HL Deb 17 June 1992 vol 538 cc186-225

3 p.m.

Lord Mac Lehose of Beoch rose to draw attention to developments in Hong Kong and South China; and to move for Papers.

The noble Lord said: My Lords, I tabled the Motion because the retirement of Lord Wilson and the arrival of Mr. Patten in Hong Kong early next month mark the beginning of the last phase of British administration and it seemed to me to be an appropriate moment at which to take stock. I am grateful for the opportunity to have a debate on the matter. I am particularly glad that my noble friend Lady Dunn was able to reschedule her programme to enable her to be with us today.

Lord Wilson has had a notable governorship in which he had to confront many new problems, including the new, close and proper involvement of China in Hong Kong in the period before China takes over. Just when the relationship with China appeared to be progressing satisfactorily it was destroyed by the events of June 1989, three years ago, and by the reaction to them, including the reaction of some people in Hong Kong and the consequent hardening of China's attitude towards Hong Kong. Thereafter, Lord Wilson had the unenviable task of rowing, often against the tide, to get the relationship back to a practical basis on which all the work involved in achieving a smooth transition can be tackled. He addressed it with great courage and skill as well as with total commitment. I am sure that the whole House looks forward to him taking his seat next month.

But if Lord Wilson is to retire I have no hesitation in welcoming Mr. Patten as a replacement. It is a most imaginative appointment but it is a sign of how seriously the British Government take their responsibilities for Hong Kong that for the first time a man who is both a Privy Counsellor and of substantial Cabinet experience should be appointed. At this juncture his great political experience should serve Hong Kong well.

I assume that the appointment signifies no break in continuity of government policy, but a change in governorship inevitably produces a pause, albeit on this occasion there is not the time for a long one. It will be valuable to use the pause to bring this fresh mind to bear on the elements that favour a smooth transition and those that stubbornly appear to threaten it; those that make for a constructive relationship with China and those that do the reverse.

Before he sets out Mr. Patten will have been briefed on all the political difficulties that have made his task what is so often described as awesome. But he will find not a community that is weighed down with political care but one that is most obviously thriving in circumstances of steadily rising prosperity. It is also a community not at all at arm's length with China but, on the contrary, in ever closer economic and social contact with it. Indeed, Hong Kong combines with South China to make up the area of most rapid economic growth in the whole world. That is why I worded the Motion to include a reference to developments in South China, since they have a close bearing on Hong Kong.

Hong Kong's success is based on business which provides the revenue to fund modern Hong Kong, which in turn funds much of the investment in southern China. But the major player in this success story is of course the Chinese Government, to which great credit is due and all too rarely given. It is due to the policy of opening to the world initiated by Deng Xiaoping in 1978 and doggedly maintained ever since in spite of domestic difficulties. It is that which attracted the capital and management and introduced the incentives that produced the regenerated and booming cities of South China and indeed elsewhere. Their greater degree of financial autonomy and significant role for market forces have led to huge improvements in production and therefore to standards of life for tens of millions of people.

The concept of "one country, two systems" embodied in the Joint Declaration and codified in the Basic Law is a product of that Chinese policy. In considering the details of current problems between China and Hong Kong in implementing the Joint Declaration one should not lose sight of the apparent success of China's grand design and of the benefits it is conferring on people in Hong Kong and China alike. It is reasonable to hope that, if the overall design is right, differences regarding detail can sooner or later be resolved.

It is noticeable that the business sector in Hong Kong increasingly takes a confident view of the future. However, on the political side there are indeed differences. To resolve them the importance of achieving a sound working relationship with China similar to that in commercial affairs cannot be over-emphasised. There is a long list of points which need to be agreed to achieve a smooth transition. Moreover, without Chinese support the market simply will not supply capital, as has been shown over the airport. In any event, there can be no confidence in a Hong Kong constantly at loggerheads with a future paramount power.

There is nothing new about China's power and influence in Hong Kong. It has been recognised as a fact of Hong Kong life for many years and Hong Kong has been able to live with it and prosper. However, it has done so with a profile that may have been high commercially but politically low. Since Tiananmen some in Hong Kong favoured a high, even confrontational, stance vis-à-vis China, and China has responded with interest. As the novelist and journalist Frank Ching wrote in the South China Mail on 4th June, Three years on it is time to heal wounds".

I am sure that he is right and I hope that Mr. Patten will succeed in doing just that. On a practical note, I cannot see how all the things necessary for a smooth transition can be done unless there is a deliberate move on both sides to let bygones be bygones. Since Hong Kong is the junior partner I suggest that that is where the change should start.

I wonder to what extent our relations are bedevilled by Chinese suspicion that the promotion of democracy at this stage in Hong Kong is to embarrass China or to prolong British influence—a sort of poison pill left behind. Its attitude has been affected by the belief that some of the most vociferous advocates of increased democracy in Hong Kong or abroad also advocated either the overthrow of the present Chinese Government or, if not, dissociated themselves from it. It sees the former Kuomintang/Nationalist threat being replaced by an anti-Peking threat under the cloak of democracy. Nor are the Chinese impressed with the style of confrontational politics adopted by the newly elected groups. That does not seem conducive to a smooth transitional period.

Of course, all that may simply reflect first lively steps in unfamiliar legislative procedures. However, that unhappy background exists and is a fact which I must bring to your Lordships' attention before I turn to the immediate issue; that is, whether there should be more seats in the Legislative Council for members directly elected for geographical constituencies. The British Government said that they will discuss the matter with the Chinese Government. At present there are 18 such seats out of 60. Under the Basic Law and its annexures the number in 1997 will be 20 and in 1999 there will be 30, with the ultimate aim of election of all members by universal suffrage.

To change those numbers would require amendment of the Basic Law. On numerous occasions the Chinese Government have made it clear that the Basic Law will not be amended at present. Perhaps I may add that in all fairness I believe that we would take a similar attitude to any suggestion that the Joint Declaration should be amended. I therefore see no point in pushing against this pretty solid brick wall. However, if the Government feel under an obligation to make the attempt, I hope that they will do so soon and get it out of the way one way or another. As long as there is alleged doubt as to whether the change in the number of seats is possible it represents yet another element of uncertainty. Time is short if all that is necessary is to be done in time for the 1995 elections —elections that will be so crucial if the council then elected is to carry through to 1999, as we all so very much hope.

I feel sure that the Government realise that the views on this issue of elections in Hong Kong are far from unanimous. Some highly articulate and attractive people feel passionately and strongly about it. Many of them are my friends. They had 10 per cent. of the vote. But they are matched by others who, with equal if not greater claims to have the interests of the Hong Kong people at heart, feel that progress should be gradual and cautious. Moreover, there is clearly a very large number of people who are simply indifferent, but who would probably become actively opposed if pursuit of electoral ideals resulted in a damaging row with China that affected the tenor of their lives. I presume that that accounts for the fact that of all the eligible electorate more than 80 per cent. either did not register to vote or did not vote.

Against that background I do not believe that the Government should take this probable impasse too tragically. A large and immediate increase in direct elections to the Legislative Council need not necessarily be the only panacea for Hong Kong's urgent problems or for meeting the right of Hong Kong people to continue their free and stable lives in prosperity. For my part, I would see merit in a determined attempt by all parties, even in the new circumstances of an elected council, to return to the less strident consensus approach formerly favoured in the council.

There has been controversy over who should be appointed to the Executive Council. That body is very important to the Governor, as I know. He takes its advice on all matters of importance. It is up to him to decide how that advice can best forewarn him of public opinion or of opinion in the Legislative Council of what is feasible and what is not. Like Cabinet membership here, it is a personal decision of the Governor. Nobody has hitherto asserted a right to membership. Similarly, there are rules governing the behaviour and freedom to speak of members. Here again, it is up to the Governor to decide whether or not a rule may be dispensed with. In the light of his decision it is up to a member whether or not to serve. This is not a question of human rights but of orderly practice in the Governor's Cabinet. I thought it right to make that point since it has been quite highly publicised.

The list of matters needing agreement between the two governments is very long and I shall not go through it, although I hope that in her reply the Minister will tell us what progress is being made on them. I shall refer to the best known—that is, the financing of the airport. I must admit that initially I had some sympathy with the Chinese for insisting on being fully in the picture about such a vast project the pay-back period of which spans 1997. I also have some sympathy with them over the figures appearing to change, although I am sure that in reality they have not done so. But the replacement of Kai Tak, the westward movement of the harbour, and the opening of new land available on Lan Tao are all now long overdue. I am very glad that the Prime Minister has intervened personally in this matter and lifted the negotiation of detail to Minister of State level. I hope that, with the personal assurance of the Prime Minister, the Chinese Government will soon be satisfied.

I might add that this is a very old project elaborated as long ago as the 1970s. Indeed, it was at one time my own favourite project. I am very sorry that then I allowed arguments against it to prevail. However, the attractive side of it always seemed to me that it was so apparently self-liquidating. That was not only because of the immediate cash-flow from the airport and from the new land opened up, but because the land freed for development at Kai Tak and the Kowloon flight path was among the most valuable in the world and the resultant return to the Government from the land sales and premiums would have been enormous. I am no longer familiar with the details, but I am surprised that, despite explanations, the Chinese Government should still be worried that the SAR might be left with a burden. I should have thought that, on the contrary, it is likely to be left with a sure-fire winner. However that may be, I wish the Minister of State success in his work on this quite fascinating project. I hope that he will take the precaution of arming himself with an interpreter who can master the details involved.

In conclusion, I emphasise two points. The first is that a new zone of prosperity covering a huge area in South China has developed which includes Hong Kong at its heart. It is the most striking economic development in China for many years and it changes one's whole perception of future prospects. The second point is my hope that both sides will now take steps to re-establish the sound working relationships of the 1970s and the 1980s. In that connection I repeat my friend's words, Three years on it is time to heal wounds".

My Lords, I beg to move for Papers.

3.17 p.m.

Lord Geddes

My Lords, my noble friend Lord MacLehose really is unique in the depth of his knowledge of Hong Kong. He has done your Lordships a considerable service in the way he has introduced this debate. He has done perhaps an even greater service to Hong Kong, China and to the United Kingdom by instigating it. On a more personal note, he did me the very signal honour of inviting me to join him two months ago on a five-day trip in South China immediately following a week in Hong Kong.

