreseeable future. They have reluctant-
ly agreed. Long live Chinese sovereignty.
Those who make money out of the anach-
ronistic position of-Hongkong. as?a British
colony clinging improbably to the south
ern coast- of mainland China, which
means. all. who live there and 'many who
don't, are asking how much longer things
can go on as they are. ... .
. The uncertainty of Hongkong as a
"borrowed ` place . living- on borrowed
time' i .growing as the countdown to the
end. 'of"the lease in 1997 gathers . pace.
Everyone . involved-the Hongkongers,
the. British,. the Chinese, the investors,
the competitors--knows: that by then at
the latest the curtain of history will come.
down and nobody. can be sure what, if
anything;.:. will be there when it rises
again. The unsolved problem is to work
out a future which satisfies China's nat-
ional pride and which the capitalists-in
Hongkong and elsewhere-can -believe
in. .
The issue of sovereignty
Although in the eyes of the British there
is no legal obligation to change the status
of the 30? square miles of Hongkong
island, which were ceded to Britain in
perpetuity by the treaty of 1842, or in-
deed. the four square miles of the Kow-
loon peninsula on the Chinese mainland
that were ceded in 1860, the Chinese
have never. seen it that way. The Chinese
claim that, as-the treaties were imposed
by force when the British were trying to
protect their highly profitable opium ex-
ports to China, they are illegal. The need
to take back Hongkong. has been a credo
of the Chinese. ooinmunist party since- it
was founded in 1921, as.it was of Sun Yat-
sen, the father of modern China. The
formal British position is. that only the
375 square miles of mainland'and islands
which were secured on a 99-year lease in
1898-the area known as -the NewTerri-
tories-need be the subject of any discus-
sion with China.
China. might well. have been able to
allow this disputed status quo to-contin-
ue, but for the looming shadow of 1997.
Even now China has opened-the can of
worms reluctantly, prodded -into action
by Hongkongers alarmed about their-fu-
ture. There have been three occasions
since the second world war, at times
when Anglo-Chinese relations were bad
and Hongkong was weak, when China
must have been tempted to recover the
colony by force:. immediately after the
Communist victory in. 1949, during the
Korean war in 1951, and at the time of
the cultural revolution in 1966-68. It did
not do so.
In 1972 China asked the United Na-
tions to remove Hongkong from its list of
colonies to be liberated, stating grandly
that the problem was "entirely within
China's sovereign right" and would be
dealt with "in an appropriate way, when
conditions are ripe". Indeed, in the. 10.
years that Sir Murray MacLehose (now
Lord MacLehose) was governor of Hong-:
kong (1971-82), Anglo-Chinese relations
improved: the politically embarrassing.
aspects of British rule were swept under
the.diplomatic carpet.
When concern about the long-term
future eventually became evident, in.
1979, Sir Murray was invited to Peking,
where Mr Deng sought to give reassur.
ance with his famous, message:. "Tell the
investors in Hongkong to put their hearts.
at ease." This was. too vague. As -Lord
Carrington, the. then foreign secretary,
said: "It's not their hearts they are.wor
ried about." . : .
When.1982 arrived and the lease-had
no more than 15 years to. run-a signifi-
cant period in terms of commercial-mortr
gages on property-investors began. to
demand- a solution to the problem. The
stock market panicked.. In January., 1982..
the Hang Seng index was above 1,400.
(the all-time high of over 1,800 had been
reached in July, 1981).By December it
was halved. Perhaps more .frighteningly,
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property prices and rents had also
crashed. Hongkong's office rents, which
once held the record of being the.highest
in the world, are now merely in fourth
place, after New York; London and To-
kyo. Hongkong could weather the world
recession but not the threat to its future.
Peking, too, was shaken and, during Mrs
Thatcherts. visit to China last September,
Mr Deng and the Chinese prime minister,
Mr Zhao Ziyang, had tq agree to Anglo-
Chinese discussions on the long-term
"stability and prosperity" of Hongkong.
With each side -claiming rights which
the other rejects, a sensible `solution
.seems remote. Some possibilities:
British Vatican. If China were disposed
to see a small enclave, rather like Vatican
City in Rome, as temporarily acceptable,
and thus to be prepared to nourish it, it
,might be a means of retaining Hongkong
as a financial centre, with an independent
currency to be used in China's newly
formed special economic zones where
free enterprise is encouraged. (One Chi-
nese suggestion is that Hongkong- itself
might be* a special economic zone.) This
might bolster the various economic activi-
ties that would continue in the Chinese-
administered New Territories.
