Downing Street Years - Margaret Thatcher [303]
Provided that agreement could be reached between the British and Chinese Government on administrative arrangements for Hong Kong which would guarantee the future prosperity and stability of Hong Kong, and would be acceptable to the British Parliament and to the people of Hong Kong as well as to the Chinese Government, I would be prepared to recommend to Parliament that sovereignty over the whole of Hong Kong should revert to China, [my italics]
Geoffrey Howe and the Foreign Office wanted to go further: they argued strongly that I should concede early in the talks that British administration would not continue. I saw no reason to make such a concession. I wanted to use every bargaining card we had to maximum effect. Just how few such cards there were, however, quickly became apparent.
There were three rounds of talks over the summer in which no progress was made. When we took stock of the situation at a meeting on Monday 5 September it was clear that the talks would break down when they resumed on 22 September unless we conceded administration as well as sovereignty to the Chinese. One particular problem was that the timing of the talks was publicly known and it had become the practice at the end of each session to announce the date of the next. If the Chinese decided to hold up progress or break off altogether it would immediately become apparent and damage would be done to confidence in Hong Kong.
This is indeed what happened after the 22–23 September talks. Intensified Chinese propaganda and anxiety at the absence of any reassuring element in the official communiqué caused a massive capital flight out of the Hong Kong dollar and a sharp fall in its value on the foreign exchanges.
Early on Sunday morning, 25 September, I received a telephone call from Alan Walters, who was then in Washington and had been unable to track down either Nigel Lawson or the Governor of the Bank of England. Alan was convinced that the only way to prevent a complete collapse of the currency and all the serious political consequences that entailed was to restore the currency board system — backing the Hong Kong dollar at a par value with the United States dollar. (The Hong Kong Government’s reserves were big enough to make this possible.) Although I was largely convinced by Alan’s arguments and accepted the urgent need for action, I still had some concerns — mainly whether our exchange reserves would be put at risk. But I informed the Treasury of what I considered was a dangerous crisis that needed immediate defusing, and they got in touch with Nigel and the Governor of the Bank. The following Tuesday I met Nigel, the Governor and Alan at the Washington embassy. Although Nigel was at first reluctant and the Governor had reservations, they eventually agreed with me that a restoration of the currency board was the only solution. As always this news soon leaked out to financial markets, confidence was restored and the crisis of the Hong Kong dollar was over. We sealed it later on 16 October 1983 by fixing the Hong Kong dollar at an exchange rate of 7.80 Hong Kong dollars for a US dollar. The financial press thought it was ‘an unalloyed success’. And so time has proved it to be.
But it was also necessary to see that Anglo-Chinese talks began again. On 14 October I sent a further message to Zhao Ziyang expressing our willingness to explore Chinese ideas for the future of Hong Kong and holding out the possibility of a settlement on those lines. I had by now reluctantly decided that we would have to concede not just sovereignty but administration to the Chinese. On 19 October the talks were accordingly resumed.
I hoped that by pointing out in my message those aspects of the Chinese negotiating position which might conceivably lead to as much autonomy for and as little change in the way of life of the people of Hong Kong as possible, we might make some progress. In November I authorized that working papers on the legal system, financial system and external economic relations of Hong Kong