At the end of those two weeks I came away with a number of clear impressions and conclusions, some of which I instanced on 7th May in our debate on Her Majesty's Most Gracious Speech. If I repeat some of those this afternoon I do so because I believe them to be important. My own affinity for Hong Kong goes back to 1957 when I was stationed there during my National Service. However, it really took root when I lived and worked there in the mid-1970s and it has grown ever since.

By far the biggest change that I have noted over the past 15 years is what I can best describe as the axis of view. In the mid-1950s China was still very much a potential enemy. By the mid-1970s, while that threat had largely receded, the view of China was still very much "from Hong Kong". Today that has almost totally reversed. As my noble friend Lord Cromer said in his quite remarkable maiden speech on 7th May, his tendency was, to view Hong Kong from China, rather than the other way round".—[Official Report, 7/5/92; col. 49.] I fully concur with that.

The provinces of Guangdong and, perhaps only to a slightly lesser extent, that of Fujien are advancing economically so rapidly that it is now only the political border with Hong Kong that legally separates Hong Kong from the rest of South China.

Hong Kong's economic success story is truly remarkable, and the fact that my contribution will be thin on statistics is solely to avoid repetition with other speakers. Facts and figures regarding South China are perhaps less well known and just some may serve to illustrate the quite incredible —on 7th May I used the expression "mind boggling"—speed of the economic advancement that has been made. GNP in Xiamen, previously Amoy, in Fujien Province has increased by a factor of four-and-a-half in the decade 1981–91. Over that same period, the per capita income of urban residents has increased five times. In Guangzhou, previously Canton, GNP rose at an average rate of 12.3 per cent. per annum over the same 10-year period. Similar statistics apply to Shantou, previously Swatow, and to Shenzhen, previously Shumshun. In all four cities, Deng Xiaoping's "open policy" has been and is being vigorously pursued with emphasis on getting the basic infrastructure in place first in order to cater for the enormous expansion in commercial and manufacturing activities and in population. The improvements in and plans for highways, railways, ports, airports, telecommunications and power generation had me, for one, almost reeling by the end of our five days. And it was not just talk. Of course, our visits to each city being, by definition, short were therefore "organised", but there was no way that one could fail to see the tremendous strides in activity that both had taken place and were still taking place.

Hong Kong is inextricably involved in such activities by way both of direct investment and joint ventures. There are today four times more people working directly or indirectly for Hong Kong manufacturing in Guangdong Province than there are actually working in Hong Kong. In round figures, there are 3 million relative to 0.7 million. Not only is there a very significant two-way flow of capital investment—by the mainland Chinese in Hong Kong and by Hong Kong in mainland China—but there is now a significant move by Hong Kong residents to buy property north of Hong Kong's political border and to commute into Hong Kong to work.

Then there are the smaller but less significant examples that are indicative of economic progress in South China, such as the proliferation of mobile 'phones; the traffic jams; the significant reduction in the number of pedal bicycles, which are being replaced by motor bikes and, to a lesser extent, by cars; the abundance of goods of high quality in the shops; the variety and smartness of clothing and in particular the colourful ladieswear; and the quality, efficiency and technical standards of the hotels. Perhaps the most facetious but indicative example was the necessary use of broad shoulders and sharp elbows to ensure a place in the lift for breakfast on a Friday morning in a revolving restaurant at the top of the World Trade Building in Shenzhen. It is useful to travel with the noble Lord, Lord MacLehose, with his considerable height. In their different ways and at various stages of economic advancement, all four of the cities that we visited reminded me absolutely of Hong Kong some 15 to 20 years ago.

However, as always, such progress inevitably brings its problems, one of which is China's acknowledged necessity to control movements of population from the relatively less advanced hinterland and the north into the far more prosperous areas of South China.

For that and many other reasons, Beijing seems to be pursuing its own brand of capitalism. Certainly in South China it has avoided the catastrophic economic position now experienced in the republics of the previous USSR and to a lesser extent in the previous satellite countries of Eastern Europe. China's brand of capitalism is perhaps one that the world has not seen before—namely, extensive economic freedom coupled with what we might regard as unacceptably totalitarian political control. While the latter may not be to our liking from a Western viewpoint, it is one that, from an entirely pragmatic point of view, I can well understand.

As always with the unique juxtaposition of Hong Kong and South China, the problems are those of confidence and understanding. For the peoples of Hong Kong who will find themselves subject to a very different political regime on 1st July 1997, it is a question of confidence that Beijing will adhere to the terms of the 1984 Joint Declaration as detailed in the Basic Law and an understanding of the basic political position from which Beijing is moving. Perhaps even more important is the necessity for confidence and understanding from Beijing of just what makes Hong Kong tick and of the motives of both Hong Kong and the United Kingdom in continuing to encourage Hong Kong's economic success story.

Perhaps I may give just two illustrations on this last point. Inevitably, both are topical and have been touched on by the noble Lord, Lord MacLehose. First, there is the continued wrangle over whether the People's Liberation Army should physically have its headquarters on the present HMS Tamar site on Hong Kong Island or at the new base being built on Stonecutters Island which, incidentally, by that stage will be connected to the Kowloon Peninsula. Secondly, as the noble Lord, Lord MacLehose, has said, there is the continuing "battle" over the financing of the new Chep Lap Kok airport.

It is difficult for the Western mind to ascertain whether Beijing genuinely cannot understand the very laudable motives behind each of those or whether it finds it politically convenient not to understand. Both are classic examples of the continued modernisation and development of Hong Kong where, in my opinion, it is really crazy to block an enormous potential area of development by, in the case of the military, insisting on a maintained presence on Hong Kong Island and, with regard to the airport, ignoring the financial implications of the quite enormous development possibilities of the present Kai Tak airport site. Funds raised from such potential developments, and particularly from the sale of the leases on the Kai Tak site, are integral to Hong Kong's overall financing. They have been included by Hong Kong in its overall calculations but studiously excluded by Beijing, resulting in each party approaching the situation from a significantly different direction.

It will take time and it will take infinite patience, but the rewards are there. Each party—and by that I mean Hong Kong and the United Kingdom on the one hand and China on the other—must do its utmost to appreciate the position from which the other is coming. The present Hong Kong political situation is a very curious one, there being various degrees of what might be described as "opposition parties" but no government party. It may therefore be that the business community of Hong Kong will have to become more overtly political—against its natural inclination, I am sure. Either way, the future of Hong Kong is not, in my opinion, going to be helped one iota by the continued overt push for the acceleration of agreements that have already been made regarding the extension of direct elections. Again, as my noble friend Lord Cromer said last month: It would be patronising to the Chinese people to suggest that they require instruction from us about the way in which they ought to determine their own political future"—[Official Report, 7/5/92; col. 50.] — because that is exactly what Hong Kong will be on 1st July 1997, part of China's political future.

"Unique" is sadly nowadays a rather overplayed word. Of course there will be problems and tensions over the next five years but I really do believe that the United Kingdom (and of course Hong Kong) does have a unique opportunity to hand over a vibrant Hong Kong as a supreme example of how a mixture of Oriental and Occidental capitalism can work to the advantage of all. In South China there are already most impressive examples, particularly in Guangdong. Mr. Patten, as the new Governor of Hong Kong, has a tremendous task in front of him but I have no doubt that he can and will succeed by building on the firm but utterly fair approach pursued by Lord Wilson and indeed by his two predecessors, not least the noble Lord, Lord MacLehose of Beoch. Given a fair wind and pragmatic restraint I most firmly believe that Hong Kong, as part of South China, will go from strength to strength way beyond 1997.

3.31 p.m.

Baroness Dunn

My Lords, I am grateful to the noble Lord, Lord MacLehose, for the opportunity his Motion gives me to offer in this House my warmest congratulations to Mr. Patten upon his appointment and to promise him every possible assistance in his new and challenging task. At the same time, I should like to pay a public tribute to Lord Wilson of Tillyorn. When he leaves office on 3rd July, after five years as Governor, he has good reason to be proud of his achievements. Under his stewardship, major political reforms have been introduced and the Hong Kong economy has reached unprecedented levels of performance. He will take with him the gratitude as well as the affection of the people of Hong Kong.

Your Lordships know well that Hong Kong is an extraordinary city, full of exceptionally resourceful people. We are probably better qualified, economically and educationally, than any of Britain's colonies to be the masters of our own destiny. Yet history, geography and politics deny us that possibility, and we have had to depend on the governments of Britain and China to determine our political fate.

Today, eight years after the Sino-British Joint Declaration was signed, anyone can see that nonetheless Hong Kong has not only put its back into building a future, but its heart, its soul and its wallet as well. An economic powerhouse is emerging in South China, centred around Hong Kong. Thanks to investment from Hong Kong and Taiwan, the provinces of Guangdong and Fujian in South China are enjoying double digit growth. Thanks to the lower costs in China, Hong Kong and Taiwan manufacturers are maintaining their competitive edge overseas, while their own populations are transferring to better paid, more productive tasks in services and the professions.

Economically, 1997 is already upon us. The economies of Hong Kong and South China are integrating with astonishing speed and producing phenomenal benefits for one another. Whichever political theories are debated in China, it is capitalism and the market economy that drive China forward. China's official figures show that nearly 50 per cent. of industrial output in China is now accounted for by the private sector. New issues of shares in China's fledgling stock markets are being snapped up by international investors. The incredible dynamism across the border has in turn engendered in Hong Kong a new level of confidence. The Hong Kong stock market is trading at record levels. Optimism and energy assault the senses wherever you go.

This dynamic and positive picture is not, I regret to say, reflected in the political relationship between Britain and China over Hong Kong. Their work was by no means finished when the Joint Declaration was signed and our fate was sealed in 1984. Many important tasks remained to be done in these years of transition. A solid, sustained effort and a collaborative relationship between the two governments were essential. Unhappily, the relationship has become one of suspicion and mistrust, inertia on major issues and endless wrangling over details. There is little point in seeking to apportion blame for this state of affairs: what matters is that the last remaining five years of British administration must be put to better use. The people of Hong Kong deserve no less.

A working relationship with China is not something we in Hong Kong can afford to see turned on and turned off according to political needs or diplomatic whim or editorial pressure, for we, the people of Hong Kong, have to live with the consequences. The appointment of a new governor represents a fresh opportunity to break out of the vicious circle of recriminations into which Sino-British relations over Hong Kong have drifted, and get it back to a more constructive and workmanlike basis.

