Hong Kong and China

HL Deb 09 December 1992 vol 541 cc198-267

3.46 p.m.

Debate resumed.

Baroness Blackstone

My Lords, I too am grateful to the noble Lord, Lord Geddes, for initiating this debate on Hong Kong and China. When first I saw it had been put down I wondered whether it was too soon after the last debate on the subject. I turned out to be quite wrong. It has become an extremely topical subject. I look forward greatly to the maiden speech of the noble Lord, Lord Wilson of Tillyorn. He brings, of course, a wealth of experience and great knowledge of the subject to our debate.

Unlike him, and indeed most of the speakers today, I am a complete novice. I visited Hong Kong and China, but only once and nearly 10 years ago. Obviously I must visit them again to try to acquire a greater understanding of the issues, which can be achieved only by directly experiencing what is going on and meeting those who are affected.

The next three or four years are clearly of crucial importance both to the future of Hong Kong and to the future of Sino-British relations. I was glad to hear the Minister confirm the importance that the Government attach to these relations. Both the future of Hong Kong and our relations with China are inextricably linked to each other. The UK Government and the Governor of Hong Kong have a difficult tightrope to walk in balancing the various objectives. I recognise that and I am sure that every other speaker in the debate will also do so. But, like the noble Lord, Lord Geddes, I do wonder whether the way Mr. Patten has handled recent events has been in the long-term interests of Hong Kong. And it is those interests that should be paramount in the tricky negotiations about the extension of democracy in the colony.

It goes without saying that greater democracy in Hong Kong is a highly desirable goal. The Labour Party strongly supports the democratisation that was agreed with China in the Joint Declaration and which was then embodied in the Basic Law. However, what was agreed has to some extent at least been overtaken by events, including the sweeping victory of the pro-democracy movement in Hong Kong in the 1991 direct elections to the Legislative Council, when 16 out of 18 of the directly elected seats were won by the United Democrats and their allies. Pressure has since built up in Hong Kong for even greater democratisation. The Governor responded to those pressures with new proposals set out in his speech to the Legislative Council in October. The proposals he made are in themselves laudable. Who would dispute the need to widen the franchise and allow far more people the right to vote? Who would dispute the desirability of lowering the voting age from 21 to 18, thus bringing Hong Kong into line with most other democratic countries?

The key question is not whether we should back those changes —of course we should. The key question is whether, by announcing them when he did, and in the way that he did, the Governor may have put at risk more than he is gaining by making those changes. The Chinese Government's reaction can in no way be condoned. They have, in fact, over-reacted in a rather absurd fashion. To refuse to endorse any contracts negotiated which go beyond 1997 and which have not been agreed with China beforehand does not look like a sensible response in terms of their own interest. Some of those projects require substantial capital. The question the Chinese must ask themselves is whether Western or Japanese financial institutions will provide that capital if every new development is subject to a Chinese veto over the next four years. If capital is not provided, the extraordinary economic growth which has been produced in South China and Hong Kong could be jeopardised.

But I return to the question of how the Governor, backed presumably by the UK Government, has handled the matter. I do not often find myself agreeing with quotations from the Sunday Times these days, but I do agree with the quotation from that paper given by the noble Lord, Lord Geddes. While the Government have already claimed, in answer to a Question put down by my noble friend Lord Judd, that the Basic Law has not been breached by Mr. Patten's proposals—I accept that that may well be the case, although I should like some clarification from the Minister—the question I should like to ask her is whether those proposals are in line with the spirit of the Joint Declaration. By using the device of creating more functional constituencies which will give a large number of people the vote, Chris Patten has been, in one sense, very clever; but has he been a bit too clever by half?

Is it skilful diplomacy to try to pull a fast one on the Chinese in that way? Surely, having alighted on that clever way round some of the restrictions imposed by the earlier agreements, it would have been better first to canvass opinions in the Chinese Government. I am not arguing that the Chinese would necessarily have been persuaded, but they just might have been, and they certainly would have been less affronted. If it is true that the Foreign Secretary informed the Chinese Foreign Secretary of those plans in New York in September, why was not the way prepared earlier, and why did not the Governor of Hong Kong at least consult the Chinese before making an announcement? Perhaps the Minister will tell the House when she replies.

There is now anxiety that convergence with the Basic Law in 1997 will be more difficult and that a smooth transition will be jeopardised. Most commentators agree that what was negotiated in the Basic Law was something of an achievement. While, of course, one could have hoped for even more, the best should not become the enemy of the good. Mr. Patten may bring it off, and if he does we should all be delighted, but he is taking a considerable risk—a risk that could jeopardise our economic interests, but, much more importantly, could lead to less rather than more democracy in Hong Kong. Any further light the Minister can shed on that issue would be helpful. I was glad to hear her say that the Government are ready to talk to the Chinese Government at any time. Could she be more precise and say when the Government next intend to discuss Hong Kong's future, including the 1995 Legislative Council elections, with the Chinese Government? She has admitted that there is little time and that it is a matter of urgency.

I wonder whether one solution to the current impasse with China might be to offer more flexibility on the issue of contracts in exchange for greater understanding of the need for democratisation on the part of the Chinese. There is a case for more consultation on all major contracts that run beyond the handover to the Chinese. I accept that legally the Hong Kong Government have no need to consult, but politically would it not be sensible to do so?

Although there are still difficulties, we have now agreed to consult on the building of the airport since it straddles 1997. Would it not be wise to extend that to other major projects that go beyond that date? In return, the Chinese should be asked to drop their opposition to matters such as changes in fiscal policy or the granting of licences to radio stations, which in no way breach the Basic Law. Since Hong Kong and South China are now becoming a single entity in economic terms, that would surely make sense.

As the noble Lord, Lord Geddes, has already said, the economic development of South China has been quite remarkable. I shall not repeat the statistics with which he has already provided us. There can be little doubt that the communist system is breaking down there, from an economic point of view. One hopes that that will spread gradually to the rest of China, but the Chinese Government's decision to put economic reform before political reform, to which the noble Lord referred, in no way justifies the flagrant breaches of human rights that have been occurring in China on a large scale. Amnesty International's report earlier this year provides a catalogue of grotesque violations of the most basic human rights. Hundreds of prisoners of conscience remain in detention. Many have not received fair trials after arbitrary arrest. There have been persistent reports of torture, and, worst of all, unarmed demonstrators have been killed, and summary executions are not uncommon. The recent developments in Xinliang Province are a particular cause for anxiety.

We have heard from the Minister that the parliamentary delegation, headed by the noble and learned Lord, Lord Howe, investigating human rights abuses in Hong Kong returned from China yesterday. Perhaps the Minister will ensure that a copy of its report is placed in the Library. Will she also say what, if any, representations the Government have made recently to China on the abuse of human rights in that country? In the light of China's poor record in that respect, there is understandable anxiety about the protection of human rights in Hong Kong. I understand that a Bill of Rights was adopted in June, which incorporated certain provisions of the International Covenant on Civil and Political Rights into Hong Kong law. There are worries about whether the Bill of Rights and, particularly, those ICCPR provisions will still apply after 1997. Amnesty International has also raised the question of whether safeguards to protect prisoners of conscience are adequate. Perhaps the Minister will say what steps are being taken to meet those anxieties. I am sure that she will agree that everything possible should be done to ensure that human rights in Hong Kong are respected after the handover in 1997.

When the subject of Hong Kong and China was last debated, my noble friend Lord Judd referred to another important matter concerning human rights —the fate of the Vietnamese boat people. Their human rights must also be protected. It would be helpful to have from the Minister the latest estimate of the number of people now in Hong Kong and how many new arrivals reached the colony in 1992. Will she also tell the House what progress has been made since our previous debate in the screening of the boat people to assess whether they qualify for asylum? Amnesty International claims that the screening process is still deficient. What, if any, steps are being taken to rectify that?

As we all know, the very low standards of living in Vietnam are an important reason why many Vietnamese are still trying to leave the country and reach Hong Kong, despite the huge risks involved. The continuing economic embargo enforced by the US against Vietnam, including the vetoing of IMF and World Bank loans scheduled for that country, is, to say the least, unhelpful. The recent thawing of relations between the US and Vietnam is a start, but that crippling embargo must be lifted.

Since President-Elect Clinton has said that he values the special relationship that exists with the UK, will the Government make use of that and make representations to the new US Government to change their policy? While on the subject of Mr. Clinton, will the Government also be taking up his offer, which he was reported to have made yesterday, to help relieve the Sino-British tensions over Hong Kong? Assuming that there is an American policy change on Vietnam, can we expect a further increase in UK aid, as well as the promotion of aid and investment in Vietnam?

I conclude by saying that we have an enormous responsibility to secure the prosperity and political future of Hong Kong and its people. The previous debate on Hong Kong focused heavily on the economic miracle taking place in South China, led in many ways by Hong Kong. The economic success of this area is, of course, welcome and long may it continue. It opens up huge opportunities for UK companies as well as for business interests in Hong Kong. However, I hope that today we shall focus rather more on the difficult and delicate diplomacy to be conducted to ensure a transition in 1997 that protects the political rights of the people of Hong Kong. We owe it to them to be unstinting in our efforts to achieve that.

4 p.m.

Lord Holme of Cheltenham

My Lords, the whole House is in the debt of the noble Lord, Lord Geddes, not just for his choice of subject and for the expertise he showed in introducing the debate but for his acute sense of timing. It is difficult to imagine that we could have had this debate at a more appropriate time, and we thank him for it.

I am also grateful for the chance to speak early in the debate and to make my own few rather simple observations before the positive avalanche of experience and wisdom which will descend upon us from a number of Members of this House. Their views we all greatly respect, not least of course those of the noble Lord, Lord Wilson, who will speak next and who I know will have the keen attention of the whole House.

Yesterday I returned from China where I was a member of a small mission led by the noble and learned Lord, Lord Howe of Aberavon, to the People's Republic of China, following up the Prime Minister's visit. Our mission was designed to discuss matters of mutual interest, including human rights. As the noble Baroness has already reported, I know how disappointed the noble and learned Lord is not to be able to be here for this debate.

On the question of human rights in China, I do not wish today to attempt to pre-empt the conclusions of our mission, on which we shall report in the New Year. Perhaps I may simply say that by the standards of open, plural and liberal democracy which we take for granted in the West there are still matters of grave concern affecting individuals and communities in China, not only dissenters or religious and ethnic minorities but also the men and women in the streets, the factories and the fields, and too many of them in the prisons.

Even making allowances, as we must, for the very different history and culture of this ancient land, there are many weary miles yet to be travelled before China is a full part of a world community of shared values. Yet at the same time it would be foolish not to recognise the pressures, both internal and external, in China for reform of law, institutions and practices. It would be churlish of us not to acknowledge that some progress—limited as yet but potentially more dramatic—is being made.

Our mission encountered nothing but co-operative courtesy and a surprising degree of forthcoming response given the inevitably intrusive nature of our questioning of their system. I believe that this was not least due to the fact that the noble and learned Lord, Lord Howe, is identified as a long-standing and good friend of China.

Turning to the wider issues in this debate, it is worth reporting that General Secretary Jiang Ze Min, when we met him last week, told us that for her part China is seeking to build a, socialist market economy with Chinese characteristics". He went on to say that the relationship that China seeks with Britain is one of mutual respect. Both these statements—interspersed, I may say, with an impressive rendering of the opening part of the Gettysburg Address in English and with references to his reading of Adam Smith, Keynes, Samuelson and Milton Friedman—are of great significance and deserve the closest attention.

First, on the question of the market economy, as noble Lords have already said, there is an extraordinary boom in southern and eastern China which, taken together with Taiwan and Hong Kong, now make up greater China—not just another tiger but a positive super-tiger. It is one of the fastest-growing and most exciting areas of economic development in the entire world. This year the rate of economic growth in Shanghai alone will be 15 per cent.

This is also an increasingly inter-penetrated area, with both Taiwanese and Hong Kong investment playing a prominent role on the mainland. However, the British role—even allowing for investment indirectly via Hong Kong—is still, I fear, disappointingly small. Of 1,576 joint ventures in Shanghai established in the past year or so, amounting to projects worth over 8 billion dollars, only 18 are British, although the companies include BOC, Pilkington's and Unilever. It is also fair to say that a number of other companies have established offices there. The development in Pudong to which the noble Lord, Lord Geddes, referred is breathtaking. It makes Docklands look like a model village. It is a shame that there is not yet more active British involvement directly in this extraordinary development. Perhaps the noble Baroness could refer to this in her summing up.

I wonder whether the FCO and the British Overseas Trade Board at the DTI should not between them step up our representation and export efforts in this dynamic area on the old principle that resources should be allocated to opportunity not to problems. Perhaps more resources should go to Shanghai, and I think we should look seriously at the possibility of a consul in Canton.

As noble Lords will know, China is anxious to join the GATT, as she is to attract inward investment. I suggest that one area in which we should be firm with the Chinese is to encourage them to shape up to international norms in terms of trade. First, there should be greater transparency of regulations. There are too many regulations which are not published. Secondly, there should be a removal of artificial, non-trade barriers; there should be a removal, or at least a disclosure, of quotas. For example, the quota on alcohol is not helpful to important British interests. Further, the legal conditions which protect foreign trade transactions should be examined.

To give one or two examples, there are unpublished regulations and prohibitions on the import of beef and dairy products from France, Germany, Switzerland and the United Kingdom. There are veterinary inspection regulations which make it difficult for our producers to export directly to China. Another example is that registration is required of pharmaceuticals and the criteria for registration are not sufficiently clear so they can be arbitrarily changed to make it difficult for foreign pharmaceutical exporters.

What I am really saying is that if China wishes to become a member of the GATT, as she clearly wishes to very badly, she needs to have a major sort-out of her commercial law. In fact China needs a sort-out of her law generally. Here there are encouraging signs. We were told that there is a major law reform promised for some time next year. Some noble Lords may have seen the speech last week by Xiao Shi in which he said that China must modernise her structures. He specifically said: We must legalise our socialist democracy in order to have laws which we can keep unchanged regardless of the shuffles of the leaders". This from a leading member of the Central Committee is an extraordinarily significant movement towards a government of laws not men. It looks as though the old Chinese proverb or maxim that policies are better than laws, and leadership is better than policies, may be in the process of being replaced by a sense of the primacy of the law, important for human rights and important for commercial transactions.

Therefore it is a time of change in China and I believe that Britain and Hong Kong have a vital role to play in that. To revert to the remarks of the General Secretary, he called for mutual respect. I should like to suggest that we should regard this as a time to stay cool and courteous. On these Benches we certainly believe that the Governor General must be backed steadfastly in his modest and realistic proposals for amplifying democracy in Hong Kong. I fear that I do not agree with the noble Baroness, Lady Blackstone, in characterising Mr. Patten's policies as pulling a fast one. There is already a danger that some elements of the Beijing leadership believe after the last few months that the British Government are weak and easily deflected from their purposes, so let us be staunch in our defence of liberal values within the terms of the Joint Declaration that we have made with China.

Let us also be sure to consult and reason together with the Chinese, with whom we are enforced historical partners in Hong Kong, but, even more, potential allies for the future peace and prosperity of the region. This is a part of the world where history is being made, and it is our role to help ensure that so far as can be managed—and it will be difficult—economic and political freedom advance together and are not divided. That will best be achieved by speaking softly, by putting down our big sticks and by ensuring that a dialogue of mutual respect with China is maintained and extended.

4.11 p.m.

Lord Wilson of Tillyorn

My Lords, I speak for the first time in your Lordships' House with more than the usual degree of trepidation. Your Lordships' House contains a great deal of expertise on Hong Kong. Among noble Lords there are several former Ministers of the Crown who held responsibility for Hong Kong while I was Governor. There is one very distinguished former Governor, the noble Lord, Lord MacLehose of Beoch, under whom I was fortunate enough to serve several years ago. As the list of speakers for today's debate shows, many noble Lords have direct personal experience of Hong Kong and China. My trepidation is only somewhat alleviated by the friendly reception that your Lordships give to any new Member of this House, whether they be from down the corridor and another place quite close at hand, or, like myself, from other places much further away.

Hong Kong is indeed geographically distant, but I believe that it is close to the hearts of many of us, and quite rightly will be close to the concerns of the British Government over the years to come. It has been a tremendous privilege to have been Governor of that territory during the past five years or more, and to see Hong Kong survive and flourish despite a whole series of difficulties that could well have overwhelmed a lesser territory, or a lesser people, and that is great credit to the people of Hong Kong.

Flourish, Hong Kong certainly has. The statistics are well known to many noble Lords and I will not repeat them. One has to see Hong Kong to believe the way in which it has flourished. There can surely be few places in the world where the Financial Secretary regularly wakes up in the morning and finds that he has an even greater surplus than he had anticipated. That economic success is important not just for its own sake but because it has enabled the Hong Kong Government and its hard-working, dedicated civil service to do so much for the people of Hong Kong.

One of the unfortunate elements of fall out from the present all too public dispute is that a large section of the Governor's annual address to the Legislative Council this October, which dealt with what Hong Kong has done and will do for the people of Hong Kong—ambitious and well-founded plans—has fallen somewhat into obscurity. Nor should the present dispute allow another important fact to be obscured, and that is the real and commendable way in which the Governor, Mr. Chris Patten, has, with enormous energy, in a short period of time endeared himself to people in Hong Kong. I am sure that that will stand him in good stead in the months and years to come.

That prosperity of Hong Kong, that economic success, is inseparable from the economic success of China as a whole and Southern China in particular. The noble Lord, Lord Geddes, to whom we are much indebted for this debate, described eloquently and accurately the astonishing progress of China. That too has to be seen to be believed. China as a whole has grown at something like 8 per cent. every year for the last five years, and United Nations' statistics estimate that it will grow faster than that, at over 9 per cent in the years to 1996. But Southern China has grown even faster; by 13 per cent. a year every year for the last five years. The journey from the border of Hong Kong to Canton is now like going through a gigantic building site.

That economic success is not just inseparable from the economic success of Hong Kong. Each gains from what the other has done. That is one of many reasons why it is so important that Hong Kong should continue to build up its economic and transportation infrastructure, including building a new airport and developing its port. But that economic relationship is only part of a much wider relationship with China. It is never an easy relationship. The systems, the traditions, are so different. There is much suspicion on both sides. But it is a relationship that surely has to be worked at. China cannot be neglected as an important factor for Hong Kong. There must be contact; there must be discussion. In that, I believe we should always keep in mind the long-term interests of the people of Hong Kong and what really matters to them not just in the next few years but also in the years after 1997.

Nobody who has the interests of Hong Kong at heart can fail to be concerned by the intensity and the implications of the present dispute about constitutional arrangements. It cannot be good for Hong Kong and it cannot he good for China in the long run to have a long-running dispute of this sort. I noted—and the noble Baroness the Minister has just repeated this —that when the Governor put forward his proposals this October, they were just that: proposals; no more, no less; and that he welcomed other proposals.

I hope that other proposals will indeed be put forward in Hong Kong so that there may be a chance to find a structure for the 1995 elections that will be satisfactory and acceptable to the people of Hong Kong, and which, through discussion with China, can last long after 1997. I believe that continuity is of great importance to Hong Kong for the sureness that the people of Hong Kong need in their personal lives and in making commercial judgments. Continuity was one of the aims and one of the achievements of the Joint Declaration of 1984, and I believe that continuity in the Legislative Council as much as anything else remains an important objective.

Despite all the present difficulties I remain confident about the longer-term future of Hong Kong. The economic success story of China and of Hong Kong, to which those noble Lords who have already spoken have referred, is a key factor. It is like a great stream that is carrying Hong Kong forward into the future. In that stream there will always be rocks— political obstacles. The task must be so to navigate the boat that it does not founder on those rocks, but carries forward Hong Kong and its people to a successful future, which they look to so strongly and which they deserve so much.

4.19 p.m.

Baroness Thatcher

My Lords, it is my great privilege, on behalf of the House, to congratulate the noble Lord, Lord Wilson, on the most excellent maiden speech he has just made: a subject upon which he has so much knowledge and understanding. I seem to remember that I had something to do with his governorship of Hong Kong and, in so far as I did, I think it was an extremely good choice. He was a very distinguished governor at a most difficult time. People remember what happened in 1989, and he saw Hong Kong through that time.