However, this would be unattractive as
a permanent solution. It is hard. to see
that Hongkong island and Kowloon could
survive=on'-their own for-long. The new
border would pass right through the cen-
tre of Kowloon; the airport would be on
the wrong side of it, as would the contain-
er.port; 'nor. would a mini-Hongkong. be
able :to.feed and: water itself: it would be
an administrative nightmare :even; with
Chinese support..,,.,
A reejection--by. China'a of this option
would-underline the fa&t.hat-sovereignty
is really a diminishing asset-valueless
after 1997.
Independent city state. Britain's tradition-
al and dignified method of dismantling its
empire has been to grant independence
to the components of it.
The Hongkong Chinese .believe that if
they had an independent city state they,
could do every bit as well as mainly
Chinese Singapore. But even to test
Hongkong opinion on this, or any other
option, by referendum would be unac-
ceptable to China. Even if Britain could
legally give independence to the ceded
territories it is questionable if it could
assign the remaining 14 years of its.lease
over the New Territories to a new city
state. In any case, China would never
contemplate the creation of what would
in effect be a second Taiwan; which is
why Britain has never been able, under
Tory or Labour governments, to take any
steps towards devolved power through
elected self-government.
Condominium. There have been sugges-
tions that there could be joint govern-
ment between China and Britain. This
envisages Hongkong as an "independent
special zone" within- China under the
Chinese flag, -but with a governing com-
mittee to be headed alternately by a
Chinese and a Briton. Not only would it
be hard to- establish clear .lines of re-
sponsibility between Britain and China
(as- has been shown.in.other condomin-
iums), but joint authority would merely
.emphasise China's. lack of sovereignty
over part of :what it claims is' its own
territory. " .
Leaseback.' ?Hongkong opinion` is almost
unanimous that for Britain to hand over
sovereignty would be a.small price-to pay
for -a :long-term solution., Although' Mrs
0
Thatcher has reasserted the validity of
British sovereignty, this is seen in both
Hongkong and Peking as no more than a
negotiating position. Some British politi-
cians, however, suggest that, although
she may be intellectually convinced of the
need to trade sovereignty, she is at pre-
sent neither emotionally nor politically
ready to do so-certainly not before she
wins the next British election '(assuming
she does).
It is asking a lot of politicians, whether
British or Chinese, to make commitments
for 14 years ahead. It is still harder to ask
them to yield ground without something
to show. It would be politically imposs-
ible for, Mr Deng to be seen formally to
renew anything resembling the old
treaties.
An interim solution might include the
early transfer of sovereignty to China-
which would presumably be a political
bonus for Mr Deng-in return for con-
tinuing British administration of both the
ceded.and the New .Territories. If the
agreement were to continue until 1997.it
would remove none of China's existing
options. To set a date beyond 1997-would
at present be asking too "much-of .China.
It might be possible to play for time by.
setting 1997 as the date,': but with' an
option for both sides to renew the ar-
rangement for. another 15 years iri-1990.
Politically, `the-best to-hope `for-miglit%be
an agreement for continued: Britisk ad-
ministration ? without time -limit, thus -ire-
moving the dreaded countdown to 1997:.
replacing it.with an agreement that Chim
could. ask the -British- to leave atsat{y;.
time-an option that has in- fact: existed
.for the past -30 -years;'Some. Hongkong,
people would ; settle for: - a =rock=solid
promise that the -status. quo would endure
until at least? 1997; one -financier has
remarked 'that:: you can do a lot'` in 44
years.
China's plan
The idea that- Britain and'China should
thrash out a mutually acceptable solution
-of all problems, including-sovereignty; to
-ensure; the, "prosperity- and stability" of.
Hongkong, - may be Mrs' Thateher's view
of the negotiations,--but it is clearly?.not
that of the Chinese. They-want `the 'Brit-
ish- to accept that ; sovereignty is non-
negotiable before _ discussions. on details
of the takeover are started. The negotia-
tions now going on are certainly" not seen
by China as a:discussion between equals.