Before this can begin, Mr. Patten has to resolve the problem created by the British Government's promise to raise with the Chinese Government the possibility of faster progress towards a fully elected legislature than is presently envisaged by the Chinese Basic Law. Well meant though it was, I am bound to say that I always thought this promise was unwise. And I speak as one who lobbied here in 1989 for more directly elected seats than we have been allowed.

The virtue of having the future constitution passed by the National People's Congress in China more than two years ago was certainty, but talk of change revives uncertainty, tension and discord in our community. Discussions on this issue will use up time and goodwill. Both are in short supply. Meanwhile, the community is divided and distracted from other important tasks, and the expectations of many in Hong Kong are unfairly raised.

Since a promise has been made, the British Government must fulfil it—and quickly—and report back frankly. We can then get back to work to our agenda. Hong Kong people can cope with disappointments: it is uncertainty that causes problems.

As we move into the closing stages of British administration and towards unprecedented constitutional changes, the people of Hong Kong must be encouraged by both governments to find strength through unity and to focus clearly on the reality of their future. The current preoccupation with the one single issue of a few more directly elected seats in 1995 obscures the fact that structures have no real life of their own and that democracy is a means to an end. It is the people who participate and hold the levers of power that matter.

What Hong Kong needs are local leaders of vision and commitment who will serve the community through and beyond 1997. But such people need some inducement to aspire to serve after 1997, if they are to take the risks and make the sacrifices which public service demands. Those coming to prominence under the system now in place need to be reassured by China that they will not, for that reason, be regarded with suspicion after 1997. Those who have already established good relationships with China's leaders must not be frozen out by Britain on that account. It is a joint responsibility of the British and Chinese Governments to create together the conditions that will encourage the future leaders to emerge and to make a reality of the high degree of autonomy that has been promised to us.

All of that can only be done if there is mutual trust. Without trust, every suggestion by China will be interpreted as unwarranted interference in Britain's administration. Without trust, every initiative by the British side will be interpreted as a devious plot to maintain hidden control over Hong Kong after 1997. The British and Chinese Governments must lay those ghosts to rest, and get down to the practical tasks that are essential if this unique political experiment is to succeed.

Hong Kong people and businessmen day by day show how to build a mutually beneficial relationship with China. They have done so despite bad memories of a China from which many of them fled. They have done so despite the fact that China's leaders still proclaim an ideology that has been discredited virtually everywhere else. They have done so despite their political inexperience and impotence. They have done so despite the shock in Hong Kong of the tragic events in Tiananmen Square only three years ago.

Britain's objectives in Hong Kong may understandably be limited to an honourable and successful withdrawal in 1997. But that does not mean that Britain's interest should be so short sighted. On the contrary, it is only by having a clear vision of the needs of Hong Kong after 1997 that the remaining years of transition can be successfully completed. That vision can only materialise with the co-operation of the Chinese Government. And let me stress, co-operation need not inhibit frank exchanges or undermine Britain's effective administration of Hong Kong up to 1997 as enjoined by the Sino-British Joint Declaration.

I am sure that Her Majesty's Government can learn much about dealing with China from the outstandingly successful example of the Hong Kong people themselves. The fruits of that experience will be freely available to Mr. Patten when he arrives. The people of Hong Kong look forward to welcoming him and to working with him as we go forward together to make history.

3.44 p.m.

The Marquess of Huntly

My Lords, I must first advise the House, and especially my noble friend Lord Geddes, that I have not been rummaging in his briefcase to read his notes. I make that point because much of what I have to say may sound familiar on account of his having spoken earlier this afternoon. I was fortunate enough to be invited to visit Zhu Hai Special Economic Zone by its Mayor in November of last year. It was a brief visit, but I was shown something of the extent of the developments currently being undertaken in the area. For mile after mile—and I only saw a relatively small corner —factories are being erected, together with blocks of flats, to service a development zone which will supply goods of every description through the new deep-sea port at present under excavation and the new airport proposed to serve the zone.

I should just say here that as one drives through the economic zone there are bulldozers flattening and clearing countryside where very soon there will be factories appearing as if from nowhere. Moreover, in no time at all they will be operational. As my noble friend Lord Geddes said, the speed at which such developments are taking place is astonishing to see. As noble Lords will know, that is part of the Guangdong Province. Zhu Hai itself is only one of three special economic zones, Shenzhen and Shantou being the others.

Internal visa posts monitor the passage of huge volumes of workers in and out of the zones, where working permits bring prosperity to those fortunate enough to be in employment. The prosperity of Guangdong Province has, understandably, brought about an imbalance in prosperity which in itself is seen as distasteful by some Northerners on account of the impact on consumerism that was bound to materialise. The driving force behind that growth has been foreign investment in manufacturing, particularly, as my noble friend Lord Geddes said, from Hong Kong, where it is estimated that in excess of $15 billion has been invested in the area widely referred to as the Pearl River Delta.

When I was in Hong Kong in April of this year the Hang Seng index was booming on the revelation that Mr. Deng Xiaoping, China's 87 year-old paramount leader, had visited Guangdong and pronounced his support for continuing economic reforms. I understand that one should not underestimate the importance of such an occurrence in the perceptions of both Chinese and Hong Kong businessmen. Confidence soared as a result and property prices in Hong Kong have never been more buoyant. Currently, 40 per cent. of inward-investment in property in Hong Kong is coming from Chinese businessmen from the Guangdong Province.

Perhaps we should consider the attitude of central government in China to this phenomenon, as surely there is a contradiction between the ideals of a communist state with the effective practice of capitalism. In the region of 45 per cent. of Guangdong's production is believed to be private sector. Before the reforms initiated by Deng Xiaoping in the 1970s, there were only state-owned industries, which were overmanned and under-productive. So how can those economic practices live harmoniously with the political ideology?

The question is constantly asked whether China will follow the Soviet Union into political turmoil. Members of the Chinese Communist Party have long been critics of the Soviets and foresaw the downfall of their system. While the Russians were placing chief emphasis on political reform, the Chinese, under Deng Xiaoping, were stressing the primary importance of economic reform. China adopted the position of pragmatic but systematic reformer at a time when the Soviet leadership was still trying to find ways of making their administratively-dominated economy more efficient. Finally, after Tiananmen Square in 1989 China turned its back on political reform while, in contrast, the Soviet Union concentrated increasingly on political rather than economic reform.

I believe that we should be aware of the extent that government in China is centralised and the risks of intervention in the affairs of the prosperous regions if we are to evaluate the likelihood of intervention in the affairs of Hong Kong. China has always been less centralised than the USSR. Despite this there have been centuries of disputes between Beijing and the provinces over the appropriate degree of central control. It has been accepted nevertheless that a significant degree of provincial autonomy is desirable. There seems to be a long-term cycle of decentralisation and this has hastened economic development in China. What Mr. Deng Xiaoping said in Shanghai this April was that other provinces should follow the lead of Guangdong and accelerate economic reforms.

The Chinese economy has been performing very impressively in the 1980s and there is a growing satisfaction with standards of living. From a material point of view people live better lives than ever before. In Guangdong Province this prosperity is likely to accelerate through the 1990s bringing about a sharper distinction between those living in the north and those in the south.

At this time there is no sign of the central government tolerating any movement for democratisation as evidenced in Tiananmen Square. Indeed, this incident illustrated that the leadership was prepared to fight to stay in power at almost any cost. The chaos in the former Soviet Union serves to warn the Chinese leadership against radical reforms.

I have concentrated on the issue of stability in China at this time and the aspirations, as I understand them to be, of those who will be taking the decisions that will so decisively affect Hong Kong, and I feel that we should be encouraged by what we can acknowledge as reforms within China itself. We can be heartened by the relative absence of centralised policy-making where it might interfere with economic growth. I cannot come to terms with the tacit endorsement of capitalism under strong communist leadership but I believe that the confidence in a settled future that is gaining in Hong Kong is justified.

I am conscious that there may be many of your Lordships in this House whose experience of trading both in Hong Kong and South China will be far-reaching. My experience is limited to a short period of years. Nevertheless I am fortunate to be associated with businesses based in Hong Kong with manufacturing capacity in Guangdong and with businesses importing into and exporting out of China. These are of a size whereby any serious threat to the current stability between Hong Kong and China would almost certainly be catastrophic; on the other hand, these are typical of the businesses which show promise of being the future backbone of the industrial and commercial composition of the region.

I only mention my own minor involvement with the region as it is through this, understandably, that I formulate my vision of the economic and political circumstances currently prevailing. I have not touched on the two paramount issues which I know your Lordships will debate with authority, as has already been mentioned today; namely, the construction of the airport and the continuing democratisation of Hong Kong.

I have read in a recent article an image of the reform process in China. It is likened to groping for stepping stones while crossing a river. However fast the current may be and however deep the water, at least when crossing a river it is normally clear where the other bank is. For the reformers in China now the problem of maintaining the direction of the reforms is much more complicated. After the turmoil of 1989 and the failure of every other ruling communist party to devise a successful reform strategy from which the Chinese could learn, the problem is as much one of direction as of finding the stepping stones.

The solution will require wisdom, flexibility, boldness and determination. The success of this "crossing" will affect so many millions of people that I am sure that this House could only wish the leaders every success in continuing the initiatives that they have so wisely begun.

3.56 p.m.

Lord Marsh

My Lords, one of the difficulties of a debate on this particular subject is that most of us who participate are, I suspect, devoted and dedicated readers of the Far East Economic Review and the Asian Wall Street Journal. On this occasion I am afraid that the noble Lord, Lord MacLehose of Beoch, made life even more difficult for those who have to follow him. He raised a number of highly controversial issues which many of us were pleased to hear coming from him but which will by no means be universally popular in Hong Kong. But he did so with the clarity and force that we would expect and with an authority that few, if any, of us can match.

However, we owe him a special debt for introducing the debate in these terms and at this particular time. Not only are we about to have a new Governor with a very different background and style from his predecessors but the change is arriving at the perfect time for the exercise of the considerable skills and political contacts which he has. For the next five years it is a matter for skilled politics and negotiation. It is also a great relief. He is a first-rate appointment and a welcome relief from some of the other suggestions, regardless of their undoubted abilities in other fields.

The political climate for doing business in China has also taken a major turn for the better in the willingness—particularly since Deng's visit to Guangdong at the beginning of this year—of the authorities, particularly in the south, to demonstrate open and practical enthusiasm for the introduction of market forces.