I should also like to say thank you to him for the great part he played in the very tough negotiations with China in order to get the Joint Declaration that we eventually succeeded in having. May I also say that that took a long time. There were many setbacks: times when we got nowhere, times when we had to give ground and times when we gained ground. But had either side left the field at the first whiff of grapeshot there would never have been a Joint Declaration. There would have been a very much lesser future for Hong Kong than there is as a result of that persistence. I would also thank the noble Lord for choosing this occasion to speak, because it is the first time in my 33 years in Parliament that I have had the privilege of congratulating a maiden speaker; so it is in a way a double first.

My purpose in speaking in this debate is strongly to support the Governor of Hong Kong and to commend a policy of good relations with China. Noble Lords will detect that I do not believe there need be any contradiction between these two propositions. I should like also to thank the noble Lord, Lord Geddes, for his fascinating speech in opening this debate. As a result of the sentences I have already uttered, he will realise that I do not wholly agree with him. Perhaps I may just take up one point which both he and the noble Baroness opposite made. There seems to be some idea that it was not what the Governor said but the manner in which or the occasion on which he said it that has given rise to the problems. The Governor chose to unveil his proposals to the people of Hong Kong in an address at the opening of the 1992–93 session of the Legislative Council. It would seem to me very strange for this House to choose such an occasion as one of criticism.

Secondly, the Governor is a master of the English language. His command of it is tremendous. The speech was marvellously well constructed and I have no doubt it was wonderfully delivered. Just look! I happen to have it with me in case any such criticism arose. An instinct for these criticisms has been bred in me for many years. The Governor said: Democracy is more than just a philosophical ideal. It is, for instance, an essential element in the pursuit of economic progress … Without the rule of law buttressed by democratic institutions, investors are left unprotected. Without an independent Judiciary enforcing laws democratically enacted, businesses will be vulnerable to arbitrary political decisions taken on a whim—a sure recipe for a collapse in confidence and a powerful deterrent to investors from overseas". It was a splendid speech, magnificently constructed, and I have no doubt that it was greeted with a great deal of admiration at the time. I still have a great deal of admiration for the way in which the Governor is conducting his very difficult task now.

Like other noble Lords, I have visited Hong Kong many times. It never ceases to amaze me. It is proof that when you allow free rein to people to exercise their talents under a rule of law, they can create a wondrous economy, even without natural resources and on just a small spit of land. In these unpromising conditions they have made tiny Hong Kong the world's tenth largest trading economy. Dean Inge remarked that the nations which have put mankind most in their debt have been the small states—Israel, Athens, Florence, Elizabethan England". Hong Kong deserves a place in that pantheon. It is a superlative example of how British administration and Chinese talent can succeed in combination.

China's own economic performance in recent years has been almost as remarkable, and the noble Lord, Lord Geddes, gave us some fascinating statistics. Thanks to Mr. Deng Xiaoping's reforms, the market is being allowed to work and foreign investment is encouraged. As a result, the Chinese economy is growing at an unprecedentedly high rate and living standards are improving rapidly. Like others, I have spoken up strongly in support of those changes in China, which hold out great hope for the future. Indeed, I believe that, partly as a result of them, the economic centre of gravity in the world will steadily shift towards the Asia-Pacific region over the next 20 to 30 years.

What is happening in China is extremely encouraging for the people of Hong Kong. They see great opportunities, both now and after 1997. Indeed recognition of the opportunities is dwarfing their earlier fears about what 1997 would mean for them. They recognise that economically China has changed greatly since the signing of the Joint Declaration in 1984.

The decision to return Hong Kong to China's sovereignty was not an easy one, given the differences between their political systems and their way of life. We agonised over it, knowing that it was not the people of Britain who would suffer if it went wrong but the people of Hong Kong, who were our charge and our responsibility. But no other realistic course was open to us under the terms of the original lease, which covered 92 per cent. of Hong Kong's territory, excluding only Hong Kong Island itself, a small part of the Kowloon peninsula and Stonecutters Island.

What tipped the balance, what made it acceptable both to us and to the people of Hong Kong, was Mr. Deng's concept of "one country two systems". It was embodied in the Joint Declaration which Mr. Deng and I agreed in 1984. It promises that, and I quote from the declaration: the basic policies of the People's Republic of China regarding Hong Kong … will remain unchanged for 50 years". This guarantees that Hong Kong will keep its way of life and its freedom for at least 50 years after 1997. I asked Mr. Deng at the time why he had chosen 50 years. He told me that this was the time it would take for China's standard of living to come close to Hong Kong's. In the light of the way China's economy has grown since 1984, that may well be achieved considerably ahead of Mr. Deng's original assessment.

Democracy has not historically been the first concern of Hong Kong's people. Their priority has been sound administration and a rule of law with an independent judiciary, under which they could concentrate on creating prosperity from their trade and industry. But more recently they have clearly wanted to play a greater role in their own affairs. It is true that historically in the world an enterprise economy has usually preceded a political democracy, but the latter usually follows from the establishment of the former. Progressively the people of Hong Kong have been able to play a greater role in their own affairs.

Some would say that the steps taken so far to extend democracy have not been sufficient. In fact, I believe that supply and demand have been kept in balance, taking account of Hong Kong's special position. Most important, to my mind, has been the agreement with China, which steadily increases the number of directly elected seats in Hong Kong's Legislative Council up to and after 1997. This is a crucial point. Provision for the steady expansion of democracy in Hong Kong has already been agreed with China. Indeed, China's Basic Law for Hong Kong, which will in effect be the constitution after 1997, says in Article 68: The ultimate aim is the election of all members of the Legislative Council by universal suffrage". It is already agreed that half the members of the Legislative Council will be directly elected in the year 2003. That means that there could be universal suffrage by 2007, 10 years after the end of Britain's responsibility. It is not perfect perhaps, but it is a provision for steady and orderly progress towards full democratic elections.

That is the background against which our new, imaginative and competent Governor had to reach decisions about the governance of Hong Kong in the remaining years of British rule. In particular, he had to settle the arrangements for the elections to be held in 1995, which would take Hong Kong through to Chinese sovereignty in 1997. The Governor has not invented the need to come forward with proposals. Legislation has to be in place to enable the 1995 elections to be held. The Governor had to take account, first, of the views of the people of Hong Kong. There was considerable demand in Hong Kong for more directly elected seats in 1995, going beyond the 20 already agreed with China.

The Government have said on several occasions that they would seek to persuade China to increase the number, and I understand that my right honourable friend the Foreign Secretary raised the subject when he met the Chinese Foreign Minister at the United Nations on 25th September this year. China made clear at that meeting that it was not prepared to move beyond the figure of 20 seats to which it had already agreed. At the same meeting on 25th September, nearly a fortnight before the Governor presented his proposals on 7th October, the Foreign Secretary told his opposite number the proposals which the Governor had in mind. Details were, of course, sent to the professional civil servant in Beijing who deals with the Hong Kong desk.

In the light of that it seems to me that the Governor has acted with great sensitivity and skill. He had to find a way to respond to the wishes of the people of Hong Kong for a broader franchise for 1995. But he also had to take account of China's strongly expressed opposition to more directly elected seats. In short, he had to strike a balance and put forward suggestions which would go some way to enlarge the franchise for 1995 but without infringing either the Joint Declaration or the Basic Law. He constantly stressed that in his speech on 7th October.

The proposals in his speech of 7th October succeed in striking that balance. They establish an Election Committee and set the franchise for nine additional functional constituencies. Those have to be created in 1995 to conform with the Basic Law after 1997.

The proposals also enlarge the franchise for the 21 existing functional constituencies. I should point out that only the working population are eligible to vote in those constituencies.

As the Government have already pointed out, the Governor has not proposed anything which conflicts with the Joint Declaration. In the Government's view and the Governor's view the proposals are within the Basic Law.

There is a second and no less important point. The Governor has said that his proposals are not intended as the last word but only as a basis for discussion, as the noble Lord, Lord Wilson, pointed out. Others are invited to comment on them and give their own ideas. That is clearly stated in his speech of 7th October. The Governor also said: the proposals I am putting forward this afternoon will require serious discussion with Peking". It is a great disappointment that the Chinese Government have so far declined to do so.

I hope that alternative suggestions will nonetheless be forthcoming from different sources in Hong Kong itself which can be considered alongside those put forward by the Governor. The essence of democracy and indeed of good government is indeed choice.

China objects to the Governor's proposals and appears to see them as an attempt to internationalise the Hong Kong issue and—as I have seen it put in some reports—as part of a scheme to "encircle" China. To back up its objections China has launched a campaign to bring pressure on public opinion in Hong Kong and has called into question contracts which extend beyond 1997. That reaction is regrettable and I believe that it is unjustified.

In fact, the Governor's proposals are characterised by their modesty and by their recognition of China's view that there should be no more directly elected seats in 1995. I hope, therefore, that China will not go forward with its threat to interfere with contracts; indeed, that would harm its own reputation and affect the confidence of foreign investors in China itself, quite apart from conflicting fundamentally with the rule of law. We should reassure the Chinese that the Governor's proposals are not in any sense hostile to China and there is no intention to internationalise the issues.

The best outcome would be to go forward in agreement with China, as we have been able to do in the past by being patient and persistent. People in Hong Kong want continuity and a smooth transition in 1997, and China's agreement is desirable for that. But in the last resort, as is recognised in the Joint Declaration, it is Britain which has the responsibility for governing Hong Kong up to 1997. We must discharge that responsibility in accordance with our agreements and also with our principles and the wishes of Hong Kong's people.

I believe that these matters can be resolved. We have an excellent and most able Chinese Ambassador here in London. We have the example of the good relations built up between us and China in the years following the Joint Declaration up to 1989. Above all, we can draw confidence from the remarkable economic changes that have taken place in China and the promise they hold for the future.

Moreover, Hong Kong's interests and those of China run increasingly closely together. Nowhere is this more so than in questions of trade. Both have a very strong interest in open trade and in preserving most favoured nation status for China in the United States. I have personally spoken up strongly for that in the Asian-Pacific region, in both Taiwan and South Korea, and I have also spoken up for it in the United States.

The question of human rights does indeed have to be pursued, and I know that my noble and learned friend Lord Howe has just returned from a mission to China. We pursue our concern for human rights vigorously in our relations with many countries. But I believe that it would be profoundly misguided for an incoming American administration to try to put pressure on China over human rights by restricting trade. That would hit hardest at precisely the wrong people: those who are building small businesses which are the heart of China's growing free enterprise. It would also hit hard at Hong Kong itself, many of whose people have come from China to live under a rule of law and a democratic system.

President Bush was absolutely right to resist the use of that blunt weapon and I hope that a similar view will be adopted by his successor. His task will be easier to the extent that China is not seen to be acting unreasonably over the very modest proposals which the Governor has made.

In conclusion, there is no reason why the Governor's proposals should harm relations with China. They are modest; they are compatible with the Joint Declaration and the Basic Law; and they are open to discussion. They go some way to meet the wishes of the people of Hong Kong and at the same time respect China's position.

The best and most helpful stance which we in this House can take is to support the Governor, to reiterate our sincere wish to proceed by agreement with China, but to make it clear that that cannot be at the expense of what we believe to be right.

4.40 p.m.

Baroness Dunn

My Lords, it has given me great personal pleasure to be here for the maiden speech of the noble Lord, Lord Wilson of Tillyorn. I join the House in congratulating him on a speech of exceptional quality. I am sure there will be many occasions during the coming years when his deep knowledge and experience of China and Hong Kong will enrich our debate.

I have sometimes reminded this House that Hong Kong is a community that in so many ways is far better equipped than most to look after its own affairs. It is fiercely self-reliant; aid and charity it neither receives nor expects from anyone. In only 40 years it has transformed in a most astonishing way its economy and its society through hard work and enterprise. Yet history and politics deny us the control over our own destiny for which we are so amply qualified. Hong Kong is forced to rely on the governments of Britain and China to arrange its political destiny.

Hong Kong deeply appreciated the efforts that both governments put into the negotiations which led to the Sino-British Joint Declaration of 1984. That agreement and the underlying concept of "one country, two systems" were rightly praised as being far sighted. It was a public pledge by the two governments that they would work together to ensure a prosperous and stable future for Hong Kong.

Why is it then that the transition period which began in 1985 has been so fraught with difficulty? We got off to a good start by securing Hong Kong's future status in GATT. But since then, more and more important discussions have become bogged down and there has been more and more bickering. Some topics were resolved disappointingly, such as the composition of the final court of appeal. Some topics have dragged on year after year: for instance, the residential status of non-Chinese nationals, defence lands and air service agreements. Even after the two Prime Ministers signed the memorandum of understanding on a replacement airport only a year ago, there is further disagreement over financing which threatens the viability of this important project.

Fortunately for us in Hong Kong, and for countries throughout the world—including Britain and China —which benefit directly from Hong Kong's economic success, Hong Kong has not allowed itself to be distracted by any of these setbacks. We have seized the opportunities presented to us by the opening up of China's economy. We have been the driving force behind the spectacular growth in southern China over the past 10 years. We shall continue to play a key role in the greater China economy in the years to come. We all know that our future lies with China.

The Chinese Government very publicly and loudly blame the Governor's proposals for political evolution for the current impasse. The British Government blame China's groundless suspicions of British motives. As is always the case, neither party can be solely to blame.

The root cause of Hong Kong's problems seems to be a conviction on the part of China's senior leaders that Britain has some mischievous hidden agenda which it is seeking to carry out. They appear to believe that Britain wants to wreck Hong Kong as some form of revenge for yielding sovereignty to China in 1997, or that Britain plans to keep some control of Hong Kong after 1997 in order to threaten China.

I should like to take this opportunity to state with all the firmness at my command that these suspicions are absolutely without foundation. If I had ever thought that there was a grain of truth in these suspicions, I would have refused to serve the Hong Kong Government, and I believe that all my colleagues on the Executive Council would have done the same.

But looking back, Britain also bears responsibility. Only three years ago, there was a community-wide consensus in Hong Kong on the sort of political evolution we wanted to see. This consensus was formed before the Chinese Basic Law for Hong Kong was finalised. The members of the Executive and Legislative Councils were united in urging the British Government to pursue it with vigour. As a senior member I came to London to lobby for it.

However, the British Government refused us in the name of convergence and in the face of China's objections. The force of those objections was not, in my judgment, adequately tested. The recent publication of diplomatic exchanges has revealed how the fate of Hong Kong people was traded.

Is it any wonder that many people in Hong Kong are bewildered by the British Government's decision, so much later in the day, to pursue greater democracy in Hong Kong? And after a long history of deals cut behind closed doors, is it really surprising that the Chinese Government find the new openness of approach difficult to comprehend?

The people of Hong Kong are faced yet again with paying the price for a dispute which is not of their making. Once again, we endure the frustration of standing by helplessly while our affairs are discussed by others.

In the war of words, the debate is no longer about the merits of the proposals. People are forced to take sides: are you for Britain, or are you for China? People are forced to choose between short-term interests and long-term aspirations. There is growing anger in Hong Kong at being placed in this dilemma.

If we examine for a moment the apparent substance of the dispute, the picture becomes even more absurd, as the noble Baroness, Lady Thatcher, has already pointed out. The Governor had to come up with detailed proposals for changing the electoral law to constitute a legislature in 1995 which will straddle 1997. This he has done. He has put forward a package of imaginative proposals. He made it clear that these were proposals only, which would need to be seriously discussed. Most of his proposals are uncontroversial. Indeed, they were admired and welcomed. The arguments are about only two subjects: the make-up of the nine new functional constituencies and the composition of the electoral college which will return 10 out of 60 LEGCO members when the appointment system is phased out.

Instead of forming the basis for a dialogue and a constructive exchange of ideas, his proposals have triggered a barrage of hostile statements and propaganda. I do not doubt that China has the interests of Hong Kong people at heart, but it must surely be clear to the Chinese that their strident words in recent weeks have had the opposite effect.

Hong Kong has the right to expect better than this. In the Joint Declaration both Britain and China promised to co-operate during the transitional years to ensure a smooth transfer of sovereignty and the maintenance of our prosperity and stability. The people of Hong Kong welcomed and accepted the Joint Declaration because we trusted that commitment by the two Governments to see us safely through.

This row is not about who has the biggest political muscle. The lives, the hopes, the plans, the families of 6 million people are at stake, not those who participate in the present tug-of-war. Nor is it any longer about whether Hong Kong should have a little more democracy. It is now about how Hong Kong is to manage its relationship with China on the basis of "one country, two systems". Hong Kong people realise the importance of standing up for their rights if the vision of the Joint Declaration is to become a reality. They also realise the importance of good relations with their future sovereign.

Where is the balance? Are we to retreat in the face of China's objection and allow the "high degree of autonomy" promised to Hong Kong to be devalued? Are we to proceed with the Governor's proposals and risk the dismantling of our political systems after 1997? Shall we seek a compromise? Each of these choices carries immense implications for Hong Hong's future. They are choices which must be made by Hong Kong people themselves, without pressure from either Britain or China. Both Governments mean well. I agree with the noble Lord, Lord Geddes, to whom I am indebted for this opportunity to speak, that we hope that the two Governments can iron out their difficulties over the negotiating table and not through loud hailers.

However, it is the Hong Kong people alone who have to live with the consequences. When the Hong Kong Government puts the electoral Bills to the members of the Legislative Council next year it will be for them to judge the wishes of Hong Kong people and where their best interests lie. The British and the Chinese Governments must be prepared to go as far as the community is prepared to go; no further, but no less far.

4.54 p.m.

Lord Sharp of Grimsdyke

My Lords, as a former president of the Sino-British Trade Council and also as previous chairman of the Hong Kong Telecommunications Company, it grieves me to say at the outset that I find the present deteriorating relations between the Governor of Hong Kong and China, and in consequence between this country and China, to be unnecessary and fraught with danger. I say "unnecessary" because the agreement that had been painstakingly and exhaustively worked out between this country and the People's Republic of China implementing the transfer of sovereignty was a skilful balance between the different economic, political and social cultures of China and Hong Kong. Much credit was due to Deng Xiaoping for the establishment of the "one country, two systems" concept and to my noble friend Lady Thatcher and my noble and learned friend Lord Howe and his successor Mr. Hurd for their accomplishment of the Basic Law and attendant provisions on human rights, an independent judiciary and progressive opening of the democratic process.

In the context of the agreement it is baffling to me, therefore, what real, long-term, enduring benefits will accrue from the Governor's present initiative in proposing further changes in the democratic process beyond those which had been enshrined in the Basic Law. Both sides have the same declared objective of economic growth and political stability for Hong Kong, so why has the present controversy arisen?

It arises in my view from a misreading of the fundamental transitional requirements of a system moving from the present benevolent autocracy, which this country has been content to operate in Hong Kong for more than 100 years, to a democratic structure in a society suddenly confronted with this opportunity.

We all applaud and endorse the moves agreed to in the Joint Declaration for more open and democratic procedures in the governance of Hong Kong. But the development of a full flowering democracy takes decades to achieve; it requires the development of democrats as well as democratic structures. So was there in Hong Kong an impelling urgency and need for the Governor to accelerate the democratic process beyond what Beijing had accepted in the Basic Law? I suspect that evidence may well be forthcoming in the coming weeks and months indicating that the Governor is not on as firm a ground as he may think in considering that his proposals are reflecting public opinion.

The silent majority in Hong Kong operates there as it does in this country. In Hong Kong the vast majority is concerned above all in having a job, a good standard of living and making money. It applauds the initiative of Her Majesty's Government in seeking a treaty with China to effect a smooth transition of power which preserves the economic imperatives of Hong Kong. It applauds the first real steps towards a more democratic process, but it will not understand or accept a confrontation with its new masters which will imperil what has been achieved through consultation and agreement.

I agree with my noble friend Lord Geddes that the Governor is an intelligent and sincere man with a respected reputation in this country and a developing one in Hong Kong. I have no doubt that his motives are well intentioned, but on this issue I regret that he is mistaken.