At the end of the talks, which both
sides expect -to take at least a ;year,- the
Chinese plan to announce unilaterally a
detailed package of proposals for the
future, whether or not Britain accepts it.
They envisage a Hongkong -Chinese as
governor, responsible to Peking. The
proposals will also cover currency ques-
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Everyone an expert
Finding a sensible solution to the prob-
lems of Hongkong depends partly on the
personalities and abilities of the negotia-
tors, particularly on the Chinese side.
Apart from Mr Deng and his lieuten-
ants, a key figure is Mr Liao Chengzi, a
Cantonese party veteran recently ap-
pointed to the ~litburo who has for
many years led the state committees for
overseas Chinese affairs and" for Hong-
kong and Macao. It was Mr Liao who sat
with Mr..Deng at the MacLehose meet-
ing in 1979.
The top Chinese civil servant dealing
with European relations in Peking is Mr
Yao Guang, former ambassador in Par-
is. Mr Zhang. Wenjin, an ex-deputy
foreign minister who is now ambassador
in Washington, may also- play a part; so
may, Mr Wang Kuang, who. as head of
the New China News Agency is Peking's
top man in Hongkong. Mr Ke Hua, who
is China's ambassador in London, will
also be important, if, as is expected, he
tiors(including control over Hongkong's
reserves, capital movements and the. posi-
tion of foreign investors),. the legal sys-
tem, the media, language; citizenship- and
travel - arrangements- for., Hongkongers.
The : Chinese are confident that their-
package will :prove :acceptable* to : the
people of Hongkong.. : . ' -
. -That Peking could .administer Hong
kong competently is? not in dispute. The.
problem :is what:.Chinese administration
"would, mean in- political and :economic
terms. For example,. China does not have
an-.independent.judiciaryor a?free press.
Would. China be able,-;,to=resist raiding.
Hongkong's.: considerable: financial-. re-
serves, which are greater than its own
reserves: of foreign., currency?... China
would- no doubt expect to take".'over
Hongkong as a going concern, although
Britiiin might be tempted to inove'Hong-
kongs moveable assets' out of China's
reach."
However.-,much'' Peking-. claims - that
there would be,,no Interference,, nobody
in Hongkong believes it. Hongkong busi=
nessmen do.not believe that: Peking can
successfully operate a-. free enterprise sys-
tem; they point to China's own laborato-
ries of. capitalism, the -special. economic-
zones- nearby at. Zhuhai and Shenzhen,
where : the concept of the. quota still
burdens production. .If China. incorporat-
ed these zones into: Hongkong in the
hope that -some western alchemy would
operate, it would suspect: political sabo-
tage it they failed.
Peking has suggested that British civil
servants would be welcome.to stay on
after China had taken over; even the
possibilities of management agreements
takes over the news-agency job or be-
comes deputy to Mr Liao.
In Peking the British side of the nego-
tiations is being handled by Britain's
ambassador, Sir Percy Cradock. Sir Ed-
ward Youde, who succeeded Sir Murray
MacLehose as governor of Hongkong,
knows China welh he was Sir Percy's
predecessor in Peking. Hongkong has no
elected government and the top consul-
tative body is the governor's executive-
council, known as Exco, which has on it
the six top British- officials in Hongkong,
and nine- unofficial members who are
local tycoons, six of them Chinese. Exco
wants a veto on any settlement but its
role will be purely advisory. Other views
come from academics, journalists; busi-
nessmen and-30. forceful young middle-
class.Chinese, called the Hongkong Ob-
servers, who are the closest Hongkong
gets to a dissident group. Mrs Thatcher
is herself keeping a firm grip on the
political direction of the negotiations.
have been mooted. This is an irrelevance.
As one senior c yil servant put it: "Hong-
kong's government could be run by Eski-
mos, provided the authority of the gover-
nor derives fromi the British crown-that
is, the, guarantee of freedom from
interference'.':
..Mrs Thatcher has emphasised "Bri-
tain's commitment to the. people, of
Hongkong". Although most wealthy Chi-
nese" have. contingency plans to get them
selves out of Hongkong, Britain's com-
mitment stops short of _ allowing .the rest
of.the 5.5m citizens, 57% of Whom were
born in Hongkong, to move . to.Britain.
:Peking :has, over the past- 12