I think at this point I should declare an interest in that I am chairman of a quoted company registered and operating out of Hong Kong, particularly since its sole purpose is to invest in the People's Republic of China. We do that by investing in the shares of foreign companies and it is interesting that they are as to 75 per cent. Hong Kong companies. We also invest directly in ventures located in the People's Republic.

We are now moving into a new and fascinating area —the officially recognised stock markets of China. The past 18 months have seen the opening of stock exchanges in Shanghai and Shenzen and at least two more are expected. Let me say at once that I do not suggest that these institutions constitute the ideal vehicle for pension funds or the savings of widows and orphans. Nonetheless, no one interested in China and the events in the Chinese economy which involve Hong Kong can afford to ignore them or to ignore the implications of their establishment because they are yet another example of the speed and the extent of change in the management of the economy.

There are many other areas which demonstrate this most extraordinary series of changes in the approach of the Chinese authorities. There is the move to market pricing, particularly in Guangdong. The extent and the areas of the deregulation of pricing in terms of rice and other products would cause problems in this country and in the PRC would have been regarded at best as a very sick joke.

To take one example, there are the power stations. Not only are the power stations in this stronghold of communism totally unionised, not only have they been allowed to import unsubsidised foreign coal, but electricity prices are 50 per cent. higher than in other parts of the country to help them pay for it. I think that even the Union of Democratic Mineworkers would have a bit of a problem with that. Indeed, I would see a great problem in raising the whole subject in this House, with the embarrassment it might cause some of my former colleagues.

But perhaps even more significant is that all price restrictions on grain have been lifted both in Guangdong and Hainan, a proposition which would not be universally popular in the capitalist West and certainly probably not within the Common Market.

Of course there remain some serious problems. They are the result of an unprecedented attempt to introduce alien economic concepts into a country which has neither experience of them nor any.natural sympathy with them. Some of those problems become increasingly urgent as the process of change develops. There is a total lack of company law. There is the need for the development of effective reporting and accounting techniques. One of the problems which worries many people, certainly in Hong Kong, is the difficulty which the People's Republic of China seems to be having in establishing a legal framework.

To do business in China one is working in an entrepreneurial society, but one with no controls, little regulation, no accounting standards and annual reports and accounts which are almost as fictitious as some of those of the late Mr. Maxwell. It is becoming increasingly difficult for businessmen to live with those problems. Fortunately Hong Kong is already playing a large role in the industrial and commercial life of South China. As one of the world's most sophisticated financial centres—traditionally people have seen London, New York and Tokyo as the three big international centres—it is possible that Hong Kong, even absorbed within China, could take the place of Tokyo as a genuine international financial centre. It also has the obvious ability to make a major contribution to the solution of some of the problems with which the authorities in China are now faced.

While one can understand the fears of people living in Hong Kong, and one can be suspicious of the intentions of some sections of the Chinese leadership, Hong Kong is not just a treasure chest to plunder. If the process of transition goes well, Hong Kong can continue to make a major and unique contribution to the economic progress of the PRC.

It is difficult to exaggerate the importance—not just to Hong Kong and the PRC but to the whole region —of ensuring that the positive benefits of transition from British colonial rule are fully exploited. Of course at the end of the day only the PRC can ensure that that happens; but Hong Kong—I repeat—already has a major presence there. Its importance is apparent, not merely to outsiders but to many younger PRC apparatchiks who have been educated abroad, who understand the system and who are highly sophisticated. In any case, there are some 24,000 Hong Kong companies already operating within the PRC. The Hong Kong dollar circulates freely in much of South China. There are also the close family ties, not to mention its dominant position as an export market.

There is an opportunity for Hong Kong to continue to make a major contribution to the development of China and the region after 1997. The people of Hong Kong have a real and justified anxiety about the future, which is of course uncertain. That is not helped by media comment on both sides of the Atlantic, which is almost perverse in its refusal to face the realities of that complex situation.

It is sometimes forgotten that the Chinese also have their worries. I was interested to hear the comments about the airport by the noble Lord, Lord MacLehose. I am bound to say that, having lived through the Channel Tunnel and sundry other large projects, if one were to have a government who sat back totally unconcerned with a project which they would inherit in five years' time, costing about £100 billion, one would think that they were unusually backward. They have anxieties, and some of them are legitimate. Some of them are illogical, but they stem from what has been a closed society for many years.

Most of the Chinese leadership, especially in Southern China, has already achieved the ultimate political paradox: the injection of capitalist institutions and practice into a political system which is unshakeable in its commitment to what it sees as the basic principles of socialism. It is an interesting paradox. Some of the arguments are fascinating. They are consciously seeking to accelerate the introduction of market forces while at the same time leaving no doubt whatsoever that it does not at this stage intend to change the party's control of the nation.

That causes obvious worries in many people's minds because it is largely unexplored territory which the people of Hong Kong are entering, as indeed it is for the world, because the implications could be considerable; but it could turn out to he the beginning of a surprising success story. It would be the ultimate tragedy if those elements of success were frustrated by the fighting of bygone battles and a refusal to recognise the realities of the situation.

4.8 p.m.

Lord Willoughby de Broke

My Lords, a week ago I was a guest of the Hong Kong Association at its celebration of the 9th Dragon Boat Dinner when I had the pleasure of listening to an excellent speech by the noble Baroness, Lady Dunn, during which she remarked that she appreciated coming to the House of Lords because it made her feel so young. I think that we can take that as a compliment. I should like to return the compliment this afternoon by saying how much her presence here rejuvenates us all and how her speech today was proof—if any proof is needed—of how lucky are the people of Hong Kong to have her on their side.

I happen to believe that they are also lucky to have Martin Lee on their side. He is the founder and leader of the United Democratic Party. At great cost to himself, Martin Lee has determined that Hong Kong shall enjoy in the future those values and privileges which we sometimes seem to take for granted here: representative government, an impartial judiciary, and an effective court of final appeal. He has no British passport in his back pocket, no convenient foreign bolt-hole. His endeavours on Hong Kong's behalf mean that he is on the Chinese Government's black list. He was removed summarily from the Basic Law Drafting Committee, and they have made it plain that his face does not fit, and that whatever their plans are for the future of Hong Kong, he will not be part of them. He is a brave man, and he deserves our support.

I am fully aware—and some of the remarks we have heard this afternoon bear this out—that a number of perfectly respectable people in Hong Kong do not necessarily welcome moves towards more representative government. This is best expressed perhaps in the feeling that the business of Hong Kong is business and that the boat must not be rocked in the interests of stability and the future prosperity of the territory and its people. I argue that the right conditions for financial success are precisely those of open government, open administration and an effective judiciary. All those will he best served by a truly representative government.

Martin Lee and his party's elected representatives should not and cannot he brushed under a convenient carpet by China or anyone else. The 1991 election—whatever its shortcomings, some of which the noble Lord, Lord MacLehose, mentioned earlier—showed beyond doubt that the United Democrats were the only party that then commanded popular support.

If the voters of Hong Kong are to be represented and the elected members of the UDM are to be more than a powerless opposition, one of Mr. Patten's first tasks as governor should surely be to consider bringing some of those members on to the Executive Council rather than leaving them on the margin. That would be sensible not only for Hong Kong, but for its relationship with Southern China and Guangdong in particular.

As noble Lords heard from my noble friend Lord Geddes this afternoon, the success of Hong Kong's exported capitalism into the special economic zones has been tremendous, as has its effect on people's lives there. This what we may call "galloping" capitalism is probably irreversible. China's leaders have recognised that a dirigiste centrally controlled economy does not work. What they have yet to recognise is that communism itself does not work.

In Southern China they use what has been called "the book of capitalism with socialist covers". They are attempting to shore up communism with the props of capitalism. But how long can this last? The noble Lord, Lord Marsh, asked about this. How long will it be before the capitalists of Southern China start making awkward noises about company law and accounting regulations to protect their businesses; about property law and effective policing to protect their houses? How long will it be before they require a say in how their taxes are spent? Will they put regional or national interests first? The new prosperity and the prospect of freedom that it brings will surely change the political face of China.

This may not happen soon, but happen it certainly will. In the meantime, Hong Kong which has so convincingly demonstrated its entrepreneurial ability to China, has an opportunity also to demonstrate that open and representative government is the most effective guarantee of the stability which business needs in order to succeed. If, as is possible, boom turns to bust—which is always on the cards, particularly for an export-led economy such as China's which has not enough land to feed its own people—this bust will inevitably affect Hong Kong. It is crucial that democratic institutions are in place to deal with the consequent strains in the territory.

There is a tag that goes, "Always keep a-hold of Nurse for fear of finding something worse". For Hong Kong, Nurse will be pensioned off in 1997. As for fear, President Roosevelt said that we have nothing to fear but fear itself.

Hong Kong is a great success story. It is brimming with skills of every kind. How lucky it is to have the noble Baroness, Lady Dunn, and Martin Lee, as well as a number of resourceful and energetic businessmen and entrepreneurs. The new governor has been dealt a tricky hand, but he is fortunate in having great talents at his side to help him. I wish him every success.

4.14 p.m.

The Earl of Perth

My Lords, I apologise for not being able to stay through the debate but I have a long-standing engagement in the country and have found no way of avoiding it. When I heard many speakers today such as the noble Lords, Lord MacLehose, Lord Geddes and the noble Baroness, Lady Dunn, I wondered whether it was necessary for me to speak. However, I decided to do so briefly.

First, what are my qualifications? They go back a long way. Sixty years ago I went out to China with Jean Monnet, the Father of Europe. We had been asked by the Chinese Government to try to advise them on economic development. In those days it was the Soongs and the Kungs who were in charge. We were specifically asked to make concrete recommendations for China in the long ago and difficult days when she was threatened on one side by the Japanese and her economy generally was in a mess. I shall not go into detail on what we achieved, but it is significant that we set up a development corporation with private Chinese banks and the Bank of China, so that the corporation could stand and match western capital in the development of the Chinese infrastructure. It might have been much more successful, but for the pressures from Japan, as many noble Lords will know. All the same, railways and other forms of communication, utilities and so on, were established.

I returned in 1937 for a year, again to try to help the Chinese Government with the development corporation. Then in the late 1950s I was Minister of State for Colonial Affairs, and Hong Kong came within my orbit. I am now 85 and, as noble Lords know, that age is of great importance to the Chinese.