It is important to understand what the Governor proposed and why China reacted so strongly. The crux of the controversy centres on the number of directly-elected seats and the composition of the Electoral Committee. Recent publication of letters exchanged between China's Foreign Secretary, Mr. Qian Qichen, and Mr. Hurd in 1990 throw light on how misunderstandings have arisen and how accusations of bad faith and reneging of agreements are arising. In his letter of 18th January 1990 Mr. Hurd states: If however the Chinese side were prepared to increase the figure (of directly elected seats) for 1997 to 24 seats, i.e. 40% of the Legislative Council, I believe there is a good chance that the provisions for political development in the Basic Law would receive support within Hong Kong. We would then be enabled to give active support to those provisions". After a further exchange of letters the Chinese agreed to raise their original proposal for 18 seats to 20 seats in 1997 and both sides agreed to an extension of the democratic process by steps so that 24 seats would be elected in 1999 and 30—that is, 50 per cent. —by 2003.

Notwithstanding that understanding, the Governor, without prior consultation, announced his proposal for additional directly elected seats, in an accelerated time frame. I cannot myself reconcile this unilateral acceleration in the democratic process with the letter and spirit of the understanding reached between Mr. Qian Qichen and Mr. Hurd, as revealed in their correspondence. Equally, the Governor's proposal to have all members of the Electoral Committee directly elected is considered by the Chinese to flout the arrangements agreed in principle by Mr. Hurd that the Electoral Committee should be constituted in accordance with Annex 1 of the Basic Law. This interpretation might be contested by the Governor as Appendix 1 of the Basic Law may be less than precise on this matter. But again, I think the spirit of the correspondence between the two Foreign Secretaries requires further explanation of why the Governor proposes fundamental change in the composition of the Electoral Committee.

The Governor promulgated his proposals in his policy address in October. He then asked for counter proposals by the Chinese. Such a procedure may be acceptable in a British democracy following centuries of traditional parliamentary procedure but frankly it makes no sense in China and Hong Kong. The Basic Law was drafted after months of debate, hard work and skilful and vigorous negotiations between representatives of Hong Kong opinion and officials on both sides with final approval by the Governments of China and the United Kingdom. It is a matter for genuine concern as to why proposed changes in fundamental constitutional matters should be conducted through the media rather than through the usual diplomatic and consultative channels.

I understand that the Governor was several times invited by Mr. Lu Ping, the head of Hong Kong and Macau Office, to go to Beijing before his policy speech to discuss his thoughts on constitutional reform but the Governor is alleged to have declined until after he had announced his constitutional package. As late as 3rd October, Mr. Lu Ping warned the Governor through our ambassador in Beijing that his proposals which had been communicated to the Chinese on 26th September made major changes which were against the spirit as well as the letter of the Basic Law and he urged that their common interests would be strengthened if there was co-operation and prior consultation rather than open debate. That advice was not heeded and the Governor went ahead with his policy address on 7th October. I consider that lack of prior consultation to be most unfortunate, arising from a misunderstanding of the Chinese sensitivity on adherence to agreements and to the step by step democratisation of the political process.

The consequences of that deterioration of relations with China could be grave. We are unnecessarily imperilling the Basic Law itself, which enshrines agreements on human rights, the rule of law, and judicial and political independence of Hong Kong. Confidence—that delicate flower—is being seriously eroded with severe economic and financial consequences. Inevitably, the sizeable trade between China and the UK will also be adversely affected and political relations which hitherto were extremely good between our two countries will be damaged. Loss of commercial and industrial confidence is one thing. The greater danger, as the noble Baroness, Lady Dunn, pointed out, is the division of the people in Hong Kong. If the confrontation escalates further, there may be social turmoil. When we weigh the risks of these consequences against the changes proposed by the Governor, where lies the balance of advantage for the inhabitants of Hong Kong?

I yield to no-one in my affection and my concern for Hong Kong. It is a unique place and its potential as an engine of growth for China itself is immense. It is also a region which has attracted massive foreign investment of some 30 billion US dollars. What we do in Hong Kong is not just a UK matter but engages a far wider responsibility than normally involved in a British administration of a foreign territory.

I have been frank in my reaction to the proposed changes in the democratic structure before 1997. That does not mean that I am less enthusiastic about a more open and representative society than those of your Lordships who sincerely believe that we should accelerate the democratic process before we hand over power in 1997. But my priorities are radically different. What I regard as essential for the well-being of the 6 million Hong Kongers after 1997 are a free enterprise society, the preservation of the rule of law and an independent judiciary, combined with a passion for the establishment and safeguarding of human rights. These are the priorities which, together with the step by step democratisation of the political structure in the Joint Declaration and the Basic Law, will preserve the economic and political stability which the 6 million inhabitants of Hong Kong seek above all else.

That is not, as certain politicians in Hong Kong depict, a clash between ideologies—between fear of a dictatorial Marxist system and an emerging democracy. The return of Hong Kong is regarded by China as a long-lost child rejoining the family. It is a matter of national pride for China and we should understand that. It is not a matter of economics, and gambling on the importance of the economic benefits of Hong Kong to China would be very unwise.

The Basic Law provides for independence of the executive, legislative and judicial power as well as a catalogue of human rights preserving the essential freedoms of speech and the right to strike and freedom from arbitrary arrest or imprisonment. Why imperil all that and the free-enterprise system agreed for the next 50 years? I urge the Governor to think over his proposals. It is not by the quality of his intentions that the Governor will be judged, but by the consequences of his actions.

If public opinion both in LEGCO and the business and commercial community begin to reflect growing unease with his proposals and the Chinese reaction to them, then the Governor should recognise the realities of the situation and revert to the agreements which the Government of China and the UK have established in the Basic Law. When confidence and mutual respect have been restored, the normal diplomatic and consultative channels should be used for dialogue with Beijing on the infrastructure projects Hong Kong requires after 1997 and on whether any further modifications to the democratic process is possible or desirable.

If the Governor has the political wisdom and judgment to avoid a major confrontation with Beijing by recognising how the interests of all the citizens of Hong Kong are best served he will leave Hong Kong honoured and respected. The heat needs to be taken out of the present situation, and the sooner the better.

5.10 p.m.

Lord MacLehose of Beoch

My Lords, I add my congratulations to my noble friend Lord Wilson of Tillyorn on his maiden speech. It was a remarkable speech. It is a great pleasure to have him in the House and to know that he will be addressing us often. I thank also the noble Lord, Lord Geddes, for initiating the Motion. It is most timely. The large number of speakers and the high quality of speeches we have heard show how this House approaches its responsibility towards Hong Kong.

The noble Lord, Lord Geddes, gave an authoritative account of the economic growth in China. It is against that background of economic success, which is breathtaking, that we must review recent developments in Sino-British relations over Hong Kong. On the economic side they have been spectacularly successful, to the great benefit of Hong Kong and other parts of China. The interchange of contact and commerce between the authorities and entrepreneurs of China and their Hong Kong counterparts is entirely satisfactory.

That is on the economic side. But on the political side matters have gone sadly wrong, as many noble Lords pointed out. They started well after 1984 but were knocked off course by the brutal tragedy of Tiananmen Square and the reaction of some people in Hong Kong to it. Since then on the Chinese side there has been deep mistrust and suspicion of British political, and even, as my noble friend Lady Dunn said, financial, intentions before our departure. That has been matched on the Hong Kong side with fear and frustration. Virtually no progress has been made, at least since the Prime Minister's visit, on the many points that must be agreed if the transition in 1997 is to go smoothly.

One of those points concerns the form that elections to the Legislative Council will take in 1995. As noble Lords pointed out, this is extremely important. If it conforms with the Basic Law that will apply from 1997, and conforms to China's satisfaction, the members could form the first Legislative Council of the SAR and thus provide the legislative continuity which is envisaged in the Basic Law and which all of us hope will occur. But that will involve substantial changes to current electoral arrangements.

That was the problem with which the new Governor was faced. In his first annual speech to the Legislative Council he announced his own proposals for such new arrangements. He emphasised that they were only proposals and invited alternatives. It is those proposals to which the Chinese have reacted so violently, approaching crisis proportions, and which are the reason this debate is so timely. The reaction has taken the form of criticism of the Governor personally on a scale of invective that I cannot remember since the Cultural Revolution, and progress appears to be blocked.

The package of proposals has been presented as the speeding up of democracy in Hong Kong. But in reality it relates only to specific issues in the 1995 elections, and the proposals fall far short of democracy as we know it. Their implications have been much exaggerated, but involve a substantial increase in the influence on membership of the Legislative Council of an enlarged electorate—an enlarged electorate not expected by China. The important and necessary changes in the electoral system were foreseen and were covered in an exchange of notes in 1990 between the Foreign Secretaries. They have also been referred to by other speakers this afternoon.

The basis of the present crisis is China's contention that the Patten proposals breach the provisions agreed in those notes both as to content and as to lack of adequate consultation before they were made. I should like to go through those points as, as it were, the Devil's Advocate in the hope that when the noble Baroness replies she can set my worries at rest.

First, the Chinese say that the proposals vitally affect the degree of convergence between current arrangements and those that would apply in 1997; as they include large constitutional changes, they should have been agreed in advance. As I understand it, they were informed a fortnight before and raised strong objections, but nevertheless we went ahead in circumstances of maximum publicity, as the noble Lord, Lord Sharp, said. Was that really necessary?

Secondly, the Chinese claim that proposals to change the present electorate for functional constituencies from around 450,000 to 2.7 million amounts to direct elections for the nine new and 21 old seats involved. They say that that circumvents the undertaking given in 1990 that we would not increase directly elected seats beyond 20 in 1995 without Chinese agreement—an increase that we would have liked. Such a numerically large functional electorate would be quite different to the present arrangements which the Chinese and, I believe, we ourselves had in mind in 1990. That apart, the Chinese would appear to have a point that the spirit, if not the letter, of the 1990 agreement has been breached.

Finally, the Chinese complain that the proposals for an Election Committee to elect 10 members of the council are quite different to the composition set out in paragraph 2, Annex I of the Basic Law. In 1990 we agreed in principle that that could be established in 1995 along the lines of that passage of the Basic Law but subject to discussion of details. However, there has been no discussion of details and the proposal is quite different to that in the Basic Law.

I am concerned that there should be elements in those proposals that appear to be in breach, at any rate of the spirit, of the 1990 agreement. There appears to be a case to answer. I hope therefore that in reply the noble Baroness will set my mind, and I believe the mind of the noble Lord, Lord Sharp, at rest on those points.

I do not want to appear one-sided. The decision to go ahead may well have been influenced by frustration at the ineffectiveness of Sino-British negotiations in producing results on virtually anything since the Prime Minister's visit. Moreover, the Chinese pressure that has developed on Hong Kong and on the Governor personally is quite unacceptable. The threat to the validity of contracts straddling 1997 is not only wrong; it is a complete breach of the Joint Declaration.

That said, the fact we must face is that some proposals for the 1995 elections must be made and that the ones now made appear to be unacceptable to the Chinese Government even as a basis for discussion. Consequently, if passed into law in Hong Kong they would operate only between 1995 and 1997, when they would be dismantled. One may well ask what the benefit to Hong Kong people could possibly be of that limited increase in the electoral system for such a short time and at the price of a block in Sino-British relations, possibly right up to 1997, with all the uncertainty and destruction of confidence and sense of security that that would involve. Clearly some way forward must be found.

In introducing his proposals Mr. Patten used words which perfectly embody the facts of government in Hong Kong as we have come to know them over the years: I bring those opinions to the task of governing Hong Kong, where the ink of international agreements and the implacable realities of history, geography and economics shape and determine the way in which such views can be applied. That is a fact well understood by men and women in this Territory, better understood by them perhaps than by many of those who would like the people of Hong Kong to be the heroic pawns of their own doubtless well meaning preconceptions". It was so very well said. The power, reasonable expectation and rights of the Chinese Government can be disregarded only at the peril of Hong Kong. It is by the careful observance of these facts of life over the years that Hong Kong has been able to prosper in amity with China in such improbable circumstances. To make progress now these facts of life must be borne in mind.

As regards the proposals already made, they were made, as the noble Baroness said, to the Legislative Council. I suppose that in some form or another they will eventually come back to that council as draft legislation. The members will bear a heavy responsibility, but they are very able people and we will see what they can do. I agree that they should be left to do it without pressure from either China or Britain. I do not know whether progress can be made at this stage through that channel. But I hope that in any case the British Government will continue to emphasise, as the Governor has done and as the Minister did this afternoon, that these are just proposals and that some proposals must be made. If necessary, they should be alternative to those now on the table.

As the Minister said, there is need for a new dialogue. I do so agree. It is not impossible to produce new arrangements which meet the Chinese requirements of convergence with the Basic Law and the 1990 notes and still contain an increase in electoral processes. If so, this time I hope that they will be discussed in detail with the Chinese before publication. As the noble Baroness said, we must go forward with China.

Chris Patten has had two months of trauma. Well, trauma goes with that particular job. By all accounts he has stood up to it as to the manner born. Perhaps I may say how much I admire the speed with which he has obtained the support and affection of the Hong Kong people. He is surely the most consummate communicator that there has ever been in Government House. He has great popularity and influence. He may have been mis-directed over these proposals, but I am sure that he has the political experience, flexibility and charisma to lead Hong Kong back into a working political relationship with China. That is vital for Hong Kong and in that I wish him all success.

5.24 p.m.

The Earl of Bessborough

My Lords, I congratulate my noble friend Lord Geddes on initiating this timely debate and for his very well informed speech. I also congratulate my noble friend Lady Chalker on her admirable reply and my noble friend Lady Thatcher. I congratulate too the noble Baroness, Lady Dunn, whom we are so happy to see here. I thank them for their contributions.

I cannot claim to be a great authority on the People's Republic or on Hong Kong, although I have been to Hong Kong three times. I was well instructed by the noble Lord, Lord MacLehose. I then led two comprehensive delegations to the People's Republic. I was in fact in China (Shanghai to be precise) when the Joint Declaration was initialled in 1984. I was certainly struck by the fact that there seemed then to be general agreement on its terms as between Britain, the People's Republic and leading figures in Hong Kong. I therefore thought that the proposals would work. I also thought that the Governor's speech to the Legislative Council on 7th October was a very precise, detailed and interesting statement on what we should do during our next five years in Hong Kong. In my view the Governor's speech was a skilful piece of work in so far as the constitutional package was concerned, the immediate initiatives, the proposals for the 1995 election and the need for an elected election committee.

I regret much of what has been said in the media. I greatly regretted to read in The Sunday Times in mid-November that what it described as our "old guard" was closing ranks in face of the new Hong Kong. I was distressed to read that Sir David Akers-Jones, a former Chief-Secretary, Sir Gordon Macwhinnie and even the noble Lord, Lord MacLehose, were among that old guard. I do not consider him to be so old. He certainly made a very effective speech this afternoon.

Since then I was also somewhat disturbed to read the letter to The Times by Sir Percy Cradock, our former Ambassador in Peking, on the hard choice in regard to Hong Kong's future. It was also interesting to read the many letters in today's Times, particularly the one from Mr. Robert Fell, the Chief-Executive of the Hong Kong Stock Exchange, supporting Sir Percy's views. I am sorry that I have read depressing pieces on the subject. I was also sorry to read, on the same day as Sir Percy's letter, about the contracts' pressure which China was putting on Hong Kong and in the Economist, also on 5th December, of Governor Patten's so-called "Chinese torture" and the controversial elements in the Governor's plans; that is to say, that China feels that its sovereignty is at stake in the battle with the Governor. In particular I refer to the proposal that the Election Committee, which would choose 10 out of the 60 seats in the Legislative Council in 1995, should itself be elected.

I was again disturbed to read about my right honourable friend the Governor's dilemma over widening democracy in Hong Kong. When he spoke to some of us recently in a room upstairs I did not think that he was making a calculated gamble and that the outcome seems so uncertain. Certainly, Hong Kong's confidence, as reflected in The Times last Saturday, that the gamble seems uncertain and that the so-called ruthless old men in Peking", appear determined to thwart and even humiliate him I think went too far as, indeed, did the headline in the Daily Mail on the same day that "Patten must go" in view of the growing uneasiness of Hong Kong's businessmen in regard to the Governor's battle with Peking over democratic reform.

I certainly regret that plans within the framework of the Joint Declaration and the Basic Law should so recently have been criticised when, at the time of the initialling of the Declaration in 1984, when I was in China, there seemed to be general acceptance on both sides that these plans were feasible. However, I am glad that there has been some recovery since the 300-point plunge in Hong Kong shares at the beginning of this month, even if the market still seems volatile.

I only hope that the so-called "old China hands", whom I greatly respect, will have their fears assuaged for I agree that my right honourable friend Mr. Patten deserves support from those whose policies may have been seen by some to have failed to provide sufficient democratic safeguards. I was, incidentally, interested to read that the Governor's reforms had won former President Nixon's backing. He certainly had considerable experience in the Far East. I was glad also to read that my noble and learned friend Lord Howe of Aberavon, who negotiated the Sino-British Joint Declaration while Foreign Secretary—I am sorry that he is not with us this afternoon—said that he believed that the Chinese would eventually change their minds about the Governor's proposals for widening democracy. I was glad to read that at least.

I learn that the Chinese Government had already been given advance briefing on the Governor's proposals in September when the Foreign Secretary briefed the Chinese Foreign Secretary in New York. I was distressed that a Chinese spokesman said as recently as 3rd December that the Governor must abandon his plans for reform. I really do regret that.

I agree with those who think that this was disingenuous since the constitutional package does not, in my view, break either the Joint Declaration or the Basic Law, and I regret that Li Jianying went on to say that the Governor's proposals had forced China to reconsider whether the political system in Hong Kong should converge with the Basic Law, and whether a smooth transition is needed.

Finally, my right honourable friend Chris Patten is a first-rate professional politician. However, in my view, great diplomatic skill and tact is needed if we are to agree about Hong Kong's future with the Chinese Government and with those in Hong Kong who have been critical of the Governor's views. Whether we like it or not, I know that the Chinese do not like to be dictated to. I shall be seeing the Chinese Ambassador next week and shall be interested to hear his views. Above all, the last thing any of us would like to see is another massacre such as happened in Tiananmen Square. I can only offer my right honourable friend the Governor my good wishes in getting his proposals accepted.

5.35 p.m.

Lord Willoughby de Broke

My Lords, this is no platitude but I very much regret that I may be unable to remain for the duration of this debate because it is unlimited in time and I have a long-standing engagement which I must attend. For this, I apologise to my noble friend Lord Geddes, to all noble Lords who will speak in the debate, and to the House.

This debate, initiated by my noble friend Lord Geddes, is timely. Since the debate has been on the Order Paper, relations between Hong Kong and China have deteriorated significantly, as we have heard. I hope that that is only a coincidence. We can read almost daily of China's displeasure. It does not like the fact that Hong Kong is ready to press on with the airport project. It does not like Mr. Patten's proposals for electoral reform and, above all, it does not like what it sees as the change in emphasis in negotiating style.

China has made it clear enough that it is angry. Increasingly intemperate statements have been issued by the Chinese Government and its agency in Hong Kong. As successive opinion polls since September have shown that Hong Kongers approve of the Governor's proposals, so has Beijing's aggression intensified.

China has turned the heat up—and Hong Kong is frying. The stock market has hit the skids in the face of threats to tear up the Joint Declaration, threats to tear up contracts signed prior to 1997, and threats to expel from the Legislative Council those members who vote for Mr. Patten's reforms. In the face of these loud "noises off", it is hardly surprising that some people are beginning to wobble. China's actions have given an opportunity to all those, be they businessmen or politicians, who have reservations about the merits of standing up for the guarantees contained in the Joint Declaration, if in so doing they provoke China into actions which they would see as harming Hong Kong. Their understandable concern is for stability and for keeping the "through train" on its track through to 1997 and beyond.