What did I learn in those days long ago? Above all, I learnt admiration and respect for the Chinese. They are talented, hardworking and, I would say, cleverer than the West. If proof is needed, let us look at the economic influence of Hong Kong and its people, at Taiwan and the tens of thousands, perhaps hundreds of thousands, of Chinese overseas; and what they have helped to create for the economies of the western world.

I learnt about a people whose civilisation goes back thousands of years. They have had a centralised system of government for almost all that time, despite the great handicaps in those days of distance and lack of communications. They welded themselves into a nation. What an unequalled achievement—a quarter of the world's population becoming one nation! In the West we are children in comparison, yet we are often apt to judge China by our standards, our system of democracy which is epitomised today in the slogan, "One man, one vote". The mind boggles at the idea of one man, one vote for over a billion voters. Are we so sure that we know best? Our system of democracy goes back to Greece and its oligarchy or Rome and its empire. But are we certain that that form of developed democracy is right for China, or even for Hong Kong? I am apt to wonder about that.

The western world judges countries in terms of material and economic progress. Some noble Lords will have heard the noble Lord, Lord Geddes, refer to that matter today. A little while ago on another occasion the noble Earl, Lord Cromer, also referred to that matter in his maiden speech. Those noble Lords said how standards have risen enormously in China over the past 15 to 20 years. Not only has the economy grown steadily in a way which we in the West should all envy, but also, over a relatively short period of time, the people of China have come to be treated as individuals. They are no longer considered expendable. Is that a triumph for communism? Chinese communism has characteristics all of its own. Chinese communism split from Russian communism about 20 years ago and China has gone its own way ever since. That is typical of China. China has its own system —call it what you will—which generally benefits the Chinese people.

Some may say, "What about Tiananmen Square"? That is an horrific story. Sometimes I am haunted by the thought that a good deal of the blame for that incident lay with the western media who encouraged and indeed incited the students to do something which in the event turned out to be tragic and unwise; namely, to challenge the Chinese Government.

Finally, I turn to Hong Kong. In five years Hong Kong will again become a part of China. I say "again become" because 99 years ago we forced a lease of most of the territories which now make up Hong Kong. The two governments have already negotiated a Joint Declaration. In my judgment that is a great start and augurs well for the future. The main task for Mr. Patten—his record gives one every encouragement in the future—is to ensure that the people of China, its officials and government get to know him and respect him. It will not be easy to interpret the Joint Declaration because one is trying to bring back a parent and the child who politically have developed so differently.

However, we must not think in terms of winner and loser but rather of the common ground and purpose which is to achieve something for the benefit not only of the people of Hong Kong but of all China. South China is mentioned in today's Motion. If I may be presumptuous enough to give advice it would generally be for Mr. Patten to make haste slowly and to get to know those members of the Chinese Government and their officials on the basis of friendship, mutual respect and trust. It is no good starting off by trying to hammer away at certain things which the Chinese will not want to have hammered away. If the Chinese like someone and realise that person is trying to help not only the people of Hone Kong but also of China they will listen to him.

Many noble Lords may recall a great friend of mine who, alas, is dead, Sir John Keswick. I mention his name because he was the epitome of one who loved —that is not too strong a word—China and who was immensely respected by the Chinese. They laughed together and he could say things that were difficult for others to say. The Chinese Government and its officials listened to him. They knew that what he was suggesting was to their benefit in the long run. He was their friend and they knew it. I hope Mr. Patten may take that as an example of what is possible on the personal basis of working with the Chinese.

I have deliberately not touched on specific issues that are arising now—for example, the new airport. Newspapers report that the Chinese are interfering in that project. I would only say that I, too, would interfere in a matter of such vast importance for the whole of southern China. There is the matter of the degree of representation that the people of Hong Kong will have. In the end that matter will be solved if both parties recognise that they have a common purpose and that they want to get a right answer. They need a consensus. I believe that the noble Lord, Lord MacLehose, referred to that. The future of Hong Kong and South China poses a great challenge but I believe that the omens are good. Indeed, if I were younger I might ask Mr. Patten if he would allow me to join him in Hong Kong as a personal assistant just as I did with Mr. Monnet 60 years ago. The Chinese are a great people and so are we. Our record together offers great hope for Hong Kong's future.

Lord Bonham-Carter

My Lords, before the noble Earl sits down, I should like to ask him whether I am right in thinking that I heard him say that he thought the West was to some extent to blame for the incident at Tiananmen Square in that they encouraged the students to challenge their government. Does the noble Earl also agree that the West were to blame for encouraging President Havel to challenge the Czech Government, or for encouraging Mr. Sakharov to challenge the Russian Government in his day? Does the noble Earl think that it is wrong for people to challenge their governments?

The Earl of Perth

My Lords, I believe that I have been misunderstood. The point that I was trying to make is that to encourage people to demonstrate and to agitate against a government when that task is really hopeless is not necessarily the wisest way to make progress.

4.19 p.m.

Lord Marlesford

My Lords, I start by echoing the gratitude which has been expressed by other noble Lords today to the noble Lord, Lord MacLehose, for having initiated this debate. I add my personal thanks to the noble Lord for having included me, together with my noble friend Lord Geddes in a remarkable visit to Hong Kong just before the election. Remarkable because although I have been lucky enough to visit Hong Kong often, I do not think that I have ever followed a programme which enabled me in so short a time to see so many people and to hear so many different views—views which were often conflicting but always stimulating and interesting.

Hong Kong is a difficult place to imagine before one visits it. I am sure that most noble Lords who are here today know Hong Kong quite well. During the next five years it is important that as many parliamentarians as possible obtain first-hand experience of Hong Kong. Given that the Hong Kong Government organise such effective visits, I express the hope that they will, if anything, increase the number of MPs who visit the colony. I hope that they will focus particularly on the large number of new MPs so that those MPs will be able to speak from direct experience of Hong Kong. I should like to add my thanks and tribute to the noble Lord, Lord Wilson, for all that he has done for Britain as well as for Hong Kong during his period as Governor. The governorship of Hong Kong is one of the great offices under the Crown and the noble Lord has filled it with great distinction. We look forward greatly to him joining us here.

The governorship of Hong Kong is a post which is well worthy of Mr. Patten and I believe that Mr. Patten is well worthy of the post. Chris Patten and I cut our political teeth together nearly a quarter of a century ago in the Conservative Research Department. He is a politician of subtlety, humanity and perhaps above all—and this may not be obvious —of great personal toughness. I doubt very much whether his five years in Hong Kong will be the end of his political career. I have observed that Hong Kong adds to the stature of anyone who spends any length of time there, whether in a government or business role. At the moment I cannot think of anyone who would be better suited to being Foreign Secretary of this country in five years' time.

When one visits Hong Kong and notes the tremendous boom which is taking place one naturally wonders whether it is a bubble which is about to burst. The Hang Seng index is presently at a level of about 5800, within 5 per cent. of its all-time high and nearly 50 per cent. higher than it was before Black Monday of October 1987. The Tokyo market is at a level of 16,400—well below half its all-time high. One asks how real is that astonishing prosperity of Hong Kong. I spent some time trying to find out whether something awful was about to happen and whether a crash was coming. I did not feel that that was the case. I felt that the boom was rooted in real prosperity.

I believe that there are several reasons. Hong Kong has a remarkably high standard of infrastructure in every respect: the standard of communications and of financial services; the MTR (which provides a sad reminder of what every journey on London Underground could be) and the prospect of a new airport. The downtown area of the Central district compares favourably with the finest downtown areas of the great American cities. I only wish that in this country we had architecture as good as that in Hong Kong.

Hong Kong's economy is well and truly based on rock. It is a remarkable economy in the sense that only 630,000 people, some 22 per cent. of the total of 2.8 million employed, are employed in manufacturing. Some 650,000 people are employed in trading and retailing, nearly 300,000 in finance and nearly 250,000 in restaurants and hotels. Unemployment is very low by Beveridge standards, being significantly under 2.5 per cent.

The crucial reason why Hong Kong is doing so well economically is that it has discovered something of an El Dorado; namely, a labour force in China which is almost unlimited in size and exceedingly low in cost. Wages in China are between one-sixth and one-eighth of those in Hong Kong. As I shall mention shortly, that has certain dangers. However, it has helped Hong Kong in a number of ways. First, it acts as a form of multiplier for the economy of Hong Kong. Secondly, it has disguised the rather high rate of inflation in Hong Kong. Hong Kong still has double digit inflation. Real wages in most sectors, other than the financial sector which are falling, according to the latest quarterly economic report are rising. However, there is a danger in that local inflation; but for the present it has effectively been disguised by the employment by Hong Kong manufacturers of some 3 million people inside China.

In many ways 1997 has already arrived. To a large extent Hong Kong is already the financial centre of southern China. Some 30 per cent. of all the banknotes issued by the Hong Kong and Shanghai Bank are currently circulating in southern China. We have heard from a number of noble Lords of the large number of economically productive enterprises in China which are owned by Hong Kong companies.

There is a danger in relation to workers in China employed by Hong Kong companies. Wages are very low. It is difficult to obtain figures, and I stand correction from the noble Baroness, Lady Dunn—who we are delighted to see here today and we wish she were here more often—if I am wrong, but it is my understanding that the cost of labour in China to an employer in Hong Kong is approximately 700 Hong Kong dollars a month—which is about £50—of which the worker receives only about half. That is a very low rate of pay. However, given that those people probably would not otherwise be earning anything at all it is not an unreasonable rate of pay.

It is difficult to see what can be done about that, and I did not have the advantage of travelling inside southern China with my noble friend Lord Geddes when he accompanied the noble Lord, Lord MacLehose. However, I was there not so long ago. I am worried about the conditions under which people are employed in China by Hong Kong employers. It is important that there is not, to use the old Marxist term, exploitation of those workers. I do not say that it is a matter of paying them more, but I believe that it is important that they should have decent working conditions. The hours for which they receive that remarkably low wage are long, usually eight hours a day, six days a week—a 48-hour week. That is not, of itself, exploitation but I wish to stress that point of working conditions.