This position was cogently put by Sir Percy Cradock in a letter to The Times last week. Dealing with the Chinese response to the Governor's suggested reforms, he wrote: The logic and fairness of the Chinese response is neither here nor there—what matters is whether they will carry out their threats". He went on to say that he believes that China will carry out its threats and, in the future interests of Hong Kong, he urged Mr. Patten to "modify" his proposals. This is a seductive argument, and one that has been backed by some of those who have great experience of China and Hong Kong. It is likely that this "modification" would buy a respite from the threats now being made to anybody who does not toe the Chinese line in Hong Kong.

I must admit that I find it rather bizarre that it is always Britain and Hong Kong which are expected to modify, as it is Britain and Hong Kong which are expected to converge. Some small modification from Beijing would be welcome. Its reactions to Mr. Patten's proposals—and, as we have heard, they remain only proposals—have been extraordinarily unconstructive and out of all proportion to their content. Incidentally, I wonder whether Beijing would be more receptive to an argument that was advanced in yesterday's edition of the Daily Telegraph by Lady Tanlaw who suggested that Mr. Patten should float the idea of an hereditary chamber in Hong Kong for —I think she said—the descendants of the heroes of the Long March and others who may not wish to go through the boring electoral process. Be that as it may, I believe that the argument put forward for modification contains three fundamental flaws.

First, it contains an implicit assumption that there is reasonable basis for Beijing's hysterical reaction to Mr. Patten's proposals: that they contain some radical and provocative changes. Nothing could be further from the truth, as we have heard. These proposals are modest in the extreme. They contain no suggestion of altering the number of directly elected seats in the Legislative Council or of altering the number or proportion of seats specified in the Basic Law, a document which was both drafted and ratified by Beijing. All they contain are suggestions to widen the franchise of those seats which are not directly elected. As my noble friend Lady Thatcher pointed out, the Basic Law does not cover this aspect. Mr. Patten has rightly put forward proposals which are open, fair and acceptable to the people of Hong Kong. In spite of noisy claims to the contrary, Mr. Patten's reforms do not contravene the Basic Law; nor of course do they run counter to the terms of the Joint Declaration, which, I would remind your Lordships, guaranteed Hong Kong a high degree of autonomy and indeed a greater measure of representative government than that contained in the Basic Law.

If there are violations of the Basic Law, it is China which is in danger of committing them at the moment. Its most recent threat, which I mentioned earlier, to tear up contracts, leases and agreements which straddle 1997, and which do not have China's approval, is contrary to Article 160 of the Basic Law which states, that documents, certificates, contracts and rights and obligations valid under the laws previously valid in Hong Kong shall continue to be valid and recognised and protected by the Hong Kong Special Administrative Region, provided they do not contravene this law". Secondly, the modification argument takes no account of the expressed wishes of the Hong Kong people. The Governor's proposals for these modest electoral reforms have been welcomed there: as evidence, the majority vote in LEGCO last month in their favour, when 17 out of 18 of the directly elected members voted for them, and in the consistently favourable results of opinion polls taken since the reforms were first announced. Recently, Beijing's strident attacks have naturally eroded confidence. I question whether they have altered aspirations. Equally, like my noble friend Lord Geddes, I do not believe that too much should be read into the sharp falls in the Hang Seng Index. Hong Kong is an extremely resilient place. Where was the Hang Seng in 1967, when, I believe, a mob surrounded Government House keen to see the insides of the then Governor? Where was it in 1983 and of course in 1989? Hong Kong has had to learn to adapt to instability, and will I am sure show its usual resourcefulness in the face of the present difficulties.

The third and most fundamental flaw in the modification argument is that it ignores the lessons of history. The thrust of this argument, to simplify it, seems to be that if Beijing objects to a proposal, it should be abandoned. This is a policy of appeasement —an ugly word, but I can think of no other. Appeasement has never worked in the past and it will not work now. Once begun it leads to more demands, each more difficult to resist once the slide has begun. Is this the best way to deal with our commitment to Hong Kong? I think not. The Governor has put forward proposals for fair, open and accountable government in Hong Kong which have been broadly welcomed. This is the time to support him, not to undermine him; and in this context I should like to suggest that some of the entrepreneurs who have done so well out of Hong Kong and who may feel that their success is due in some small measure to the freedom obtaining there as well as to their own abilities, should use their influence and contacts to persuade China that dialogue remains the most positive way forward both for Hong Kong and for China.

In the long term, the free markets and free trade on which Hong Kong's prosperity is built will depend on accountable government and on the rule of law which alone will protect Hong Kong from the corruption that is so endemic in China.

My noble friend Lord Geddes is surely right in calling for more light and less heat in the Hong Kong-China relationship, and I was glad to see that our Ambassador to Beijing, Sir Robin McLaren, was reported in The Times on Monday as calling for, the Chinese to start to talk instead of addressing us by megaphone". The noble Lord, Lord Wilson of Rievaulx, is credited with the aphorism that "a week is a long time in politics". There remain over four and a half years before Hong Kong reverts to China. I am sure we can all be encouraged to hear from the Government that they will continue to take the long view and to remember that the promise central to the Joint Declaration remains "one country, two systems", and not "one country, one system". Democracy and freedom are values, not commodities to be bartered away to buy a temporary peace.

5.45 p.m.

Lord Shawcross

My Lords, old as I am, I cannot claim to be an old China hand, but my excuse for this rare intrusion into your Lordships' deliberations is that for the past 40 years or so I have been a regular visitor to Hong Kong, having various interests, particularly in the public relations industry, the press, television and so on, and I have travelled very extensively in China and Tibet. I like to think that I was once regarded as an old friend of both those areas.

First, I should like to say a word about China itself, not in the direct context of the relations with Hong Kong, although closely relevant to them. There is no prospect of China going the way of the Soviet Union; but eventually democracy will come there and it may come much more quickly than some of us suspect. In the meantime, not only in Shanghai, which has been making spectacular leaps forward in the past few years, but everywhere, private enterprise is springing up. There is increasing private investment, with tax holidays for foreigners. In Guangdong, that vast province to the north of China with 65 million inhabitants, the progress in the past 10 years has been faster than in any similar state or quasi-state in the whole world; and it is going on. That is typical of what is happening in China. This permeation of private enterprise and investment throughout China will quite soon have its effect in resulting in a more democratic system.

I want to speak about Hong Kong. I returned 10 days ago from a fortnight there. I was very impressed by the strength of opinion in the professional, business and industrial community; and this before the slump in the stock exchange. The general opinion in those communities was clearly against the Governor's proposals. Unfortunately, the Governor had no time to see me but I did see a large number of people; and I saw also the chief Chinese representative, who is virtually the ambassador for China in Hong Kong. I had a long and quite exciting discussion with him.

I formed two clear conclusions: first, that the Governor was, if I may say so respectfully, right in casting off the white uniform and the plumed hat and casting himself more as a British provincial MP seeking to know and be recognised by his constituents and regarded as their friend. That has been a most useful move on his part. Where, on the other hand, I am equally convinced he is wrong is that in doing this he has adopted the hustings mode of British politics, suitable perhaps for the British politician in Bath—not always successfully—but quite unfamiliar to Beijing.

I am sure, again respectfully, that the Governor is sincere, as has been said, but I believe him to be sincerely wrong which is the most dangerous form of wrongness. Anyone with the slightest knowledge of diplomatic relationships and etiquette would have known how jealous the Chinese are of their sovereign status, their independence and of sticking to principles once they have been agreed. Sarcasm and innuendo, the small change of British politics, are unacceptable to Chinese culture and etiquette.

I have read the Joint Declaration of 1984 and the Basic Law of 1990 together—some noble Lords may not have had the opportunity of this—with what the lawyers call travaux preparatoires, which are very important in interpreting the two basic documents. Taken as a whole, they constituted a veritable triumph of statesmanship, diplomacy and common sense, ensuring that for the next 50 years Hong Kong should not merely retain all its own rights and freedoms, with no socialism and no communism, but that its laws would remain basically unchanged and that democracy would be introduced by stated steps, in accordance with the principle of gradual and orderly progress which is—if I may use the word used by the noble Lord—enshrined in the Basic Law, with the ultimate object, in a comparatively short time, of ensuring that all elections to the Legislative Council are by universal suffrage. It is a result which might possibly have been achieved in as little as 10 years if things had gone smoothly.

Over and over again one finds in those documents emphasis placed on gradual progress and the maintenance of stability. All that seems to have been abandoned by the Governor's method of approaching the matter and his use of the megaphone. Although that long address he made early in October to the LEGCO had room for minute details, even about the location of water fountains, there was nothing about co-operation and agreement with China, no mention of the liaison group which had been set up for the express purpose of discussing and resolving differences of opinion, if they arose, about matters of that kind. On the contrary, he appeared to be boasting that he had not consulted China at all.

Although I believe that is the gravamen of the criticism of the Governor, it is not merely the manner of his presentation which is so unfortunate; the substance also violates the principles and, indeed, the letter of the Joint Declaration and the Basic Law. Here I agree with the careful analysis which was made by the noble Lords, Lord Sharp of Grimsdyke and Lord MacLehose. I shall not take time by repeating that analysis, but the Governor's proposals alter completely the number and basis of the electoral structure and, in particular, of the functional constituencies which have played such an important part in enabling expertise and knowledge to take part in the government of Hong Kong.

Similarly, there existed—this related to a small number, 10 I think—a special system by which 10 members were elected by a kind of elite Electoral Committee. Its objective was to ensure that senior people, with responsibility and experience in public life who would not have been willing to face the hurly burly of an ordinary election, could be elected. For that purpose they had a Select Committee to elect people experienced in their own right. That has all been altered, and that is a pity. It was a desirable objective, and it was an objective which we achieve in this country by elevating such people to your Lordships' House. In future those 10 members will he elected by the members of the local district boards, who are themselves elected. They will be able to nominate anyone, however inexperienced. What has happened is almost a complete switch over to direct suffrage for the whole of the Legislative Council.

The Joint Declaration contains no word about increasing democracy. The emphasis was on maintaining existing rights, and the laws were to be basically unchanged. Language does not lose its meaning when it is reproduced from a solemn international agreement in a British White Paper. That is what the agreement says. There can be no doubt that those proposals, if carried out, are inconsistent with the general understanding which had been built up: that they undermine the Joint Declaration; and contravene the Basic Law. It is only—this is a very important point—if they do not contravene the Basic Law that the constitution and composition of the LEGCO can be continued after 1997. That element of continuity in the LEGCO is a matter of the utmost importance.

Another point that worries me a little is the apparent attempt to internationalise the dispute. Why make those frequent propaganda peregrinations abroad? Previous famous Governors never did so. Are we willing to contemplate the possibility of another Cold War arising—this time between the Western democracies and Asia? I am convinced that those changes in what is contemplated are not so far-reaching and fundamental that they could not have been the subject of friendly discussion and some consensus with the Chinese, if only the Governor had raised them first in the Joint Liaison Committee which, by the Joint Declaration, he is required to do. It was set up expressly for that purpose. If agreement could not be reached in the Joint Liaison Committee, the matter had to be referred to joint consultations between the two governments. They are consultations which would no doubt have taken place without all the glare of publicity which has unfortunately occurred. Cannot we get back to quiet but serious negotiation? Governor Patten thinks that Chinese statements that they will reverse his proposals if Hong Kong enacts them are empty threats. That is the phrase he used. That was not the view of the Foreign Secretary when fewer than two years ago he said: Those who suggest that whatever we do now the Chinese will be bound to accept in 1997 are out of touch with reality". It was also our Foreign Secretary who said on the same occasion that he attached: great importance to achieving an understanding between our two Governments and to re-establishing the atmosphere of mutual trust in which our two Governments have worked together. I realise that the Chinese Government has approached this matter in the same spirit". I am convinced that there is still time to drop the megaphone and the slanging. Quiet meetings, possibly between the two Prime Ministers, could resolve those matters, which would save face, and the saving of face is not important to one side only, face has to be saved on both sides, even if it involves some recognition that the better is sometimes the enemy of the good. So we might avoid the ruin which now threatens our relationship and the future of Hong Kong itself. The Chinese could easily switch their policy to support Singapore, to support Thailand and trade there and, as I said at the beginning of my observations, to support their own remarkable development in Shanghai.

I am a firm believer in the democratic system, no one could be more so. But one must admit that so far in the Asiatic countries it has not always been a conspicuous success. After all, although we were responsible for Hong Kong which has been under our sole rule ever since 1844, it was only when we had agreed to hand it over to China that we became interested in democracy. Only 22 per cent. of the electorate took the trouble to vote in the 1991 election —a rather feeble demonstration of the enthusiasm for democracy which is said suddenly to exist.

I beg those who have so belatedly thought of democracy for Hong Kong to remember that democracy cannot be built in a day. It took the United Kingdom four centuries to build up democracy and there are even some—although I do not agree with them - who think that in this House the process has not yet been completed! We cannot do it in a day.

That is all I wish to say except to end on a purely personal note. I deeply regret having to take this line because the noble Baroness, Lady Dunn, has, as a senior member of EXCO, taken a different view. She is a very old personal friend of mine who has rendered incalculable service to the politics and commerce of Hong Kong and I greatly respect her view. Of course, she knows far more about the colony than I can pretend to, but from what she said I think that she agrees with me that the best thing we can do about the affair now is to play it down. Let us play it down as much as we can and return to the more placid but perhaps more promising waters of diplomatic consultation.

I regret also having to differ from my noble friend Lady Thatcher who, as Prime Minister at the time, was responsible for the successful and statesmanlike arrangements to hand Hong Kong back to the Chinese. Other noble Lords and I have already referred to those arrangements. Of course, I greatly admired the smack of firm government which she gave us on a number of other matters.

6.4 p.m.

Lord Reay

My Lords, this is an exceedingly timely debate and I should like to congratulate my noble friend Lord Geddes on having introduced it now and on the excellent speech with which he did so. He has been able to attract a most interesting and formidable array of speakers. The maiden speech of the noble Lord, Lord Wilson of Tillyorn, was particularly impressive.

Not least of the advantages of the debate is the opportunity it gives us to hear some Hong Kong opinion. I am delighted, therefore, that the noble Baroness, Lady Dunn, was able to be here with us. Rarely can Hong Kong opinion have felt that so many people wanted to hear it as today.

Indeed, Hong Kong's politicians must find themselves under considerable pressure as their demands for more democracy, as interpreted and put into concrete form by the Governor, provoked such a furious reaction in Peking. I hope that Mr. Patten will not make any precipitate retreat on the proposals which he has put forward. They are not in breach, I believe, of the 1984 Joint Declaration, under the terms of which Britain remains fully sovereign over Hong Kong until 1997, as my noble friend Lady Thatcher pointed out in her powerful speech of support for the Governor. So I find him quite entitled to put forward the proposals which he has.

Since Mr. Patten had to put forward proposals for the 1995 elections and how they were to be conducted —as my noble friend Lady Chalker explained, detailed electoral arrangements were not laid down by the Basic Law—I personally consider that the courageous choice which he made to introduce a greater measure of democracy by remaining within the terms of the 1984 Declaration was the right one. The demand for democracy in Hong Kong is something which has been growing since the 1970s and has gathered pace in recent years, and again in recent months, as the noble Lord, Lord Holme of Cheltenham, pointed out.

The Joint Declaration provides that eventually the legislature should be entirely constituted by election. The British Government sought a greater role for democracy in the transition years during their negotiations with Peking at the time the Basic Law was being adopted, as the recently published correspondence of that time has freshly demonstrated. We argued then that we needed a greater measure of democracy to ensure that our ability to administer Hong Kong was not eroded. The Governor has now felt himself honour bound to introduce no less a degree of democracy than that for which a majority of people in Hong Kong were themselves calling (a policy to which I think the noble Baroness, Lady Dunn, in her closing remarks was asking him to adhere), seeing it as a means which could offer protection to Hong Kong and its way of life after 1997—in just the same way, surely, as the Prime Minister felt himself honour bound to pursue human rights issues when he went to Peking to sign the Memorandum of Understanding on the airport.

As for the reaction from Peking, this seems, to say the least, intemperate. The Basic Law states China's commitment after 1997 to one country, two systems; socialism is explicitly banished. But if China persists in her inordinate objection to these proposals, one of whose main effects is to introduce for certain seats broadly based electorates, typical of all democracies today, in place of narrow electorates which are open to manipulation, doubts can only be sown with regard to China's intention to honour that commitment in the Basic Law.

It cannot be in China's interests to affront international opinion by persisting in an exaggerated reaction to the Governor's proposals. China today provides the extraordinary spectacle of the world's greatest economic boom; moreover, one which depends on the rapid integration of her economy into the world economy. As the Economist recently pointed out, no other large country has so deliberately opened itself to foreign investment as an instrument of growth, with already a quarter of China's manufactured exports being accounted for by overseas financed ventures.

Foreign capital floods into China, largely through Hong Kong. China wants admission to GATT and depends on the annual renewal of her most favoured nation status by the United States. Her relations with the incoming democratic administration in the United States, one which is particularly concerned with human rights, are not yet established. It is hard to imagine China—modern, practical, successful China—putting all that at risk.

As regards some of the looser threats China has made, it surely makes no sense for her to flout or tear up the Joint Declaration, the one instrument which gives China sovereignty over Hong Kong in five years' time. The Governor's proposals were endorsed last month by the Legislative Council by a majority of three to two. Draft legislation should go before it early next year.

The Governor will have to decide what course to take if Hong Kong opinion drifts away from him. I believe that we should leave the matter to his judgment. He has behaved with considerable skill and adroitness. He avoided challenging Peking over the number of directly elected seats, where its opposition was well known, or by the appointment of legislative councillors to the Executive Council unacceptable to Peking.

He successfully won international endorsement for his proposals from the United States State Department, the Canadian Prime Minister, the Australian Government and even cautiously from Japan. As my noble friend Lord Marlesford pointed out to your Lordships the last time we debated this subject, the Governor is tough, as a wider audience has now had the opportunity to see. He has many talents, literary and otherwise, and openness is his style. The days of the deals behind closed doors are surely over.

Having given Hong Kong one of our foremost politicians—one, incidentally, whom many of us feel we can ill afford to lose at home—the least we can now do is to stand by him and support his imaginative proposals. His task was never going to be an easy one. He has to reconcile the long-term interests and the current morale of the people of Hong Kong with our treaty obligations and our sense of honour, which means that we must be true to our principles. He would never have been sent there if the task had been simple. Let us hope that the path of moving forward by agreement with China to a smooth hand-over, and the achievement of that remarkable agreement contained within the Joint Declaration, can be found once again, and that we do not have to wait too long.

6.12 p.m.

Lord Skidelsky

My Lords, I too want to support the proposals of the Governor of Hong Kong. I must admit to a personal interest in the subject since I partly grew up in Hong Kong. I remember well in the 1960s having a good friend, Anthony Elliot, who was a political adviser and who was tragically killed a few years later in an accident when he was ambassador to Israel. I saw a lot of him at the time of the Cultural Revolution, and remember him telling me how the Hong Kong Government had pacified crowds of chanting Maoist youths by blaring pop music from loud speakers specially installed on all the main government buildings. I thought it then, as I do now, a fine example of imaginative statesmanship.

In the early 1980s I was one of those who favoured letting sleeping dogs lie. I believed then, and I still believe, that had the British Government not publicly raised the issue of the future legal status of Hong Kong, it might have been possible to negotiate an extension of the lease. That is a matter of judgment to which no conclusive answer can be given, and the Foreign Office concluded otherwise.

However, the main issue today is the current crisis with China arising from the Governor's constitutional proposals announced on 8th October. China's vociferous opposition to the key proposals in that package has created the present tension, particularly its opposition to lowering the voting age to 18, removing members of the Executive Council from the Legislative Council, increasing from 10 to 20 the number of geographical constituencies each with a directly-elected single member, and finally creating nine new functional seats resting on a much broader basis of occupations than the existing 21 seats do.

The net result of these reforms will be to create, for the first time in 1995, a wholly-elected Legislative Council which is elected both indirectly and directly. The fine balances between directly and indirectly-elected members, as well as the disproportionate influence retained by the business community, make it far from being a democratic assembly as understood in the west. Also, the Governor remains accountable to the British Government and not to the legislative assembly. But the proposals represent a significant broadening of the democratic base in Hong Kong. They will create a frame-work for representative government to develop, though they do not create representative government itself. It is for these reasons that they have incurred China's wrath.

I do not think at issue today is the question whether representative government is good or bad. We all came to our conclusion on that matter several hundred years ago in this country. It is whether or not, in the peculiar circumstances that face Hong Kong, the Governor's proposals offer the best chance of underpinning the guarantee of administrative autonomy, personal freedom and commercial stability embodied in the Joint Declaration of 1984 and the Basic Law of 1989.

The Chinese Government has made it clear which it wants to inherit the existing colonial system of Hong Kong with as few modifications as possible. It wants a chief executive which it will appoint to succeed to all the powers currently enjoyed by the British Governor appointed in London. It fears the advent of responsible government in Hong Kong just as it fears the advent of responsible government in China.

It has now promised to dismantle a Legislative Council elected according to the Governor's principles. The Chinese Government's hostility to Mr. Patten has given the business community the jitters and put a question mark over commercial projects such as the proposed airport. I am not concerned with the narrow question of whether Mr Patten's proposals breach the Joint Declaration, the Basic Law or the 1990 Agreement. These statements of principles will always be subject to different interpretations.

The real issue was put by Sir Percy Cradock in The Times on 1st December this year. The issue is whether, pushing on with the present constitutional proposals in face of a violent Chinese opposition will do Hong Kong … more harm than good in the long run. Sir Percy clearly believes that it will.

The Governor's proposals have also been opposed by a large section of Hong Kong's business community. We have heard about the fall of the Hang Seng index. Part of this fear, it must be noted, is the fear of democracy itself. Mr. T.S. Lo, a prominent Hong Kong citizen and tipped by some to be the first chief executive appointed by China, has raised the spectre of a blue-collar dictatorship as a result of these modest proposals.

But Mr. Lo also sees the proposals as jeopardising Hong Kong's future as a centre of a dynamic South China. He wrote on 23rd October: The Government should look at the bigger picture of Hong Kong as a leader of South China and creating this area of 40 million people which will drive the rest of Asia for the next 20 years. Look at it in that light and not as an isolated and threatened enclosure that needs to be protected by local democracy. This is the great prize that many Hong Kong businessmen see, and it is a great prize. And how awkward, inappropriate and annoying that a western politician should step in with his inappropriate political ideas, which, as we have heard several times this afternoon, have never been accepted in Asia anyway.

I believe that many of those who share Mr. Lo's vision believe that the way to secure Hong Kong's future lies not so much with the Sino-British agreements already reached, much less with the Governor's proposals, but by doing deals. I do not mean commercial, I mean political deals with those who hold power in Peking. It must be remembered that many, if not most, of those in Hong Kong have close family and communal connections with the mainland, and genuinely see themselves as part of one country with two systems.

Nevertheless, I believe this approach to be profoundly mistaken. For all its glorious economic prospects, the political stability of China cannot be guaranteed. It is not just that the whole of Chinese history has been marked by oscillations between order and disorder. There must also be a profound question about the survival of the one major communist political system left in the world. If that regime collapses, there will be no smooth transition to a more liberal government, any more so than there has been in Russia, but a disintegration of central authority: Peking split into warring factions and possibly China reverting to an ancient pattern of warlordism.

Who then is Hong Kong to do its deals with? To which group of potentates will businessmen turn to protect their future? If central authority breaks down Hong Kong may well continue as a commercial centre —I do not believe that is actually in doubt—but the quality and security of commercial life will surely deteriorate, with adverse effects on investment and trade.

In such circumstances, the existence of an orderly self-renewing structure of government in Hong Kong, one which does not depend on a power struggle going on in the rest of China, would come to be seen as the height of prudent anticipation. But even if China remains stable, the lessons of politics and history should not be forgotten and I think they transcend all differences of culture.

Put not your trust in princes is a very serviceable maxim. Currying favour with despots has never been a successful recipe for longevity. The very rich will no doubt still be able to leave after 1997, but millions will be trapped.

So I believe that Mr. Patten's instinct is a sound one. At the very least, the creation of a framework for responsible government makes it more difficult for China to intervene arbitrarily in Hong Kong's affairs. Destruction of a fledgling democracy is a highly visible act and no longer much admired in the rest of the world. It will call forth universal condemnation, which will be reflected in financial and commercial relations, and it will have an adverse effect on those relations which China is trying to build up.

However, for Mr. Patten's initiative to have these benign consequences, I think that a further step might be needed. It must be seen as unambiguously expressing the will of Hong Kong's population. The noble Baroness, Lady Dunn, has emphasised that the choice of the pattern of Hong Kong's future constitutional relations with China should be decided by the Hong Kong people themselves. The Governor, she says, must be prepared to go as far as the community wants, and no further. But what is it that the community wants? I do not believe that we know. Soundings have apparently proved favourable, but the elections for direct seats in 1990–91 only produced 40 per cent. of the votes of those registered to vote.

I ask the Governor to consider the possibility of testing Hong Kong opinion directly by holding a referendum on his proposals. If the Hong Kong people reject his proposals, he should withdraw them. If they endorse them, he should press on. He owes it to them to give a clear choice as to how they want their constitutional relationship with China to develop. Let them judge the economic consequences of their own political choice.

6.23 p.m.

Lord Bramall

My Lords, it is with diffidence that I offer some observations in this important and timely debate, because so many speakers this afternoon have much more experience of, and a greater insight into, these matters than I have. That must be only too obvious. When I commanded the British Forces in Hong Kong in the 1970s, I too sat at the feet of my noble friend Lord MacLehose during his most distinguished governorship, and from him I learned a great deal. I can only hope that perhaps just some of his wisdom about Hong Kong's affairs may have rubbed off.

If I may, I should like to deal with just two matters. The first is one that has concerned so many other speakers: whether the constitutional development package proposed by the Governor with the full support of his Legislative Council is likely to be helpful in the run-up to the 1997 transfer of sovereignty. Secondly—and here of course I am on safer ground—I should like to say something about security in Hong Kong. As regards both issues, I am only too well aware that observations and even warnings made perfectly appropriately in private may not always be that helpful in public because of the misrepresentation and wrong signals which they may inadvertently invoke. Therefore, like many other noble Lords, I have tried to choose my words with care.

I approach the first matter as soldiers invariably approach all such problems—in a rather simplistic way. I simply ask: what is the aim of the whole exercise? I will attempt to answer the question by saying—and my noble friend Lord Wilson in his brilliant maiden speech touched on this—that I presume the overall aim, although others may see it differently, is to lead positively and optimistically a solvent and economically confident, relatively contented, Hong Kong into a totally new but nonetheless very exciting relationship with China, in which Hong Kong becomes for 50 years an autonomous zone of that country: one country but two systems.

I am not suggesting, particularly with all that is happening in the rest of the world, that this is not a big and, to some, very traumatic step; but if it works, as I believe it can, it is a good and advantageous arrangement offering considerable opportunities for the people of Hong Kong in the future, as the noble Lord, Lord Geddes, pointed out. However, if it is to work we will require mutual trust and strict adherence on both sides to the spirit as well as the letter of the Joint Declaration and the Basic Law; all under the watchful eye of the international trading community, which will be quick to react if things go wrong. I think it is all agreed that any serious and lasting disagreement between China and Hong Kong is bound to be harmful to the territory, to business confidence and, in the long term, as has been said, to China itself.

The question we have to ask ourselves, and indeed have been asking ourselves all afternoon, is: does this broadening of the Hong Kong people's participation in their own affairs—something which was unthinkable in the days when I was in Hong Kong—and the proposed, albeit modest, extension of democracy make the overall aim easier or more difficult to achieve?

It might of course prove helpful; in the sense that if it made the people of Hong Kong more contented or more confident of their own future it might just heighten morale in what is bound to be a difficult transitional period. It could be argued, and indeed has been argued by some, that with so many people crying out for more democracy all over the world then, if the people of Hong Kong really want it, that is the least that we in the United Kingdom can do while we still have the power to do so. If, however, the aim is, as I have suggested, the smooth and untroubled transfer of sovereignty, with both sides respecting their side of the agreement, rather than a perceived opportunity to get Parliament off the Governor's back, or to give full expression to those who over the years and 8,000 miles away have advocated things for the people of Hong Kong without any responsibility for the consequences of that advice, or even to prove that we cannot be pushed around, then what is being advocated is inevitably something of a high-risk strategy.

Naturally, I hope that the Governor will succeed in pulling it off, because a complete U-turn might produce its own dangers and difficulties. We must rely on his judgment. Personally, I cannot see why the Chinese would, in practice, have anything to fear from the people of Hong Kong having a more direct say in managing their own internal and local affairs in what, after all, after 1997 will be an autonomous zone for 50 years if the Chinese keep their side of the agreement. It does not imply any direct democratic changes in the main policy-making body, the Executive Council. I agree with the noble Baroness, Lady Blackstone, that the Chinese Government seem to have slightly over-reacted. I would certainly hope and expect that in secret diplomacy, if such a thing is possible these days, and through a two-way dialogue, the Governor would use all his political astuteness and diplomatic negotiating skill to reassure the Chinese on this point and get some mutual accord.

It must be recognised that China, rightly or wrongly, harbours three main anxieties about the way in which matters are developing. Noble Lords may say that the first two are so far-fetched—as my noble friend Lady Dunn mentioned—that we should have no difficulty in refuting them. Those are: first, that we intend to exhaust Hong Kong's financial reserves and hand the colony over in a bankrupt condition; and, secondly, that at the eleventh hour, from their so-called democratic base, the people of Hong Kong will appeal to the world over the heads of Britain and China for self-determination and the annulment of the agreement. Apart from its impracticability, there would be no international support for such a move.

The third concern is that after 1997 a democratic Hong Kong would try to act as a launching pad for changing China's political system before it is ready to do so. I am sure that that change will come one day and, unlike in Russia, in the wake of the economic reform which is taking place all the time. We must be careful that what we do in Hong Kong over the next four to five years, particularly in 1995, does not give more credence to that anxiety than it deserves. Noble Lords may say that political change in China is long overdue. That may be so, but for it to be precipitated from one part of what will then be its own country would be something that China could not possibly accept in the context of one country, two systems.

Whatever happens, the Governor must be supported. Nothing could be worse for the equilibrium of Hong Kong than, as the Chinese would say, for the mandarin's crown to seem to be slipping from him and for him not to have the backing of this country. But if he is wrong about his relations with China, or even if he is right, and the Chinese cannot be persuaded to see the matter in his way, the situation in Hong Kong could become very awkward over the next crucial years. There is, after all, more than one way of killing a cat.

That brings me to the security of the territory for which, as the noble Baroness, Lady Thatcher, pointed out, we and we alone are responsible. The admirable Hong Kong police who, it has to be recognised, may become increasingly vulnerable as 1997 approaches, have recently taken on the time-consuming and manpower-intensive control of illegal immigration which was previous handled by the British Armed Forces. That commitment could easily increase. The police have also had to contend with a rising tide of armed crime and Triad activities, some of it now fuelled by gangster activity from over the border. In any case, for as long as I can remember it has always been necessary in any significant disturbances in Hong Kong, particularly if politically motivated as they were during the Cultural Revolution and could be again, for the police to be backed and supported by the Armed Forces in order to keep the situation fully under control.

Therefore, I hope that there will be no premature run-down of the garrison and that the principle of "stronger for longer" will apply. Otherwise, the Hong Kong police could have their work cut out. We would be abrogating our responsibilities for maintaining law and order and handing over a stable Hong Kong. The business community could lose confidence. I hope that the Minister will be able to give an assurance on that point.

The present garrison can easily be thinned out very quickly in the final months of British rule; and I would not say that there may not have to be discussions about who picks up any extra cost that that may entail. But I sincerely hope that we shall not weaken the garrison just because what one reputable newspaper described as that "cosy dialogue" between the Ministry of Defence mandarins and the Treasury suggests, as I suspect is the case in relation to other international situations, that "you must run down earlier, otherwise that Options for Change exercise will have to be amended and the manpower ceiling for the British Army will have to be increased, and that would never do".

Options for Change has been shown to have, as they say in another context, serious fault lines. Army manpower is now manifestly inadequate and unworkable. There has been enough of putting heads in the sand over defence matters already without it being extended to the delicate and potentially dangerous situation in Hong Kong.

Therefore, I hope that His Excellency the Governor will think most carefully about the concept and implementation of any constitutional reform, with China and the long-term whole very much in mind as well as Hong Kong in the shorter term, and, come what may—and I hope that it will not come to anything serious—that we shall remain strong enough in Hong Kong to ensure stability there until our responsibilities are fully discharged.

6.35 p.m.

Lord Nelson of Stafford

My Lords, I should like to add my thanks to my noble friend Lord Geddes for introducing this very timely debate. I should also like to add my congratulations to the noble Lord, Lord Wilson, on his excellent maiden speech. We were very fortunate to hear the contribution by the noble Baroness, Lady Dunn. I am only sorry that the noble Lord, Lord Kadoorie, was not able to be here, particularly because that was due to illness, as my noble friend Lord Geddes explained.

My contribution to the debate will be from the point of view of trade. I have many years' experience of trading in and through Hong Kong. My experience of China has been as a predecessor of my noble friend Lord Sharp as President of the Sino-British Trade Council from 1973 to 1983. Your Lordships will probably remember that that period stretched from the end of the Cultural Revolution—a very interesting period—through the economic developments steered by the Prime Minister, Chou En-lai. I saw economic developments and liberalisation take place in China over a very interesting period.

I remember a saying circulating at that time that in China events take two steps forward and then one step backwards. That was exactly what happened. Every year there were changes one way or the other. That still holds today and I hope that we may find that that principle will apply in relation to the problem we are debating. I am proud to say that I think that I am still regarded as an old friend of China, and I speak from that standpoint.

From that background in trade I turn to the position of Hong Kong. Hong Kong has been built up by trade from a population of a few hundred people some 150 years ago to what it is today. Trade has brought prosperity; trade has provided a standard of living as high as anywhere in the world; and trade has created a communication system on land, on sea, in the air, and through the airwaves. Britain can be proud of the changes and developments which have taken place under its administration, coupled with the wonderful enterprise and dynamism of the people of Hong Kong. Long may that continue.

It is of vital interest to British trade that that should continue. Hong Kong is a very important market. We are in an excellent position there, because of language, conditions of trade, contract law, understanding and technical standards. It is a fine base from which to develop into China. It has been mentioned in the debate how that has developed over the years. We have seen trade penetrate through the special economic zone of Shenhzen into southern China. It will penetrate even further. Therefore, let us not forget the interests of both British industry and Hong Kong in maintaining that developing position.

China itself is an enormous market. That has been emphasised by a number of speakers during the course of the debate. It is a market in which we must participate in the years ahead. It is potentially one of the world's biggest growth areas. On the other hand, it is a long-term development. One has to stay there and one has to work there. I believe that my noble friend Lord Sharp will agree with me that we have many friends in China.

However, it must be recognised that we also have a great many strong competitors. They want a share of that market; they want our share if they can get it. We have to cultivate the area for our long-term future. It is not a short-term matter. Five years is no time at all; we are talking about 20, 25 or 30 years. British industry must participate in that market over the years ahead. It needs that business. In my opinion we can do it. All three countries have a joint interest in gaining an understanding out of this difficult situation which will retain the trading position of this country in Hong Kong and China, and at the same time retain the trading position between Hong Kong and China. That will be of vital importance for the people of Hong Kong.

The first priority must be to safeguard the future of Hong Kong so far as we are able to do so. But let our negotiators not forget that we must also safeguard the British trading position in Hong Kong and the British long-term trading position in China.

I make one final point that has not been mentioned; namely, the position of Taiwan. My experience is that China always has one eye on Taiwan. It wishes for unification. It wishes for something similar to what has happened in Germany. It will be looking very carefully to ensure that the developing situation in Hong Kong proves that "one country and two systems" can live together. If that is not proven in Hong Kong, the situation will never arise in Taiwan. That is something very important to China.

I ask my noble friend the Minister when she replies to say something about the Government's thinking on our trading position in these two areas. Many people will be anxious to hear what she has to say about this matter, particularly the many businessmen and business traders who are developing, or trying to retain and develop this important market under the difficult conditions existing at the present time.

6.42 p.m.

Lord Astor of Hever

My Lords, I have no business interest to declare in Hong Kong or China. Indeed, I have never been to China. My reason for speaking is twofold. First, it was my ancestor, Captain Charles Elliot, who persuaded the Chinese to cede Hong Kong to Britain. He had been sent out to the Far East to bring the Opium Wars to an end and to safeguard the interests of British subjects in Canton. However, on his return he was dismissed from government service by Lord Palmerston, who regarded Hong Kong as no more than a barren rock. Secondly, there is my great love for Hong Kong, where I spent nearly two years as a young officer attached to the Gurkhas in 1966 and 1967, during a period of great instability in Hong Kong and China.

I have returned many times to Hong Kong, marvelling at the dramatic changes. I was last there in October, as part of the All-Party Defence Group, arriving just two days after the Governor's address to the Legislative Council.

I had desperately hoped to support the Governor, who started so well. However, I have reservations. I am concerned for Hong Kong's 5 million people, whose welfare depends on Sino-British co-operation.

I agree with several other speakers that it was the manner in which these proposals were announced that infuriated Beijing. Under the Joint Declaration, the Governor was under an obligation to consult the Chinese. This has happened successfully through diplomatic channels since 1984. But they were presented with a public fact. In an area where face is everything, that ensured a hostile response. I look forward to the Minister's comments on this point.

I carefully read the Joint Declaration, which is the agreed basis for the future, and the Basic Law. I also read the exchange of letters in 1990, which were made public and which several other speakers have mentioned, between the Foreign Secretaries. Although the Chinese are attaching far too much importance to small discrepancies, agreements have been broken in spirit and in letter, particularly in relation to the electoral base for both expanded functional constituency representation and the proposed Election Committee.

In 1990 OMELCO members arrived at a consensus and recommended that in 1995 half the legislature should be directly elected. But that was publicly rejected by Her Majesty's Government with the answer that there must be a convergence with the Basic Law and Chinese wishes on the pace of democracy. Like the Chinese, I am puzzled by the change of policy and I hope the Minister will comment on this point.

The Chinese have made it abundantly clear that if these proposals are implemented they will dismantle the present legislature and set up their own in 1997. Mr Patten returns in 1997, but the people of Hong Kong will have to make the best of what he has left them.

The Governor hopes to set up the new Legislative Council and allow it to work quietly so that the Chinese accept it as a fait accompli. But the Chinese will find ways to undermine a body which they consider was not part of the agreement made with the United Kingdom. Armed with a watertight excuse after 1997 they will then dismantle it, glad of a pretext for a safer system. After Tiananmen Square, it should be obvious to anyone that Beijing will stop at nothing to suppress a domestic political challenge.

We would all like Hong Kong to enjoy more democracy, but pursuing the present constitutional proposals in the face of Chinese opposition will only make Hong Kong suffer. A smooth transition maintaining stability and prosperity is also important. The large and successful Hong Kong companies, which tread the difficult middle ground between being loyal to Britain and to China, are put in an impossible position. The business community, which is so important for Hong Kong, is turning against the Governor. The proposals risk the possibility of China not only reneging after 1997 on all contracts, leases and agreements signed without its approval, but also setting up a shadow administration across the border to vet contracts. This would paralyse the Hong Kong Government for the last few years of British rule.

The situation is now deadlocked. Agreements were made between Britain and China, and must be addressed at the highest level from this country. Surely talks must be held, as a matter of urgency, in private, out of the international arena, to clear up the very small misunderstandings and discrepancies that divide us. Slight modifications—no U-turn—will be necessary to be more acceptable to China. I am sure that the majority of Hong Kong citizens would welcome them.

I sincerely hope and believe that the Chinese, who are not blameless in the current situation, would themselves be flexible and enable a smooth transition to take place in a spirit of co-operation, not confrontation.