I should like to say something about the current politics in Hong Kong. I am, of course, familiar with the arguments concerning LegCo and democratisation. When, for several years, I wrote articles on the subject for the Economist I was one of those who believed that it was necessary to have an elected legislature to take over from Westminster as the guardian of good behaviour by the Hong Kong Government after 1997. As we all know, Hong Kong has had good and enlightened government, but behind the Hong Kong Government has been Whitehall. Now Peking will take over froth Whitehall. Behind Whitehall there has always been Westminster to ensure that there was no misbehaviour by the Hong Kong Government. Britain's record during ' the 150 years it has run and ruled Hong Kong is one of which we can be extremely proud.

I was very much in favour of a greater degree of elected membership of the legislature for that reason. That has not come about. Reluctantly I recognise that it is now unlikely to do so. Therefore, I agree with other noble Lords that it is probably futile to appeal to China to allow more than the small number of 20 seats out of the total of 60 to b directly elected by 1995. I agree with the noble Lord, Lord MacLehose, that it is desirable for that issue t be resolved as soon as possible. There is a commitment. The British Government should consult wit and appeal to the Government of China. However, even if that is unlikely to have any effect we must get that issue out of the way.

Perhaps I may say this to my friends among the United Democrats led by Mr. Martin Lee, whose courage and integrity I salute. I seriously wonder whether it is in the interests of Hong Kong for those who have been elected to the legislature of Hong Kong —a legislature that will have a crucial role in preventing interference with Hong Kong's internal politics by China after 1997—to advocate political change inside China. The noble Earl, Lord Perth, spoke interestingly on the assumptions that we make about democracy. Certainly democracy cannot exist without capitalism. Whether capitalism can exist without democracy is more open to question.

However, I believe that we should judge China less by the system of democracy that may be introduced and more by standards of human behaviour. One of the factors that I find encouraging about Tiananmen is the extraordinary extent to which the Chinese Government appear to regret, one might even say to be ashamed of, what occurred. I do not believe that what occurred in Tiananmen was malevolent by intention. It was unfortunate; it was tragic. People lost their lives in circumstances in which they should not have done. But it is remarkable how China has tried to turn back from that behaviour. I hope that we will now judge China by its behaviour rather than its political system.

Under the 1984 Joint Declaration we have an undertaking for 50 years of capitalism for Hong Kong. If the world continues to change at the rate it has changed in recent years, I believe that well within that period China will have a capitalist system.

4.41 p.m.

Lord Roll of Ipsden

My Lords, perhaps I may add my thanks with those of so many noble Lords to my noble friend Lord MacLehose for initiating the debate with, as we could well expect, a speech so full of wisdom.

There is no shortage of problems at home and on our doorstep which regularly engage your Lordships' concern and lead to debate. With daily pressing preoccupations it is not surprising that we tend to be rather less mindful of what is happening a long way away. That is all the more reason to be grateful to my noble friend for having reminded us, with the authority that he possesses, of developments in China and Hong Kong. What happens there may in the long term have an even more fateful influence on our destinies than events nearer home, for in that largest country nearly 1.25 billion people are vigorously refashioning their economy and social system.

By coincidence it is particularly appropriate that we should turn our attention in London this week to matters Chinese. At present, London is the host to State Councillor Mr. Li Guixian, Governor of the People's Bank of China. With a number of his most senior officials he is in London to set up the first branch of the People's Bank outside China. That may be a useful pointer to our friends on the Continent as and when—perhaps I should say nowadays and if—the question of the location of the future European central bank comes on the agenda. The Bank of China, which celebrates this year its 80th anniversary as the premier foreign exchange bank in China, has been in London for 53 years. This week its president, Mr. Wang Deyan, is opening its handsome new offices in the City. It is another occasion to remember our close connections with the People's Republic.

The debate refers in particular to Hong Kong and South China. Given recent developments in the southern parts of China and the now not far off completion of the change in the status of Hong Kong, that is appropriate. However, I wish to say a few words in general about developments in China. I am not what used to be called "an old China hand". I have visited Hong Kong frequently for the past 40 years but my first visit to the People's Republic was in 1977 when I had the honour of leading a group of 20 chairmen and chief executives of leading British companies to China. I did so again the following year. I believe that many noble Lords will agree—as demonstrated by some of the speeches that we have heard already today—that the developments in China in the past 15 years have been absolutely staggering. They continue now at an even faster pace. China today boasts an economic growth rate of which many so-called developed countries in the industrialised West might well be proud. Inflation has not been totally removed by any means, but it has been brought considerably under control. The external financial situation of China is extremely strong with reserves in the Central Bank of probably about 50 billion dollars and which rise steadily week by week.

The recent developments in the financial sphere to which I have given some attention recently are particularly striking. I wish to mention the accelerating issue of shares in enterprises, to which reference has been made today, and the growth of securities trading in particular in the special economic zone of Shenzhen and in Shanghai. The savings rate in China is by any standards extremely high. It is probably about 28 per cent. of GNP. There is a sharply-growing demand for shares to absorb the people's savings. Indicative of that development, and perhaps symbolic in a wider sense, was the queue stretching around a whole city block which I saw in Shanghai a few weeks ago. The queue was not for food or other necessities of life, as might once have been the case, but to a stockbroking office.

The People's Bank of China has taken a special interest in that development. I understand that the number of shares, including the so-called -B" shares which have all the necessary safeguards regarding payment of dividends in foreign currency and repatriation of capital in foreign currency, and which can be dealt in only by non-residents, will grow rapidly in the months to come.

Those financial developments are particularly important. They not only reflect the progress of the real underlying economy, but are themselves a condition for the further advance of the economy. They provide the basis for domestic capital formation and encourage investment from abroad.

South China, in particular Shanghai, Guangdong and the special economic zone, have been the main location of those astonishing economic and financial advances. My noble friend in his introductory speech emphasised them. Such advances have a special bearing on Hong Kong, as has been pointed out by a number of speakers already. Much of that economic interpenetration by inward and outward investment between the People's Republic and in particular between the southern part and Hong Kong, which I and many others have always regarded as a beneficent prelude to 1997, has occurred between Hong Kong and those neighbouring areas and will no doubt increase. More generally the progressive liberalisation of the economy of the People's Republic has always seemed to me to be one of the best—perhaps the best —single augury for a smooth transition of Hong Kong in 1997.

There are grounds for believing that the present trends in South China will gradually spread throughout the country and, moreover, that they are irreversible. That at any rate is what the Chinese leaders believe. It does not mean that there will not be ups and downs even if the general trend continues to be upwards. Transformations of such enormous magnitude in a country of China's size and history produce their own social and economic problems and are above all subject to delays in the psychological adjustments that are required. For example, I am sure that the health warning which now attaches to so many advertisements of fund managers that, "shares may go down as well as up" is a warning that the people of China will learn to heed. Those people, many in very important positions, with whom I had the privilege of talking during my visit to Beijing in December and to Shanghai a few weeks ago, are conscious of that aspect. They put their faith in being able to maintain the improvement in living standards which should accompany, and have already done so to a large extent, the structural changes in the economy.

They are also well aware of another fundamentally more important problem which now troubles the countries of the former Soviet Union, and that is how to achieve the delicate balance between the phasing of economic liberalisation and changes in the political and administrative spheres. The faster that the increased emphasis on the market mechanism produces those real improvements in the lives of the masses of the people, which it is supposed to achieve, as against the stresses of a harsher economic climate, the easier it will be to achieve that delicate balance. All that argues against the fashionable doctrine of "shock therapy". That term and concept is often much too light heartedly used by so-called experts from the West who are trying to help the difficult transformation of one-time command economies.

The leaders of China, though proud of what they are achieving, are very conscious of what they lack and what they have to learn. We in the West can in our narrow and wider self interest help with trade, investment and technical advice. Given the catalytic role which Hong Kong is playing, our country, if it follows the wise advice given by my noble friend, can help in particular to benefit China as well as ourselves.

It was Napoleon who first spoke of "when China awakes". I am convinced that China is awake. We can help to ensure that she uses her new-found strength not only to her own best advantage but to the benefit of the world as a whole.

4.52 p.m.

Lord Tanlaw

My Lords, sometimes my friends from Hong Kong, or my lady wife, whose ancestors originate from Fujian Province in mainland China, tell me that if we have the interests of Hong Kong at heart, or have a declared commercial interest in the future of Hong Kong, we must keep our remarks in debates such as this to a minimum. I shall do my best, but having heard the speeches I believe that that is a wrong approach to today's debate.

I cast my mind back 100 years when the agent of the dowager Empress set fire to the warehouses of the companies in which I have a declared interest. That caused many people involved in commerce to leave mainland China and go to the barren rock of Hong Kong. With the seeds of free enterprise they transformed it into the thriving international trading community about which we have spoken today. I wonder whether that analogy can be continued.

I believe that the people of Hong Kong are to be considered as seeds in a seed pod ready to burst forth after 1997 onto mainland China in order to carry the seeds of free enterprise into the cities there. The Hong Kong people who will make the return journey of their ancestors will be able to bring their much-needed and much-admired work ethic and abilities in business management to revitalise the mainland economies. If in spite of the protection of the Basic Law there is a temptation to impose on post-1997 Hong Kong an outdated and elitist bureaucracy I am afraid that the spectres of old Shanghai and old Canton will remind the administration of what can happen to Hong Kong in the forthcoming decades. I do not believe that that will happen and I am optimistic about the business future.

However, there are complications. The noble Baroness, Lady Dunn, with her deep knowledge of the subject, raised the problem of where politics and business stop and start. Perhaps I may be allowed to make a generalisation, although there are noticeable exceptions. Active politicians make rather poor businessmen and by the same token rich businessmen make rather poor politicians. Although there are exceptions to that rule, it is important that in Hong Kong people follow two different careers—a form of caste system. Those who wish to indulge in politics, with the courage and great activity of someone such as Martin Lee, should do so as politicians and be kept separate from the business community. Those whose business it is to continue their trade and to do their best to adapt to the future of Hong Kong, whatever it may bring to the business world, should keep out of politics.

In that way I disagree with the noble Lord, Lord Geddes. I believe that the business community should try to steer clear of politics and should just get on with the business. There is a great deal to get on with, as was said by the noble Lord, Lord MacLehose, and others. That includes the expansion into mainland China and into South China.

I speak today as an individual and say that I foresee various problems. There are real dangers in the low wage structure of South China. Serious unemployment problems could be created in Hong Kong as the main businesses are moved onto the mainland because of the golden apple of low wages, low cost and high profits which may follow. We should bear in mind that Taiwan and Singapore have opted for high technology as their future. In Hong Kong the emphasis has been on the entrepreneurial middle man and local manufacturers for re-export. Businessmen must look carefully at the future of Hong Kong. Should it concentrate more on high technology in order to obtain investment from high technology industries in Japan, Europe and America or should it consider some other programme? I see that as being the major problem rather than politics. I hope that politics will not become a major part of Hong Kong life. That was never previously the case and that has been the success of Hong Kong.

In addition, I hope that people in companies and in government will begin to pass on to local Hong Kong residents the responsibility for their duties post-1997. I doubt whether the Government in Beijing will read Hansard after 1997. Our views, whatever they may be and whatever may be said in your Lordships' House, will not be read in China nor in Hong Kong. Therefore, it is up to the people of Hong Kong to carry on as best they can within the sphere of the Republic of China.

Responsibility both for business and government should be given as soon as possible to executives of one kind or another and they should begin to fulfil their duties as soon as possible. Certainly there will be a partnership of western businessmen and western technicians. However, we must remember that under the new administration there may be serious language and cultural problems of understanding how the new regime thinks and operates. Only Hong Kong residents who originated from China will be able to help and assist. They will have a real role to play in manoeuvring the money for investment towards the success of Hong Kong and towards the success of China itself. I hope that non-resident people will not try to hold on to their responsibilities right up until the last moment.

I wish the new governor every success in what is a delicate and difficult task. I have no doubt he will fulfil it with extreme skill and wisdom as he has done in the past in his other duties.

5 p.m.

Lord Bonham-Carter

My Lords, I join with your Lordships in thanking the noble Lord, Lord MacLehose, for giving us an opportunity to debate Hong Kong at this particularly appropriate moment. I thank him for setting out so clearly what I might describe, in a purely neutral fashion, as the establishment's attitude to where we stand in that relationship.

I also join with other noble Lords in saying how, as always, I listened with interest to the speech of the noble Baroness, Lady Dunn. She speaks with unrivalled authority on Hong Kong and her words must always be taken seriously when she speaks about Hong Kong and its future.

I believe that I am right in saying that with the exception of the noble Lord, Lord Marlesford. I am the first of your Lordships to speak who is not a businessman with a direct interest in Hong Kong. In my view that interest has led the debate to be curiously unbalanced. We are talking about not only the economic future of Hong Kong but also its political future. It was not until the noble Lords, Lord Roll of Ipsden and Lord Tanlaw, spoke that the political implications of what is going on was stated to be one of the considerations of equal importance to the celebration of the glories of capitalism and the success of Hong Kong; unrivalled, we know, as a centre of free enterprise.

I noted also that there is a desire, which I wholly understand but do not altogether applaud, to try to forget the more unpleasant aspects of the past. I was grateful to the noble Earl, Lord Perth, for allowing me to intervene in his speech on that point. However, I noted also that the noble Lord, Lord Marlesford, said that he thought that the action in Tiananmen Square was not malevolent. That seems to me to be an extraordinary description of that incident. It was not done in a fit of absence of mind or for any other reason. I should have thought that "malevolent" is the mildest adjective which could be used to describe that major tragedy. Nor do I believe that, if you propose to judge China by its behaviour, it is possible to forget altogether its behaviour in Tibet today. Is that something which is also not malevolent and which the people of Hong Kong need not take into account when they consider their future after sovereignty passes from this country to China? If you lived in Hong Kong and your future was to be under the Chinese Government, those would be matters of legitimate, real and obvious anxiety. When discussing this matter in this House we should certainly address those issues.

Indeed, one reason that the whole matter of Hong Kong makes me, and I think others, uneasy is that we in this country are deciding the future of the inhabitants of Hong Kong and they will have to live with the consequences. That is an uneasy and uncomfortable position in which to be. Had the constitutional arrangements which exist in Hong Kong been different, the view of the inhabitants as to their future would have been of paramount importance. That would have decided the nature of our negotiations, the posture we adopted and what we hoped to achieve; but, as it is, the responsibility for their fate and for their future, for better or for worse, for richer or for poorer, lies with us. I find that an uncomfortable and uneasy position in which to be.

Unless substantial arguments are produced—and I must confess that I have not yet heard them—the case for the fullest possible consultation with the people of Hong Kong and the case for finding out their wishes by the most democratic means possible, and following those wishes once they have been found out, is very difficult to contest or refute because they, and not we, will be living with those consequences.

That having been said, as has been indicated on a number of occasions in the course of our discussion today, there are, roughly speaking, two courses open to us. The first can be described as "fast forward", which is roughly speaking the course courageously advocated by Martin Lee. The other course, which has been advocated by almost every speaker this afternoon, is to proceed cautiously—and that is the view of the business community—to avoid any unnecessary confrontation with the Chinese Government. That view has been expressed overwhelmingly in the debate today.

I suppose it could be generally agreed, although the order in which things should be done may differ, that we all hope that at the end of the day, when sovereignty is transferred from this country to China, we shall have done all in our power to preserve the prosperity of Hong Kong and to secure the civil rights of its people. It seems to me that the latter has received far less than its due attention in this debate. Such is the difficult and delicate task which falls upon the new governor when he is installed.

As has been said on a number of occasions this afternoon, Hong Kong is a most brilliantly successful model of the market economy and its neighbour on the mainland, Guangdong, is marching in its footsteps and being swept along in its slipstream. Mr. Deng visited that province and said that it was on the right lines. Last year industrial growth increased by 27 per cent. That is an extraordinary achievement which we must all celebrate.

However, what has been happening in the former Soviet empire is not altogether irrelevant to this situation. We have discovered that ex-communist countries lack the institutional, economic and regulatory infrastructure which a market economy requires. Secondly, we have discovered that political reform is far more difficult than we had supposed or foresaw. That is a matter to which I shall return.

While we have given a great deal of advice to central and eastern European countries about privatisation, accounting, property laws and how to set up a banking system, we have given them far less advice on political reform, political structures and how to create civil institutions such as existed in Franco's Spain but did not exist and do not exist in those communist countries and, according to reports, do not exist in communist China.

If you transfer that experience with all the necessary qualifications which are large and considerable, we find that economic reform is taking place in China under an authoritarian government. In my view, that is the way in which economic market reform is generally successfully introduced. As I have said before in this House, it is very difficult to find a case where a democratic government have introduced market reforms successfully because their immediate impacts are unpleasant, as we have seen in central and eastern Europe.

Secondly, we find that some of the deficiencies in the legal and institutional structures which exist in central and eastern Europe exist also in China. In all those respects, Hong Kong provides a model not only of a market economy but also of the legal and regulatory institutions which are required. According to true Hayekian theory, the establishment of market economies in China should lead inevitably to the establishment of democracy. Pray God that is true. Just as Hong Kong provided a model for economic development, so I hope—if the Hayekian theory is true—that it will provide a model for political development.

All I am arguing is that the case for further democracy in Hong Kong rests on the following grounds. First, on the Prime Minister's statement at the Commonwealth Conference in 1991 when he said, The bedrock of what we must do must he the general application of democracy and human rights. That means the rights of our citizens to choose freely who governs them". I believe that that applies. Secondly, that statement was overwhelmingly endorsed in the Hong Kong election by the people who will suffer the consequences of any change in their status. As I said at the beginning, we should respect the views of those who must live with the consequences. Thirdly, if we hope the present regime manned by aged people and inspired by the past is the way to a more democratic society, then Hong Kong may and should be able to provide a political model just as it has provided an economic one.

The debate has been curiously optimistic in its prognostication of the future. The task of the new government will be far more difficult than has been adumbrated today. For example, there is evidence that the authority of the Hong Kong Government is already diminishing as people make plans for what they think will be the future. That must be recognised. I received a communication from a correspondent in Hong Kong regarding the law and order situation there, which has severely deteriorated in the past year. As a consequence, criminals armed with weapons imported from mainland China have been engaged in shoot-outs which have caused great anxiety. As a result of that, the Hong Kong Commissioner of Police visited China and has been in touch with the Public Security Bureau of China.

That is a perfectly sensible thing to do in any ordinary situation. But I understand that the Public Security Bureau of China has an official presence in Hong Kong. I have not given the noble Baroness notice of my question but I should like to know how large that presence is; how many people there are in the Public Security Bureau, and how long they will be there. It is readily understandable in the situation in which Hong Kong finds itself, and given the reputation of the Chinese Government, that the idea that Chinese Government police have a standing in Hong Kong could cause a great deal of anxiety.

I conclude by saying that it is all very well to talk about laying the ghosts of the past, to talk about mutual trust, to say that the Chinese go their own way and that we must understand it. I believe that they should understand that mutual trust is a mutual bargain; that so long as they behave as they behave in Tibet and so long as there is no apology for Tiananmen Square, so will people who are to come under their rule be apprehensive. While we have a responsibility for those people we should exercise it with the greatest care and with some caution.

5.14 p.m.

Lord Judd

My Lords, like others who have spoken today I should like to start by putting firmly on record our appreciation and respect for the outgoing Governor, Lord Wilson. His has been a distinguished record of public service.

The Motion of the noble Lord, Lord MacLehose, provides us with an important opportunity to discuss both current events and future developments in Hong Kong and, indeed, China. We are privileged to have the benefit of his experience and insight.

The main issues arising from the impressive speeches in this debate with their wealth of direct experience—not least that of the noble Baroness, Lady Dunn—seem to me to centre on Britain's handover of power in Hong Kong to China in 1997, with its attendant problems—not least citizenship, the resolution of the refugee crisis in Hong Kong about which we have heard little this afternoon and the future of relations between the United Kingdom and China.

With regard to citizenship I suggest that history will judge the present diplomatic practitioners severely. Scrutiny will centre on precisely what consular protection without the right of residency in the United Kingdom and without inheritance of that status by children really turns out to be. It will centre also on the fate of those non-Chinese residents in Hong Kong without a passport of any kind after 1997.