Finally, with all the uncertainty in Hong Kong, I hope that the Government will reconsider any plans to speed up the run down of our military garrison. As my noble friend Lady Thatcher, and the noble and gallant Lord, Lord Bramall, said, we must remember that we are responsible for the lives of all 5 million Hong Kong Chinese, the international community of 250,000 and the families of the remaining troops, right up to 1st July 1997. I do not believe that that current garrison has sufficient troops to implement its contingency plans without reinforcement. We must not be tempted to bolster a shortage of troops elsewhere with troops from the Hong Kong garrison.

Noble Lords may not be aware that members of the People's Liberation Army may conduct a two-day exercise close to Hong Kong involving three divisions of troops and eight warships. Its scenario is the capture of Hong Kong in six hours without a shot being fired, the British being unable to control the colony after a breakdown of law and order. I hope and believe that that will never become a reality. I was delighted by assurances given to me in the recent defence debate by my noble friend Lord Cranborne that the Government are aware of their military responsibilities to Hong Kong.

6.51 p.m.

Lord Derwent

My Lords, I too am grateful to the noble Lord, Lord Geddes, for initiating the debate and for giving us the opportunity to hear the distinguished maiden speech of the noble Lord, Lord Wilson. It is always important to show the Hong Kong people that we care for their welfare. At the same time we must be conscious that at delicate moments we must choose our words with care. Above all, this is not the moment to justify past actions or to argue about what might have been. I am not even sure that it is the moment to argue about whether the Governor might have played his hand differently. As the noble and gallant Lord, Lord Bramall, has just reminded us, our overriding priority is to say nothing which might undermine the Governor's future authority.

I declare an interest because of my close business connections with Hong Kong. However, I wish to make it clear that the views which I express are strictly my own. Indeed, I urge your Lordships to listen sceptically to claims made by some to speak for the business community as a whole. Your Lordships will have noticed that the most important business leaders in Hong Kong have refrained from making public statements. That is because they believe that debate by megaphone is not useful.

I do not intend to dwell again on the detail of China's economic advance, already brilliantly summarised by the noble Lord, Lord Geddes. I wish to stress the nature as well as the extent of the major change that has taken place since the Joint Declaration, in particular in the past two years. Even two or three years ago it was true to say that China was not only politically unreformed but that from the point of view of British business practices it was 100 years behind the times. Mainland Chinese businesses could not prosper because of the doctrinal restrictions imposed by Beijing. Although Hong Kong's prosperity therefore depended on its proximity to China, that was true only while its commercial, economic and financial framework was totally outside the Chinese system. Two systems were essential not only politically but also financially and economically.

That is now changing fast because China has changed its economic system. The introduction in China of a market economy—in parts of South China a more unregulated, rip-roaring market economy than London's or New York's—means that, while the need for separate political systems remains as great as ever, from a business point of view Hong Kong now has a self-interest in being as closely intermeshed with China mainland business as possible. Many in Hong Kong believe that whatever happens politically, the economic transformation of China is now unstoppable. It was put to me several times in Hong Kong last week that in a world context China's economic advance will over the next 20 years probably equal that of Japan since the Second World War.

The relative importance of Europe, and even perhaps of the United States, is seen as declining fast and the promise of the future is seen to lie in Asia. During a busy round of meetings in Hong Kong last week I did not hear Europe mentioned once. This has changed the whole focus of debate.

This change in China means that Hong Kong faces a new challenge—that of competing for the first time on more equal terms against other Chinese business centres; for instance, Guandong, Shanghai, Shenzhen and other special economic zones.

It is true that Hong Kong has three advantages. The first is its deep water harbour—an enduring advantage. The second is its vastly superior business infrastructure, light years ahead of other Chinese cities, but with the gap likely to narrow rapidly as other cities are allowed for the first time to use their entrepreneurial talents. The third is its political freedoms and lack of government interference, which in the long run are essential for continued growth.

Nonetheless, Hong Kong, lying offshore China, has some similarities to Britain lying offshore Europe. Britain has recognised that it will be difficult for us to remain a leading provider of services to Europe if we are outside the Community. So it will be increasingly difficult for Hong Kong to provide services to China in competition with centres inside the country if it is not an integral part of the system, at least economically.

The point I am trying to make, therefore, is that the fact that Hong Kong will become part of China is not all bad news. Politically of course the position is different. Certainly no Hong Kong Chinese I have ever met automatically equate democracy and prosperity. Experience has shown them that countries such as Taiwan and even Singapore where democracy is limited, and Hong Kong itself where it has been non-existent, have prospered more than many true democracies in Europe. What of course Hong Kong people do want is to continue enjoying the freedoms which they have enjoyed under the benevolent dictatorship of Britain—freedom of movement, of expression and of property ownership and independence of the legal system.

The real debate is about whether more democracy now, albeit within the framework of the Joint Declaration, is in present circumstances the best way of defending these freedoms. That is the question which the Governor is giving the people of Hong Kong the opportunity to decide for themselves. In my opinion successive British Governments since the war have fallen down totally on their duty to prepare Hong Kong politically for the time when they knew that British rule was bound to come to an end. Mr. Patten has to live with that and the fact that the deadline of deciding how to conduct the 1995 elections is upon us, which is not of his making.

With the greatest respect, I cannot agree with the viewpoint put forward with great clarity by the noble Lord, Lord Sharp of Grimsdyke, that Mr. Patten's initiatives would have been more acceptable to China if the consultation process had been differently conducted. What the Chinese are really objecting to is not the detail of the Governor's proposals. It is the very fact of popular consultation which they fear.

That is the fundamental dilemma. China wishes to impose its views on Hong Kong. Britain does not wish to and should not try to. That is why the Governor has no choice but to open up the public debate as he has done. In reality that is all that he has done. He has opened it up by producing something to discuss. I do not necessarily differ from the noble Lord, Lord MacLehose—I dare not—in his assessment of the degree of democracy that can be achieved. But I do believe that the decision on how far to push must be taken by Hong Kong through LEGCO and not by Britain, and, as I understand it, that is what Mr. Patten is trying to do. Indeed, that is what he is insisting upon.

The problem with the Joint Declaration is rather the same as the problem with the Maastricht Treaty. It is so cleverly drafted that it is possible for the two sides to agree on every word of the text without there being any real agreement on what it means or on how it can be applied. The differences in culture, way of thinking and political processes between China and the West are so great that the same text actually means something totally different to each side. I suggest that the same problem is at the root of the Government's difficulties as regards Europe.

That does not mean that the Joint Declaration was a mistake or that we should have been better off without it. It means only, as its authors would admit, that it was necessarily far from perfect and its chickens are now coming home to roost. Political catchphrases like the "through train" can be misleading. Through trains are not even particularly desirable if the passengers do not wish to be aboard and if a new driver takes it off in the wrong direction. There is only one real through train possible and that is the growing integration of the two economies of Hong Kong and southern China. If that can continue, I am optimistic that much of the politics will fall into place.

7.2 p.m.

Lord St. John of Bletso

My Lords, I join in thanking the noble Lord, Lord Geddes, for introducing today's debate at a critical time in the transitional period up to Hong Kong's reincorporation into China. Indeed, I join in congratulating my noble friend Lord Wilson of Tillyorn on his outstanding maiden speech. It was an incisive maiden speech made without any notes on such a controversial issue but delivered in a non-controversial manner in conformity with the traditions of your Lordships' House.

My interest in Hong Kong and China spans back 10 years when I studied for my masters degree in Chinese law at London University. It may be argued that there was no extensive Chinese law in those days but I wrote my thesis on the Hong Kong lease through the eyes of Beijing.

As my noble friend Lady Dunn explained in her moving speech, Britain and China have a heavy responsibility for Hong Kong. They also have a unique opportunity. The transformation of Hong Kong from a British colony into a Special Administrative Region of the People's Republic of China should be a rare example of a truly successful decolonisation.

Success will obviously give both Governments an achievement of which they can be proud. Obviously, failure will reflect extremely badly on both Governments. I do not believe that there is any excuse for failure. As many noble Lords said, Hong Kong is setting an admirable example. It has not allowed any of the political disputes to deflect it from building its own future as part of China. The dramatic development of Hong Kong itself and of South China bears witness to Hong Kong's determination to succeed.

My principal concern, as it is that of many other noble Lords, is for the long-term stability of the almost 6 million people of Hong Kong. While I appreciate the sensitivities and concerns of China, I find it difficult to agree with those critics of his Excellency the Governor who claim, as some have put it, that he has approached the governance of the transitional period in Hong Kong like "a bull in a china shop".

Clearly one of the Governor's main responsibilities to the people of Hong Kong is to reassure them about what life might be like both leading up to and after 1997. In his own words in an article in The Times on 8th October he said that it is to safeguard Hong Kong's way of life—the way of life set out in page after page of the Joint Declaration—its free economy, its rule of law; its sound administration. All the things that, together, underpin Hong Kong's prosperity and stability". Obviously vital to his role is the smooth transition of the colony to Chinese rule in 1997, a point emphasised by the noble Lord, Lord Wilson of Tillyorn. I believe sincerely that the governor's proposals for greater democracy in Hong Kong were not aimed at causing a confrontation with China. As I understand it, the Joint Declaration and the Basic Law entrenched a steady increase in democracy in Hong Kong both up to and after 1997. However, a number of issues needed fleshing out. In my view the governor's proposals can certainly not be seen as a radical change from the spirit of the Joint Declaration and are aimed, as he said, at being evolutionary rather than revolutionary.

My anxiety is that it appears futile to implement those proposals purely for the transitional period until 1997. For them to be of any value surely they must be for the period after 1997 as well? It is distressing that Prime Minister Li Peng and the Chinese authorities in Beijing have shown an unwillingness to come up with any counter proposals or compromise plans to the governor's proposals. I fear that Beijing's intimidatory approach and threats to invalidate any Hong Kong Government contracts that they have not also approved once they take back Hong Kong in 1997, can only substantially undermine economic stability and growth which is totally counter productive both to China and Hong Kong. It will invariably lead to an escalation in the brain drain and—a point made by the noble Baroness, Lady Thatcher—will deter international companies from doing business in China.

As the noble Lord, Lord Geddes, mentioned in his opening speech, the mere fact that 70 per cent. of China's exports pass through Hong Kong, the fact that Hong Kong generates one third of China's foreign exchange as well as the enormous economic and social benefits that the special economic zone of Guangdong has gained from trade with Hong Kong all point to the futility of China running down Hong Kong. Therefore, I find it unseemly that Hong Kong's natural parent China and its foster parent Britain should find it so difficult to co-operate properly for the well being of Hong Kong whose interests they both claim to have at heart.

Suggestions and rumours had it that the Governor should use the renewal of the Most Favoured Nation —(MFN)—status to be negotiated in Washington next year as a leverage point with the Chinese authorities in Beijing in the negotiations over his proposals for further democratisation in Hong Kong. I welcome the fact that such a move has been denounced by the Governor, as I firmly believe that he is truly committed to consultation and good relations rather than confrontation with Beijing.

I also believe that the Governor's approach to spending more on social, welfare, education and environmental needs in Hong Kong is to be applauded.

Although much attention is focused on the Hong Kong stock market as a barometer of confidence, it is remarkable that as a community, Hong Kong has remained fairly calm in the face of the current crisis. Nevertheless, it is clear that China's recent actions have turned an increasingly jittery business community against the Governor as it sees its business interests threatened. It certainly looks probable that when the Legislative Council votes in February next year, it will vote against his proposals.

In conclusion, surely the world's oldest civilisation and the world's oldest democracy can make a better job of discharging their responsibilities than they are doing at present. There should been an end to recrimination and a start to proper negotiation.

7.10 p.m.

Lord Lucas of Chilworth

My Lords, your Lordships will forgive me if I do not follow quite the same pattern as previous speakers in discussing the arrangements as between Hong Kong and China from now until 1997. My noble friend Lord Geddes has drawn his Motion sufficiently narrow yet sufficiently wide for me to embark upon another theme altogether. I shall not keep your Lordships long in developing that theme.

My noble friend Lord Nelson of Stafford discussed quite shortly in his speech the position of Taiwan. When one looks at the position from the point of view of the Taiwanese, it is reasonable to note that they are gradually extending their economic democracy. While in no way wishing to become even more separative from mainland China, over the past few years more than half their businesses have returned to the private sector, and state-run businesses are diminishing at the rate of around 2 per cent. to 3 per cent. per annum. That places them in a fairly powerful position. Whether or not the Chinese wish to encourage Taiwan to become a competitor to Hong Kong, there can be little doubt that they would like that country and that country's economic wealth to complement Hong Kong.

When one adds that to the industrialisation in the new territories in South China generally, one must accept that there is a massive commercial and economic impact and change already in force. In my view, since the Chinese mainland cannot quite accept the total market-driven economy that is evident both in Hong Kong and Taiwan, it may be many years before the change is completed and fully widespread. I believe that that economic change will spread; and others before me spoke of specific areas where it is already evident. But if China maintains socialism as its political philosophy I understand the term is "tinged with Chinese characteristics"—one must accept that a powerful force will emerge. I believe that China will become, perhaps in no more than 10 years, the most formidable economic, trading and indeed political force in South-East Asia. Whether its tentacles will spread further one can only speculate.

Therefore in looking at the problems discussed by many noble Lords this afternoon, we may reasonably look to China becoming the stabilising influence in South-East Asia. Whether or not the Chinese would wish to take on that onerous responsibility is another matter. I certainly believe that they should be so encouraged. It is essential that there should be a stabilising influence in South-East Asia. As we see across the world, it is becoming more unstable. As soon as the present difficulties are resolved and China can be encouraged to take up that responsibility, it will be for the better.

7.15 p.m.

Lord Marlesford

My Lords, I add my thanks to those of others to my noble friend Lord Geddes for giving us the opportunity to conduct this debate. It has demonstrated the great interest in Hong Kong and the great sympathy that exists for it. That is shown by the kind of people who have spoken in the debate today. For me it was particularly exciting to hear my old friend the noble Lord, Lord Wilson of Tillyorn, make an exceptionally brilliant maiden speech, and without a note. Although I suppose it was predictable that he should speak on Hong Kong in his maiden speech, I am sure that we shall hear him speak on many other issues in the future.

I should declare an interest in that I am an adviser to John Swire and Sons. Needless to say, the views I express in this debate are entirely my own. I should like also to welcome the noble Baroness, Lady Blackstone, to the Front Bench as a foreign affairs spokesman. She made a most interesting speech, but I felt that it was rather paradoxical in that speaking for the party she does, she appeared to be so scared of the proposals that Mr. Patten has been putting forward to introduce democracy. Indeed, I was saddened that she should presume to use the phrase, "too clever by half" about Mr. Patten. It seemed ironical as I remember that phrase originally entering the political lexicon when used by an old political dinosaur, the Marquess of Salisbury, who was attacking lain Macleod for advocating the decolonisation of Africa. Nevertheless, as the noble Baroness pointed out, she only recently became a spokesman on foreign affairs and I am sure that we shall hear splendid speeches from her in the future.

The noble Lord, Lord Wilson, referred to the need to navigate between the rocks. One of the problems at the moment is that China seems to be making the navigation more difficult by laying a number of floating mines in the water. The danger of floating mines is that they can blow up your own ships. In that I am thinking specifically of Chinese suggestions of the possible abrogation of contracts relating to property and indeed other contracts.

I suspect that there are three elements in China's antagonism to Mr. Patten's proposals. The first is the horror that the Chinese feel at the fate of what they euphemistically call their northern neighbour—the former Soviet Union. I believe that China is right; it has concentrated on perestroika rather than on glasnost. I totally understand the fears of the Chinese leadership of a political vacuum which could come from internal political reform at too rapid a rate. Indeed, China herself had one of the most painful experiences of such anarchy in her long history during the Cultural Revolution. Fortunately, the inoculation of recent experiences tends at least to prevent them from recurring. At the time of the Cultural Revolution Hong Kong was at great risk. I would accept the Chinese view that Hong Kong might not survive more than a few weeks if such anarchy were to occur again. To the Chinese leadership keeping China together is the first great imperative of government.

Secondly I believe that China greatly resented the advocacy of political change inside China by the United Democrats led by Mr. Martin Lee shortly after they were elected to the Legislative Council. They won 16 of the 18 seats and started to talk—understandably in one sense as it followed Tiananmen Square—in a way which in my view was most unwise. After all, a rejection of the basic principle of "one country, two systems" is implied if China does not have her own political integrity respected by the people of Hong Kong. How then can the people of Hong Kong expect China to respect Hong Kong's political integrity? However, I hope that that episode is now water under the bridge. Incidentally, it was quite neat that Mr. Patten was able, by separating LEGCO from EXCO to ensure that Mr. Martin Lee could no longer have a claim on a seat on the Executive Council.

Thirdly, there is the understandable Chinese desire to counter the great personal popularity of the Governor and his novel political style. But that is surely all part of the negotiating posture. There are differences of approach to negotiating with China. There have been those in this debate who have suggested that Mr. Patten's policy is too high risk and that to antagonise China is of itself counter-productive. I respect China too much to believe that she would risk abrograting the 1984 treaty. However, that is what Sir Percy Cradock clearly does believe in his much quoted letter to The Times of 26th November.

Sir Percy epitomises one traditional Foreign Office view—not, I believe, a view shared by all senior Foreign Office officials past or present—that Sino-British relations are of paramount importance to the extent that difficulties over Hong Kong must not be allowed to damage them. On the contrary, I believe that it is Hong Kong which is of paramount importance to British relations with China. I would go so far as to say that there is no other aspect of China's relations with the rest of the world which is of greater importance than the maintenance of prosperity and stability in Hong Kong and the orderly transfer of Hong Kong to China in 1997.

I well remember that in the early days of the negotiations which led to the 1984 agreement, the Foreign Office's position seemed to be, "We want the best agreement that we can get; but we must have an agreement". At that stage there was really little incentive for China to make any concessions. It was relatively late—I believe that it was in June or July 1984—that Ministers and specifically my noble friend Lady Thatcher, my noble and learned friend Lord Howe and Mr. Richard Luce, made it clear that Her Majesty's Government would not be prepared to recommend to Parliament an agreement which was not acceptable to the people of Hong Kong. At that stage China suddenly recognised that she had something to lose. It was in those last weeks that a number of concessions were made which helped to make the 1984 agreement as good an agreement as I believe it was.

I wish to say something about a point raised by the noble Baroness, Lady Dunn; why, after 150 years without local democracy in Hong Kong, is it necessary to introduce it now? The way I see it is that in the past responsibility for the administration of Hong Kong has been shared between the Government of Hong Kong and Whitehall. The Governor has always worn two hats—a Foreign Office hat and a Hong Kong hat. But in the background there has always been Westminster as the ultimate guardian against government abuse of the people of Hong Kong.

In 1997 Peking takes over from Whitehall, but there will not for the foreseeable future, be any replacement for Westminster. That is why we need to create a legislature which has the power at least to reveal and protest if China misbehaves towards Hong Kong after 1997. That is what Mr. Patten is seeking to achieve.

Two questions of good faith have been raised. First, whether Mr. Patten's proposals do in fact conflict in letter or spirit with the Joint Declaration or the Basic Law. The noble Lord, Lord MacLehose, has raised specific points on that. The noble and learned Lord, Lord Shawcross, has given his view that they do conflict. I do not know the answer, but I believe that Her Majesty's Government must give more explanation on that point. I hope that we shall hear more about it shortly from my noble friend Lady Chalker.

Secondly, there has been a question as to whether there has been a breach of agreement contained in the now published 1990 exchange of letters between the two Foreign Secretaries. I have read those papers very carefully and I personally cannot see it. But I recognise that a number of Chinese take a different view. It may well be that there is a real problem of cultural differences in legal interpretation. For example, I am told that senior British judges have found that the Chinese may believe that an agreement to disagree is in effect a legal agreement that there shall be no agreement. That sounds a little complicated, but there can be a real problem in two quite different cultures looking at the same legal situation.

I have not time to comment in detail on Mr. Patten's constitutional proposals. However I have very real reservations about his proposals relating to functional constituencies. Functional constituencies were designed to be a form of corporate government. I believe that they would lose this purpose if they themselves were democratised. For example, I do not believe that the banking interest would feel that it was represented (which is the object of having a functional constituency) if every employee of the bank had a vote and one ended up with perhaps a clerk who is a political activist being elected to LEGCO as the functional representative. I have considerable doubts about the particular suggestions which Mr. Patten has put forward on this.

The deep suspicions which China has of Hong Kong to which the noble Baroness, Lady Dunn, referred, seem to have become focused against Mr. Patten personally. My noble friend Lord Geddes referred to the possible need for an honest broker. That may be a good idea. In that case I wonder whether Sir Edward Heath might not have a role to play. He is no friend of Hong Kong; but he is a friend of both Mr. Patten and my right honourable friend the Foreign Secretary, both of whom started their distinguished political careers under his patronage. But more important, Sir Edward is a trusted and respected friend of the most senior of China's leaders. In that they demonstrate an attractive aspect of the Chinese political character: loyalty to old friends. Incidentally, the noble Lord, Lord Annan, taught me when I was an undergraduate at Cambridge, that that is a luxury which politicians in the western tradition are ill-advised to practise.

I believe that Britain has much to be proud of: a century and a half of altruistic and honest government under some outstanding administrators, two of whom are with us today. British investors have made a major commercial contribution to Hong Kong and have created a business environment which has attracted literally millions of Chinese to cross the border to practise their remarkable entrepreneurial talents. That is now making a crucial contribution to the economic development of Southern China and beyond. What has been created is far too important to China, Britain and, most of all, to the people of Hong Kong, to be put at risk by ill-judged posturing. The world has quite enough insoluble problems without allowing the soluble ones to fester.

7.28 p.m.

Lord Glenarthur

My Lords, my noble friend Lord Geddes has indeed found a timely moment to initiate this debate. But I must begin by apologising to him (as indeed I gave him notice) that I would be unable to he here for his speech. However, it was more than a pleasure to have listened to the wonderful maiden speech of the noble Lord, Lord Wilson of Tillyorn.

Both as a Home Office Minister and subsequently as the Minister most closely handling Hong Kong and China in the Foreign and Commonwealth Office between 1987 and 1989, I had the privilege of working closely with the noble Lord in London and in Hong Kong. He is certainly not only a true professional but also one who has studied Hong Kong and China in considerable depth over many years. His wisdom and calm assessment of the pitfalls of putting one foot (let alone both feet) wrong over handling Hong Kong issues is widely respected, and particularly so by me.

Since leaving the Government in 1989, I have done my best to keep abreast of Hong Kong matters. I have visited the territory regularly, as have many of your Lordships. I have endeavoured to keep up to date with Hong Kong's sometimes conflicting opinions. I have met a number of influential representatives of the People's Republic of China and continue to do so. To that extent I have tried to continue in a more limited and personal way the pattern of dialogue which characterised the Government's approach throughout the time that I was at the Foreign and Commonwealth Office.

The going then was often rough; the slope steep. Sometimes one slid two paces back for every one taken forward, as my noble friend Lord Nelson. of Stafford discovered in much earlier days on matters of trade with China.

Through calm persistence in formal meetings and a mostly friendly and constructive private dialogue, the activities of the Joint Liaison Group, the Basic Law Drafting Committee and, indeed, Britain's more general relationship with China were taken forward and built upon, in keeping with the Joint Declaration of 1984. However, in 1988 it seemed to me that a different perspective arose in relation to people's perceptions of the Joint Declaration—a pricking of certain consciences, perhaps. There were those who asked: had the United Kingdom achieved in the Joint Declaration the best possible outcome for Hong Kong? Were the interests of its people properly safeguarded? Could we not achieve an outcome with which we could all feel more comfortable by reopening the dialogue? Was Britain being too submissive, afraid to stand up to China?

These were understandable concerns. Nagging doubts often linger over the adequacy of deals struck. But we had struck a deal. The People's Republic of China had struck a deal, and it had been hailed at the time as a triumph, as my noble friend Lady Thatcher indicated. However hard a bargain the People's Republic of China strikes, it does have a reputation for abiding by the letter to internationally agreed treaties.

The pressure to think again grew with vigour after Tiananmen Square. That unforgivable and odious operation was condemned the world over. But even if they stuck publicly to their party line, I suspect that there were (and, indeed, are) many influential representatives of China who, even if they had predicted such a tragic turn of events, were sickened by it, contemptuous of it and continue to be so. Some did not even hide their feelings in private.

Tiananmen Square occurred at the time when the pressure was mounting from some in Hong Kong to accelerate the pace of democratic reforms. As we have heard, democracy (certainly in terms of directly elected seats) had been very limited before about 1986. Yet what had earlier been resisted by China in this regard had been carefully negotiated with success. The pressure to accelerate came not only from Hong Kong, but also from a body of opinion in this country. Increased democracy in Hong Kong seemed to some to be the best possible insurance against what some perceived to be the unfavourable Joint Declaration of 1984. And so, the bandwagon of opinion began to roll.

Her Majesty's Government, through all the avenues open to them, had continued to explore with China, firmly but diplomatically, ways of meeting the concerns in Hong Kong which had been genuinely and understandably thrown into sharp relief by Tiananmen Square. Continuity—a word which has been used on many occasions in this debate—was the watchword. Progress was made within the Joint Liaison Group and the Basic Law Drafting Committee. Confidence in Hong Kong remained reasonably buoyant. The "immigration package" was agreed—and progress was positive on a number of fronts. It seemed that the dictum of my noble and learned friend Lord Howe of Aberavon, when he was Foreign Secretary, that the interests of Hong Kong were best served when London and Beijing were in constructive dialogue was still valid.

I served in the Foreign and Commonwealth Office with my noble friend Lady Chalker and with the new Governor. I have much admiration for both of them. For the Governor, his incisive intellect, his political instinct and ability were obviously characteristics influential in his appointment. He certainly deserves the support of all those who have a keen interest in and concern for Hong Kong. The support for him, however, for which my noble friend Lady Thatcher called, should not mean that those who have a particular knowledge should refrain from encouraging Her Majesty's Government to see another point of view or to tread with particular caution. Constructive criticism need not imply disloyalty either to Her Majesty's Government or to the Governor. We are all inevitably embroiled in a public debate about Hong Kong—even if currently, as the noble Lord, Lord Wilson of Tillyorn, has said, it is probably far too public.

The stakes are exceedingly high. There is no monopoly of wisdom on how to tackle the sensitive issues involved. Those who have had the often difficult task of negotiating on Hong Kong deserve a lot of credit for their experience and success. My experience is certainly limited compared to that of many, but I would not be true to myself if I did not say to my noble friend Lady Chalker that I am deeply and increasingly disturbed by the current turn of events.

Of course, while the headlines here dwell on perceived Chinese intransigence over the Governor's democracy package, and those in the Chinese press dwell on Britain's perceived change of policy and style, there are strong undercurrents, on trade with China and other matters, which represent business as usual. Thank goodness for those at least.

The democracy proposals may be a genuine attempt to bolster Hong Kong opinion against worries about 1997—and to some extent to satisfy public opinion here. They do not breach the letter of the Joint Declaration. The proposals are clever and have raised hopes for some in Hong Kong. But I am forced to ask, as others have done: Are they wholly wise in combination of content, manner of announcement, and with no apparent paving of the way? In the eyes of the People's Republic of China, they have breached the spirit of the Joint Declaration. I would not go so far as saying "breached", but I would say "dented". To some extent, the People's Republic of China has been outwitted. It has reacted accordingly and, I suspect, very predictably. Confidence among many in Hong Kong is endangered. The stock market has become very volatile. The economic engine of Hong Kong's success has started to splutter.

It seemed to me that any subtle extension of earlier proposals on democracy to meet timetables or aspirations required some sort of fallback position in case they were to land on stony ground. I am bound to say that as the war of words develops, exaggerated though it may well be, I am increasingly concerned about where our fallback lies—and, indeed, where that of China lies. To those who say—and this has been said in various quarters recently—that LEGCO could always turn the package down, I am forced to ask what good that would do the Governor's position, particularly after such a well-deserved and powerfully hailed beginning, or indeed the position of Her Majesty's Government in their relationship with China.

I most sincerely believe that Her Majesty's Government must be clear about what constituency of opinion and what interests they are striving to satisfy. I unashamedly do not subscribe to the view that being obdurate with China just for the sake of being seen to do so or to make us feel better—not "kowtowing to China" as many would put it—is likely to provide either harmony between the United Kingdom and the People's Republic of China or the ultimate assurance that Hong Kong so badly needs. I very much agree with the noble and learned Lord, Lord Shawcross, and with the noble and gallant Lord, Lord Bramall, that patience; tough, perhaps depressing, even irritating, negotiations in public and in private; and the exercise of real diplomatic skills based on a deep understanding of the other side are likely to make the best breakthrough. A futile war of words, of threats, and of public bluff-calling will not, more particularly as time runs out.

But we are where we are, if not where I would wish us to be. So what do we do immediately? I, too, suggest that all concerned on both sides cease the rhetoric, listen to the voices of experience and calm reason, and do all possible to protect both a treaty which was so hard won, and all that should stem from it. Somehow all concerned must rediscover and revive the spirit of constructive, if difficult, debate which history will show worked pretty well for eight years. It is encouraging today to know that this week's Joint Liaison Group talks are at least still continuing.

If we do not adopt some such course, there is a real danger that much that so many have strived so hard to establish may be put at risk—or even dismantled—in 1997. I really think that that may be the case and that China's threats, however undesirable, are not hollow, particularly in relation to current proposals. To believe otherwise is a truly great gamble.

Above all, I hope that the Government will appreciate the risks and the difficulties of trying to satisfy fully a well-intentioned but sometimes over emotional constituency of opinion in this country, let alone in Hong Kong, about a very complex international issue, at the expense of a realistic approach to what is achievable by 1997, in an atmosphere which is as fragile as this one is most certainly fast becoming.

7.41 p.m.

Lord Mackie of Benshie

My Lords, the House will be delighted to hear that I am not going to make a long speech. I went to China with the noble Lord, Lord Geddes, and the much respected and long gone Lord Rhodes, who went there with three parliamentary missions. He was a very old man—he was over 80, which is not perhaps very old in this House—and a very clever man. He got on extraordinarily well with the Chinese leaders whom he met. I remember him meeting one of the top men, whose name I cannot remember. They were both limping. Lord Rhodes said, "What's wrong with your leg?" The Chinese replied, "War wounds". "Same with me", said Lord Rhodes. He established a rapport immediately. While I totally support the extension of democracy in Hong Kong, what has come out of the debate is that we have to live with the realities. The realities were stated with devastating clarity by the noble Lord, Lord Wilson of Tillyorn, who put forward points which the Minister must answer.

We had another very interesting intervention from the noble Lord, Lord Astor of Hever, who said that his ancestor negotiated the ceding of Hong Kong. He did negotiate it, I understand, but we used certain influences towards China which they did not care for. The ceding was not entirely voluntary. That is remembered over a very long period.

It is also true, as has been said many times, that face is often very much more important than money. Several noble Lords said that we should not rely on the obvious financial advantage to try to pressurise the Chinese Government into steps that they do not wish to take. After all, they look at us and say, "There are the British. They have ruled Hong Kong for 150 years without any democracy. They want to hand it over to us with a democratic structure". Of course we do, but I can see their point of view quite clearly.

The Minister will have to admit that while the intentions may have been good there must have been a lack of preparation in that the row which has been stirred up and the reaction of China was not expected; at least I hope it was not expected. It has gone to an extent which endangers the good work that was put in when securing the agreement. If the Governor, Chris Patten, had gone to Peking and used his charm in the same way as he used his charm and political ability to get the backing of the good people of Hong Kong, we might have had a very different outcome.

The Minister has a lot of questions to answer. It is interesting that the score is about even—but all the support has come from her own Back-Benches.

7.45 p.m.

Lord Archer of Sandwell

My Lords, I should like to add my voice to those who have congratulated the noble Lord, Lord Wilson, so warmly on his maiden speech, if he will accept congratulations from one whose own maiden speech in this House lies in the very recent past. His contribution will long be remembered both for its well informed and thoughtful content and for his wisdom in choosing an occasion on which he can speak with such great authority and without a note. This debate would have been much the poorer without his contribution.

I am grateful too to the noble Lord, Lord Geddes, for initiating the debate. I believe that it is a suitable time for the House to make known its views in the light of the very eventful period through which Hong Kong has passed since the last debate in the House in June.

The debate has been characterised, as so many debates in your Lordships' House, by contributions from noble Lords with a background of knowledge and experience on the subject. We have benefited from the wealth of that experience. Like my noble friend Lady Blackstone, I am very conscious that I do not share that knowledge or experience. I speak from hearsay and from reading, and so I am mindful that I can do little more than comment, with such humility as I can muster, on how this debate has appeared to me.

There appears to be total agreement in the Chamber that the role of the United Kingdom is as a trustee for the people of Hong Kong of their future. It may be said that that relationship was not sought by our generation and that it was conferred on us by history. Indeed, the noble Lord, Lord Astor of Hever, reminded us that it is down to Captain Elliot. But no one would deny that that now exists. The questions for debate are how we can discharge that obligation, not to ourselves, nor to our own commercial interests, but to the people of Hong Kong. I would respectfully echo what was so eloquently said on that matter by the noble Lord, Lord Wilson.

The differences which have appeared seem to me to lie between two quite understandable points of view. On the one hand there are those who say that the existing commercial prosperity of Hong Kong and the confidence of the commercial community in its future are dependent on the goodwill of the Peking Government. If that Government decline to recognise contracts placed by the present administration, or otherwise prove unco-operative in relation to commercial activities, that of course would be damaging to those who carry on commerce in Hong Kong or with Hong Kong. They urge the wisdom of maintaining good relations with the Chinese Government and of restraint in taking any steps which might endanger those good relations. That is one point of view.

The other point of view is expressed by those who believe that for the people of Hong Kong the future is not to be measured simply in terms of commercial prosperity—a community does not live by bread alone —and if the people are denied a voice in their own future they lose something which this country would not be prepared to sacrifice on its own behalf and ought not to be prepared to sacrifice on behalf of others. Indeed those who have expressed that view have gone further. They have asked not only what it should profit a community if it gains the commercial world and forfeits its soul; they point out that without a degree of control over their own destiny the people of Hong Kong are in danger of losing their commercial advantages as well. Certainly there is no commercial profit for anyone in a brain-drain.

Those are the two points of view that have been expressed. Both considerations are important. If there is a prospect of reconciling both worlds, then it is sensible to explore it. If the problems arise from a misunderstanding, then that misunderstanding should if possible be resolved.

Part of the problem, as the noble Lord, Lord Geddes, said, and as was expressed by the noble Baroness, Lady Dunn, in her thoughtful and restrained contribution, may arise from a Chinese suspicion that the acceleration of democracy stems, not from a conviction, but from an attempt to embarrass China and perhaps to prolong Britain's influence. If the Beijing Government can be persuaded that the British proposals seek merely to reflect the wishes of the people of Hong Kong and that the Government have no other motivation, which I genuinely believe to be the case, then some of the differences may disappear. If the Chinese Government are prepared to enter into a dialogue no damage need be done to the colony's commercial future. Indeed, as the noble Lord, Lord Reay, pointed out, what has particularly alarmed the people of Hong Kong is the reaction of the Chinese Government to the Governor's proposals.

I wholly endorse what was said so movingly by the noble Baroness, Lady Dunn. If we are negotiating on behalf of the people of Hong Kong and if, as I believe, our sole objective in this exercise is their well-being, then surely the clearest criterion of that well-being is their wishes. Those wishes were expressed in the clearest terms in September 1991 when they demonstrated support for the programme of Mr. Martin Lee and the United Democratic Party. If there is a price to be paid, and no doubt there is, I believe that they did not overlook it at the time. Of course, the extent of the Beijing Government's power lawfully to renounce contracts and other obligations is not necessarily a measure of their capacity to interfere in their implementation. We recognise that. Nor is their capacity to interfere in their implementation necessarily the measure of the damage which their threats may achieve in relation to commercial confidence.

However, we should place on record—I am grateful to the noble Lord, Lord Willoughby de Broke, for having referred to the point—the fact that Article 160 of the Basic Law is unambiguous. It is not something which the Chinese Government could lawfully do. Perhaps one should add for good measure that Article 120 repeats that provision in relation to leases. In any event, those provisions specify only what would be the position under international law and practice. If the Beijing Government are minded to find ways of eroding their obligations—for example, by a perverse interpretation of what is in conflict with the Basic Law by the Standing Committee of the National People's Congress—then no doubt physical power is on their side. But, as my noble friend Lady Blackstone said, it is surely in the interests of all parties to have a discussion on Hong Kong's commercial future. The Chinese Government stand to gain as much as they stand to lose under the body of contracts which will straddle 1997.

If, so far as possible, we are to assure the people of Hong Kong that freedom which they seek and which we would claim for ourselves, there are two elements which have emerged in the debate which we need to have in mind. The first is the right to participate in the decision-making process. That can only mean moving as quickly as is sensible towards representative government. It means a legislature which, whatever the constituencies and the proportions, is chosen by a widely enfranchised electorate. It means that that legislature has an effective role in the constitutional process.

It may be said—indeed it was said by the noble and learned Lord, Lord Shawcross—that in the past government in Hong Kong has been by benevolent despotism and that there was little evidence of objection from the people of Hong Kong. The answer to that was provided by the noble Baroness, Lady Thatcher, who pointed out that historically few communities have developed a vision of democracy in the abstract. It has usually arisen when people have had severely pragmatic reasons either to complain about the decisions of those who rule them or to fear the decisions of those who are about to rule them. That of course does not invalidate the arguments of those who seek a democratic future for Hong Kong. On the contrary, it reinforces them.

Many of those who have argued, and many of those who have voted, for representative democracy in Hong Kong are troubled, not by the textbook arguments of John Stuart Mill but, as the noble Lords, Lord Derwent and Lord Marlesford, pointed out, by the consequences for their own daily lives of decisions taken by Beijing or its agents if they have no redress. The noble Baroness, Lady Dunn, regretted the shortsightedness of a policy which says, in effect, "Let us rule our colonies from within closed doors, provided that they do not make too much fuss", because one day they may have occasion to make a fuss and then we may find ourselves fettered by the weight of the past.

An effective role for the legislature would not be inconsistent, even at this stage, with bringing into the Executive some of those who may claim to speak for the people of Hong Kong. Perhaps the Governor will have those considerations in mind, especially in relation to the United Democratic Party.

I ventured to say that there were two elements in the concept of freedom. Secondly, freedom means the freedom of individuals to express a political opinion without being imprisoned, tortured or subjected to other forms of persecution. The noble Lord, Lord Geddes, suggested that that may be of greater importance than representative government to the people of Hong Kong. Unhappily, there is little indication from the Chinese Government that they have undergone a change of heart on the subject of human rights. As my noble friend Lady Blackstone said, the reports from Amnesty International on the subject of human rights are most disturbing. That applies within the People's Republic itself and in areas such as Tibet. They offer little to inspire confidence for the people of Hong Kong. Those anxieties are reinforced by the well-informed comments of Mr. Derek Davies, the former editor of the Far Eastern Economic Review in the correspondence columns of The Times today.

Clearly anything which can be done at this stage to institutionalise human rights and to make it less likely that the Chinese Government will seek to override them is very much to be welcomed, not just for its own sake but it may help to resolve the understandable anxieties of the people of Hong Kong. The Reverend Louis Ho writing in Basic Law, Basic Questions in 1988 said that the draft provisions at that time about basic rights were far from a bill of rights: Yet they were impressive enough to assure people that the future of Hong Kong was bright". That, of course, was before Tiananmen Square.

I share the regret of noble Lords that we have not had the assistance of the impressions of the noble and learned Lord, Lord Howe, this afternoon, although I fully understand and indeed applaud the reasons for his absence. We are grateful to have the impressions of the noble Lord, Lord Holme of Cheltenham. I noticed that the Minister said earlier that she would have something to say about human rights at a later stage in the debate. We look forward to hearing her answers to the questions asked by my noble friend Lady Blackstone. I hope that she may be able to deal with the anxieties expressed by my noble friend about the position of the Vietnamese boat people. We are all hopeful that the new Administration in the United States, whatever view they take about China, will take account of the world's anxieties when considering their future policies and programmes in relation to Vietnam.

I hope that in his attempt to strengthen democratic institutions in Hong Kong, the Governor will have the support of all parties in this country. I share the hope of the noble and gallant Lord, Lord Bramall, that nothing said in this debate will offer any encouragement to the Peking Government to believe otherwise. Of course, the Opposition reserve the right to observe how negotiations are conducted, both by the Government and by the Governor, and how effectively they pursue the objectives on which we are all agreed. That is the right; indeed it is the function of our oppositions. We are entitled to agree with the profound observation of the noble Baroness, Lady Dunn, that if there had been a greater sense of urgency in the past in responding to calls for democracy in Hong Kong the task might now have been facilitated.

We are bound to reflect, as was said by a number of your Lordships, that it might well have been better if Mr. Patten had begun the dialogue with consultation rather than a precipitate public announcement in the manner which the noble and learned Lord, Lord Shawcross, described as the "hustings mode of politics". It must have appeared to the Chinese people that what he was attempting to do was to pre-empt discussion. That was what was meant by my noble friend Lady Blackstone when she spoke of the Chinese people's perception of "pulling a fast one". I am bound to say, with respect and I hope without offence, that I thought that both the noble Lords, Lord Holme of Cheltenham and Lord Marlesford, were less than fair to my noble friend in their construction of what she said. What she said was clearly a well-deserved and appropriate comment to make.

Whatever we may say as to the manner of conducting the debate, I hope that the message which goes out from this debate tonight is twofold. I hope that to the people of Hong Kong the message is: "You are not on your own. The Government and the Opposition alike in Britain accept our responsibility to do all we can to safeguard your future in accordance with your expressed wishes". To the Government of China I hope that the message is: "We respect your entitlement to the integrity of your nationhood. We try to understand your concerns and we believe that the good relations between our two governments are in the interests of your country and ours and those of the people of Hong Kong. But we will not be intimidated by commercial or political threats into renouncing our responsibility to safeguard the legitimate interests of the people of Hong Kong". The more clearly that message is articulated and the less room there is left for misunderstanding, the better, I believe, for the promise of friendly relations with China and for the future of Hong Kong.

8.2 p.m.

Baroness Chalker of Wallasey

My Lords, as one might have expected, this has been a debate of real concern, high quality and great knowledge. In many cases it is long knowledge of Hong Kong and China. I particularly add my congratulations to the noble Lord, Lord Wilson of Tillyorn, on a maiden speech of rare quality, of great wisdom and extremely well paced, with all that he knows about the great difficulties of dealing with an emerging and vibrant part of the world which has many tensions. We understand very well what he was saying.

I welcome the noble Baroness, Lady Blackstone, and the noble and learned Lord, Lord Archer, to the Opposition Front Bench on this foreign affairs subject. I particularly again thank my noble friend Lord Geddes, as I did in my opening remarks, and also my noble friend Lady Thatcher, for their clear and forthright speeches. I know that my noble friend Lady Thatcher experienced many difficult exchanges with China in the early 1980s and we value her realism in understanding how we take these difficult matters forward.

The aspirations of the people of Hong Kong, as the noble Baroness, Lady Dunn, told us so clearly, are important and much respected. We thank her for her outstanding and thoughtful contribution tonight. We thank the noble Lord, Lord Holme of Cheltenham, on his return from China and I shall return to the subject of human rights a little later. We shall, of course, await the report of the noble and learned Lord, Lord Howe of Aberavon, on this important visit with great interest in the new year.

Tonight we have had typically tough talk from many in this House, as well as having heard some exceedingly tough talk from China and from Hong Kong in recent days. That is not surprising. I hope that I made it clear in my opening remarks that Her Majesty's Government care about co-operation with China and Hong Kong to get the matter right. I can assure the noble Baroness, Lady Dunn, that there is no hidden agenda. As my noble friend Lord Bessborough said, we need great diplomatic skill and tact in working our way forward and no one needs it more than the Governor in responding to the needs of Hong Kong.

I assure my noble friend Lord Glenarthur that no one is being obdurate to China, neither the British Government nor the Hong Kong Governor. But we have some real responsibilities and in answering your Lordships' questions tonight I wish to try to cover those responsibilities in specific answers.

As my noble friend Lady Thatcher said, the Governor's Address, Our Next Five Years: The Agenda for Hong Kong, was a carefully crafted and thoughtfully-planned address at the opening of the 1992–93 session of the Legislative Council. I respectfully suggest that paragraphs 101 to 147, "The Constitutional Package" are worth reading over and over again. They are, above all, proposals which needed to be put to the people of Hong Kong and to be discussed also with the Government of China. In the publication, Our Next Five Years, the Governor has reviewed all Hong Kong's needs in a most detailed and impressive way.

The noble Baroness, Lady Blackstone, and learned Lord, Lord Archer, the noble Lord, Lord Sharp, and the noble and learned Lord, Lord Shawcross, said that the Governor was wrong not to consult the Chinese over the constitutional package. As my noble friend Lady Thatcher said, the Foreign Secretary gave detailed advance briefing to the Chinese Foreign Minister in New York on 25th September. The Governor sent a personal message to Mr. Lu Ping, going over the same ground. We made it clear that we wanted to discuss the proposals for the 1995 LEGCO elections fully with the Chinese and that they were proposals and not firm decisions. It is in the interests of Hong Kong that there should be calm and rational dialogue between us. We very much hope that the Chinese will eventually agree to that.

It would not, I am sad to say, have been politically possible for the Governor to have spent months and months discussing his thinking in private with the Chinese because then we would have seen a resulting speculation and uncertainty in Hong Kong which, as all my noble friends and particularly Lord Derwent and others have said, would have undermined Hong Kong in a dangerous way. It would have damaged stability and prosperity. I need only remind your Lordships of the difficulties over the airport negotiations to underline that those discussions could have carried on for a very long time.

It has also been said by my noble friend Lord Astor of Hever and others in this debate that the Governor's policy speech was a fundamental change in our approach. There is no change in our approach to relations with China over Hong Kong; we still want good co-operation in the interests of a smooth transition. The Joint Declaration remains the foundation of our policy. On an issue of this great importance in Hong Kong, we believed that having tried to explain the proposals in detail to the Chinese side beforehand, to avoid surprises, there would be debate. No one was in any doubt about that. But we emphasised throughout that on electoral arrangements the Governor would announce proposals. We genuinely want to discuss those proposals, so now is the time for calm discussion.

A number of your Lordships asked me about the use of the Joint Liaison Group. Perhaps I may say that the British Government are fully ready to discuss the electoral proposals with the Chinese in any forum they wish. We would be happy to hold such talks in the Joint Liaison Group. As my noble friend Lord Glenarthur said some moments ago, the 25th meeting of the Sino-British Joint Liaison Group is currently taking place in Hong Kong. It is covering a number of issues, sadly not this one, but I shall leave it to our senior representative to summarise the outcome after the meeting finishes tomorrow. I would simply say to the House in this respect about the use of the Joint Liaison Group that we have no hesitation in wishing to discuss with them any matters of the nature that your Lordships have raised in this House tonight.

The noble Lord, Lord MacLehose, who as ever made one of the most interesting speeches on the subject of Hong Kong, was concerned, as was the noble Lord, Lord St. John of Bletso, about the point of introducing new electoral arrangements in 1995 if the Chinese seemed determined to overthrow them in 1997. This goes back to the responsibility that the Governor has to make proposals for electoral arrangements that he considers to be in the best interests of Hong Kong. That is why we very much hope that the Chinese side will not take precipitate decisions as to what they may or may not do several years from now. If the electoral arrangements can be seen to work and produce a responsible Legislative Council in 1995—I am sure they can—there is no good reason for the Chinese side to overturn the situation in 1997. They would need to take full account of the effect on Hong Kong itself and also the international reaction if they were to do so.

A number of your Lordships are concerned about the composition of the Election Committee. The main focus of my right honourable friend the Foreign Secretary's exchanges with the Foreign Minister, Qian Qichen, in early 1990, which has been the subject of correspondence now published, was the question of the number of directly-elected seats in LEGCO. On that we did not reach full agreement. We accepted 18 then as the number of directly-elected seats for 1991, but we reserved our right to press for more than 20 seats in 1995. Our view remains that an increase in that figure would be the simplest way of expanding democracy in Hong Kong. That has been a hope expressed again and again in Hong Kong, by Members in your Lordships' House and in other places. We still hope that China will reconsider its position on this.

Another part of the exchanges between my right honourable friend Douglas Hurd and the Chinese was the possible composition of the Election Committee. We agreed in principle to some ideas discussed by the two sides, but on certain important conditions. In the event, the conditions were not met. As recently as last summer Chinese officials discussed with groups from Hong Kong possible compositions for the Election Committee quite unlike those discussed in 1990. It is therefore clear that the Chinese side as well regarded the 1990 discussions as being inconclusive.

The Basic Law does not, of course, spell out details of the arrangements for the 1995 Legislative Council election. Those are a British responsibility. It is the Governor's responsibility to make those proposals. May I say to the noble Lord, Lord Sharp—and also to the noble and learned Lord, Lord Shawcross, who is with us—that I think in a sense he has misunderstood the Governor's proposals. The Governor is not suggesting any increase in the number of directly-elected seats.

I know that there was, of course, the OMELCO's consensus in 1989, to which the noble Baroness, Lady Dunn, referred, and it was that which sought 30 directly-elected seats in 1995. The exchange of correspondence to which I have just referred shows that we fought hard for an agreed increase in directly-elected seats. We concluded that we should not proceed unilaterally. That remains our position. There has been no change in our policy on that. We note that in the more recent debates in the Legislative Council there is no longer a consensus on this specific point, and that is why we have not followed that through.

The noble Lord, Lord MacLehose, and a number of your Lordships, also referred to the reason for the release of the exchange of messages between the Foreign Secretary and the Chinese Foreign Minister. It was the Chinese Government who proposed that we should release these documents. They had referred to them in public. We decided to set the record straight, and I hope that noble Lords have read the documents because they make clear that there is no secret deal whatsoever over the Election Committee.

I have also been asked whether there was an understanding. The record of what I said a few moments ago shows clearly that we were prepared to agree in principle to the composition of the Election Committee, but as the conditions of that offer have not been realised then the composition of the 1995 Election Committee is a matter still to be decided in the eyes of the Chinese because they certainly did not decide it was settled.

The noble and learned Lord, Lord Shawcross, and a number of your Lordships, talked about a breach of an earlier Sino-British agreement on convergence; that is, that both sides should have agreed before the proposals were announced. I fully understand why that has been said and posed as a question. We fully accept, too, the need for as much continuity as possible, but we are in that process of discussion now on those proposals. I hope that no one says that we should have accepted that the Chinese side had a veto over any proposals coming forward for 1995 elections. We face practical deadlines. We must get on with some proposals in debate now. We have made it clear that we welcome proposals from the Chinese as well as from other bodies in Hong Kong itself, for there may well be alternative proposals which will serve the needs of the people of Hong Kong better.

I have had a good look at the composition of the Governor's proposals. They do not affect the agreed numbers in any way. But as my noble friend Lord Marlesford said, they have implications for the composition of the functional constituencies, and in turn this obviously will affect the kind of people who are to be elected. That is a matter that should rightly be discussed and debated, and that debate can now begin.

The noble Lord, Lord MacLehose, asked that we should not allow—I think that was his word—the fact that there were proposals for nine new functional constituencies to amount to direct elections by another name. I must agree with him that the Governor's proposals are a broadening of participation, but I really would not think that this was so radical that it could not be encompassed for Hong Kong in the future for one country, two systems. The functional constituency representatives would still be elected by economic category to represent people at their workplace, and that is the essence of the functional constituency system, which has of course already been largely accepted.

My noble friend Lord Skidelsky questioned whether the Governor's ideas were acceptable to the people of Hong Kong. I can only say to him that on current reading of what is going on in Hong Kong the people seem to be in favour of those proposals by a majority of about two to one. We must, of course, be sure in what is going on that those proposals are clearly and rightly debated. I hope that when they are better understood, that majority may even improve. The noble and gallant Lord, Lord Bramall, said that the Governor must be supported. If he is right, fair enough, but if he is wrong the Governor must have the chance to push these proposals through the debating system. That is exactly what we wish to achieve with the Chinese Government.

Many other issues have been raised in this debate, and particularly the whole question of a peaceful change, which the noble and gallant Lord, Lord Bramall, raised. He referred to security and law and order in the colony, and to that being an important responsibility for the Government. May I say to him that the size of the garrison in Hong Kong is, and will be, kept under regular review. I shall particularly keep in mind the advice of the noble and gallant Lord, based on his great experience, when we come to the next review. We do understand the implication of his remarks.

The noble Baroness, Lady Blackstone, and the noble and learned Lord, Lord Archer, both asked about human rights. The noble Lord, Lord Holme, also referred to that issue on the basis of his experience, particularly in the last week. The Hong Kong Government, with us, have taken measures to try to strengthen human rights in Hong Kong. Of course, we have the two international covenants on social and political rights, implemented in Hong Kong through the Bill of Rights which was introduced last year. The importance of saying that is that Article 39 of the Basic Law also provides that those two covenants continue to apply in Hong Kong after 1997.

That is a very good reason why we should look to the Government of China for the improvement of human rights within China. We do not take perhaps as hard a line on that as I think the noble and learned Lord, Lord Archer, would sometimes like us to. We all regret what happened at Tiananmen Square, and nobody has any time for behaviour of that nature. However, when the troika of foreign ministers raised the question of human rights with the Chinese Foreign Minister at their meeting in New York on 21st September, on the margins of the United Nations General Assembly, they were listened to politely. Again, our Prime Minister put forward our views with the Chinese Vice-Premier, Zhu Rongji during the latter's visit in November of this year, and the Chinese should be in no doubt about the depth of our concern. That also means that those conventions are respected after 1997.

A number of your Lordships have referred to the critical key commercial business of Hong Kong and the effect on Hong Kong. In his opening remarks my noble friend Lord Geddes was very clear about the tremendous competition that exists for the whole world to see in Shanghai and other cities within China. May I say we believe that the example of Hong Kong is going to catch on in many other places which may not be currently in the economic zone of China. There is great potential, and that is why I particularly take the point of the noble Lord, Lord Holme. He commented about having better commercial promotion within the whole China region. Certainly it is a region of outstanding opportunities for British business, but above all it is a region of outstanding opportunities for Hong Kong business. That is why we must work away at this relationship and ensure that we can succeed everywhere that British business wants to work.

How right my noble friend Lord Derwent was in his very realistic approach to the whole situation in Hong Kong. He made some very wise remarks, although I will not go over them all. My noble friend Lord Marlesford showed a very clear understanding of the role the Governor must play in order to keep the economic future of Hong Kong going strongly. We are well aware of the anxieties about the financial future of Hong Kong and we are also well aware of the nervousness which was expressed by the noble Baroness, Lady Blackstone, concerning consultation with the Chinese on major franchises which extend beyond 1997 in Hong Kong.

We consult the Chinese in respect of a number of important franchises, as we have agreed, such as that of the China light and power scheme of control. I must say that when we have been talking about such matters the consultations have proceeded smoothly and we sincerely hope that they will continue to do so, because we believe it is critically important for Britain and China to do business together. Where British business is competitive, I see no reason why Britain should not continue to win contracts in China, and Hong Kong firms, too.

When Vice-Premier Zhu Rongji was here I had particular discussions about prospects in China with the deputy Trade Minister. I look forward to seeing more contracts won by British companies in China: indeed, many of them are being backed by Hong Kong money, and that is a very important aspect of Hong Kong's future—that it should be a full partner in the projects which are going on all over China.

Her Majesty's Government take very seriously their responsibility for administering Hong Kong up to 30th June 1997. It is one of the highest foreign policy priorities. Some have suggested that we are pressing ahead recklessly to build up democracy without taking account of the interests of the Hong Kong people. Nothing could be further from the truth. As I said, we believe that the Governor's proposals for broadening democracy would help to safeguard Hong Kong's way of life. I hope that those who criticise the Governor's proposals will explain how they would go about meeting the wishes of the Hong Kong people for a greater say in the running of their own affairs. It is not realistic to imagine that Hong Kong can continue to develop economically while standing still politically. I believe that the noble Baroness, Lady Dunn, made that very clear in her speech to your Lordships tonight.

On 7th October the Governor said in his policy speech to the Legislative Council: The success of the economy is central to all our hopes. We must do nothing to jeopardise it". I believe that all noble Lords who have spoken in our debate today agree with that. Our policy, and the policy of the Governor, is directed to securing the prosperity and the stability of Hong Kong. Part of the answer is protecting Hong Kong's way of life and that means building up representative government within the terms of the Joint Declaration and the Basic Law. Another part is achieving as much continuity as possible and a smooth transition in 1997. That means co-operating with China. I take very much to heart what the noble Lords, Lord MacLehose and Lord Wilson of Tillyorn, said tonight. However, as my noble friend Lady Thatcher said, there is no contradiction between those two propositions. We wish to move ahead in co-operation with China in the best interests of the people of Hong Kong; and the Governor and Her Majesty's Government are committed to doing that to the full.

Baroness Blackstone

My Lords, before the Minister sits down, I wonder whether I may ask her just one question. If the Chinese Government continue to reject the proposals, is it the intention of the Governor of Hong Kong to implement them nevertheless?

Baroness Chalker of Wallasey

My Lords, that is a question that at this stage, either in this debate or in the whole process, is simply not answerable. I believe that other suggestions will come forward, some perhaps based on the Governor's proposals. Some may come forward anew, but I do not think it does any good to speculate at a very early stage in the process, particularly when matters are quite as sensitive as they are. I think the whole House would welcome the opportunity for quiet and calm reflection; and perhaps some of that reflection might not be on the front pages of the newspapers, because in that way I am sure we will gain greater success. Above all, the people of Hong Kong must be fully consulted, and that is exactly what the Governor intends to do.

8.29 p.m.

Lord Geddes

My Lords, it would be invidious and indeed wearisome, particularly at this hour, to single out any particular speech in a debate of such amazingly in-depth talent. Having said that, that is exactly what I am going to do, but very briefly. First, the noble and learned Lord, Lord Shawcross, if I heard him aright, made the extremely interesting comment that in his opinion—and that is the opinion of a barrister of enormous eminence—not only the spirit but the substance of the Governor's proposals were contrary to the Basic Law. If that is what he said then I would urge my noble friend Lady Chalker to take a very hard look to make sure that that situation does not arise.

The noble and learned Lord also made a most interesting comment about the Governor adopting a hustings mode. This is not the occasion to go into that issue in depth. However, perhaps I may ask my noble friend on the Front Bench to impress on her colleagues, particularly in the Foreign and Commonwealth Office, how difficult it is to translate an occidental mind and a Westminster mode into an oriental situation.

The second speaker I should like to mention is the noble Baroness, Lady Dunn, who, in a thoughtfully prepared and thought-provoking speech, yet again did an enormous service to this House and indeed to Hong Kong. We thank her for it.

Thirdly, I should like to mention the noble Lord, Lord MacLehose. My noble friend on the Front Bench has already mentioned his extremely interesting and thought-provoking speech. I urge my noble friend to pay particular attention to what he had to say.

Fourthly, my noble friend herself again displayed enormous courtesy and clarity from the Front Bench. Although she and I do not agree totally on this subject I thank her most sincerely for the way she handled the debate, as she does whenever she speaks from the Front Bench.

Finally, I should like to mention my noble friend —if I may now call him that—Lord Wilson of Tillyorn. All the words that I had written down with which to congratulate him on his maiden speech have been used. I certainly shall not repeat them. Perhaps the best thing that I can do is to advise your Lordships that I have it on good authority that his hatter is waiting in the Peers Lobby and is most grateful because he is quite certain that the noble Lord will have to order hats several sizes larger and wishes to express his appreciation. I jest. The noble Lord, Lord Wilson, made a truly outstanding maiden speech. We are most grateful to him for that and hope very much to hear him again. I beg leave to withdraw my Motion for Papers.

Motion for Papers, by leave, withdrawn.