Since what I believe can only be described as the stark horror of Tiananmen Square in June 1989, the Chinese Government, regarding Hong Kong as a potential centre of subversion, adopted an increasingly hard line approach to the colony. Consequently, the Chinese have sought to exercise greater control in the running of Hong Kong both before and after the transfer of power. As was suggested by several speakers this afternoon, that was reflected in the Chinese opposition which delayed the new airport project which was only finally agreed in September 1991. The acceptance of the need for that agreement is itself obviously a concession to China and a symbolic extension of China's effective influence over the colony prior to 1997. I quite accept that some noble Lords have argued that that is legitimate, but it is a reality. With that in mind can the noble Baroness reassure the House this evening as regards the rumour that construction is even now being hampered by Chinese delaying tactics. Is it true? If so, what lies behind it? What is its long-term significance? Cannot the construction be accelerated? Are there plans for further discussions with the Chinese Government? If so, how soon?

Despite all the anxiety in regard to the long-term future, there were some good indications that business confidence may at least have partially recovered in the period following the original signing of the airport agreement. Economic ties between Hong Kong and China, as we have been reminded, are certainly at an advanced level. China and Hong Kong are each other's largest trading partners and China accounts for more than 80 per cent. of the colony's re-export trade.

Equally, at least 2 million employees in the southern province of Guangdong alone carry out Hong Kong related work while an estimated 50,000 Hong Kong technical and managerial staff regularly work in China. It is to be hoped that that close economic relationship can translate relatively smoothly into closer political and administrative links.

Reference was made this afternoon to the appointment of the new Governor. Certainly the appointment of Christopher Patten has kept the spotlight on the colony. It is indeed expected to be a highly demanding post. He will have to negotiate both with the Chinese and with the increasingly independent pro-democracy movement in Hong Kong and somehow attempt to reconcile their different demands. It will call for the application of the highest qualities of fairness, objectivity, balance and diplomacy coupled with firmness, of which I believe, like others, Christopher Patten is capable.

In warmly wishing the new Governor well it is perhaps legitimate simply to suggest that he will rapidly need to put his recent combative partisan style of the election period firmly behind him. It is good that Christopher Patten has the direct ear of the Prime Minister. He will rapidly have to demonstrate that his appointment is not just a political consolation prize.

Pressure has been building up in Hong Kong for much greater democracy to be introduced—a development which we on this side of the House support. We recognise that the United Kingdom Government is indeed in a difficult position. While accepting the justice of greater democracy they must endeavour to handle this in a way that does not unnecessarily provoke the Chinese Government. However, Douglas Hurd told the other place recently, during Foreign Office Questions, that that is one of the problems that the Government are actively considering. It will be helpful for us all if the noble Baroness could outline the steps that the Government are taking, or are considering taking, to ensure that democratisation continues after the transfer of power.

The Foreign Secretary also said that on his arrival the Governor will want to consult widely about running the colony, its future and relations with the Chinese. He told the other place that conclusions would not, emerge until the autumn at the earliest".—[Official Report, Commons, 3/6/92; col. 812.] He stressed that the United Kingdom Government would have to discuss the 1995 Legislative Council elections with the Chinese Government. Can the noble Baroness today clarify when a meeting for that purpose is expected to take place and who is likely to be present? For example, will directly elected representatives be included? The new Governor no doubt will be organising early meetings with the administration and elected officials. We hope that he will also take an early opportunity to meet other representatives from the community groups and from the trades unions.

On 12th May of this year Great Britain and Vietnam signed an agreement under which those Vietnamese boat people in Hong Kong who have not been given refugee status will be repatriated by force if necessary. Forty thousand people could be affected. In response to a recent oral Question the noble Baroness, Lady Trumpington, said that it would take about three years to resolve the crisis. That still raises grave anxiety when the status and treatment of the boat people is compared with that of similar people in parts of Europe, Central America and Africa.

There is an unease about how far any valid objective dividing line really exists between an economic refugee and a political refugee. That is partly why we still favour voluntary repatriation and are unable readily to endorse repatriation by force except in the case of double-backers —that is to say, those who have already been deported from Hong Kong but who return in order to collect the bounty for those going back to Vietnam voluntarily.

The human rights of the boat people must be protected. Therefore, it is essential to be convinced that the screening processes are invariably thorough and just. Can the noble Baroness tell us when these processes were last vigorously reviewed by the United Kingdom Government together with the United Nations High Commission for Refugees? The May 1992 agreement envisages increased United Kingdom aid to Vietnam. Can the noble Baroness tell us more about that? Given that it is poverty in Vietnam which has accentuated the boat people crisis, any increase in aid is welcome. Unfortunately, its effectiveness will inevitably be undermined by the United States Government's continuing economic embargo against Vietnam. That still extends to vetoing IMF and World Bank funds scheduled for Vietnam. Relations between the United States and Vietnam have certainly thawed slightly, but can the noble Baroness assure us that the Government will urge the US Government to end their embargo? In our view it is essential to appreciate that it is the parlous economic situation in Vietnam and the part of the international community in prolonging it, which contributes to the boat people tragedy.

Last September the Prime Minister visited China and Hong Kong. At the end of his visit he and the Chinese Prime Minister reaffirmed their commitment to dialogue and co-operation. They expressed confidence that Hong Kong's position as an international finance centre could be preserved after 1997. They welcomed the provision in the Memorandum of Understanding about the airport for meetings of their Foreign Secretaries to take place every six months.

We are all realists. All that is extremely important. But can the noble Baroness give categoric assurances that the United Kingdom Government will continue to raise firmly with the Chinese Government the imperative of respecting human rights and, as the noble Lord, Lord Bonham-Carter has just suggested, the priority to end repression in Tibet? This debate has illustrated that on all sides of this House there is a deep commitment to the economic and social success of China and Hong Kong. Therefore, we all wholeheartedly throw ourselves behind the task of ensuring a smooth and creative transition in 1997 which will prove to be in the long-term interests of both China and Hong Kong.

But our commitment is surely not to some abstract notion of a state, a stock market or an economy as ends in themselves. Our commitment is to people; millions upon millions of individual children, women and men. That commitment can only be fulfilled if the principles of justice and human rights as much as any economic concerns remain firmly on the agenda.

5.27 p.m.

Baroness Chalker of Wallasey

My Lords, I am sure that we have all listened with the greatest interest to the wise words of the noble Lord, Lord MacLehose of Beoch. As a distinguished former Governor of Hong Kong he understands the territory and its people well. I know that he has their interests at heart. I well remember his first briefing to me on the subject of Hong Kong when he was Governor and I made my very first visit to Hong Kong and China about 12 years ago.

I should like to take this opportunity of saying how much we have valued his contribution to the work of the Great Britain China Centre over which he has presided for the past six years. I also pay a special tribute to the noble Baroness, Lady Dunn, for her eloquent speech based so informatively on her experience and authority as a senior member of the Executive Council. I am so glad that the noble Baroness's wisdom is going to be made available to the new Governor. I well remember too her valuable advice some 12 years ago when we first met in Hong Kong. Perhaps I may also associate myself and the Government as a whole with the tributes which the noble Lord, Lord MacLehose, and other noble Lords have paid to the present Governor, Lord Wilson, whom we look forward to welcoming in this House next month. He has done an excellent job. He has guided Hong Kong through some testing times. We are most grateful to him and also to Lady Wilson for all that she has done in his support.

I know that this House wants to join with me in wishing Mr. Patten well in his exceedingly demanding job as Governor from 3rd July. As a friend and close colleague, I know that he will bring to that task formidable talents and determination. He will dedicate himself to serving the interests of Hong Kong and all its people. Indeed I know that he also has great interest in China. It was he who signed the first Memorandum of Understanding between this country and China when he held my present post as Minister for Overseas Development.

The result of the general election ensures continuity in the British Government's policy towards Hong Kong. We are determined to fulfil our obligation to administer Hong Kong justly and efficiently until 1997, and to do everything possible to lay secure foundations for preserving Hong Kong's way of life and economic success beyond that date, as provided for in the Joint Declaration. The Government and the new Governor will want to continue to work in co-operation with China in the best interests of Hong Kong.

Democracy has naturally been a frequent theme in this debate and has been mentioned by many of your Lordships. The direct elections to the Hong Kong Legislative Council last September were a substantial step along the democratic path. Her Majesty's Government have two objectives in this matter: to see steady progress towards a greater degree of direct election in Hong Kong, and also to see this progress sustained without interruption after the transfer of sovereignty in 1997.

As the noble Lord, Lord MacLehose, has said, there will be many detailed questions to decide about the next LegCo elections in 1995. We shall want to discuss all these matters with China and, whenever possible, to reach agreement, in particular on those issues relevant to convergence with the Basic Law. I noted particularly what the noble Lord, Lord MacLehose, said about the numbers being democratically elected. I should like to refer your Lordships to what my right honourable friend the Foreign Secretary said in another place on 3rd June when answering a question from the right honourable Gentleman Mr. Timothy Renton. My right honourable friend said: On the specific point concerning the 1995 LegCo elections, we have said that we shall be discussing those elections with the Chinese side with the aim of ensuring as much continuity as possible. Decisions on electoral arrangements will need to take account of such discussions; they are, I think, some way of".—[Official Report, Commons, 3/6/92; col. 812.] It will be good for us all to remember that there will not be any sudden changes, but there will be much debate and discussion.

As my noble friend Lord Bonham-Carter said, we have rightly heard a great deal about business. I am sure that the example that is being set in South China by all those who have invested there and who have given their time and energy is one that many other countries would do well to copy. As so many of your Lordships have spoken today about the enormous dynamism of South China, especially in the Pearl River Delta Region, and about the growing links between Guangdong Province and Hong Kong, it is right for me to spend a few moments on this subject and to try to give the balance to the debate that was requested by my noble friend Lord Bonham-Carter.

Guangdong Province and the whole of South China has in recent years seen some of the fastest economic growth in the world. That process has continued despite the recession elsewhere. Guangdong Province has been transformed over the past decade, as so many of your Lordships have said. Alone it now accounts for 10 per cent. of China's industrial output, nearly one-fifth of China's exports and around half of the foreign investment in China. However, there are still numerous concerns.

I should like to thank all those among your Lordships who have brought your commercial experience to bear on the judgments that we must make about what is going on in the transformation of China. However, I note with care—as do the Hong Kong Government—the anxiety about inflation that was expressed by my noble friend Lord Marlesford. I know that the Hong Kong Government are taking steps to tackle inflation and that they will continue to do so.

One of the main things that we must remember is that China's economic reform policies, which have provided the context for the changing performance in South China, can act as an example. China has needed to depend on investment and on the management skills from outside, especially from Hong Kong, which have provided so much of the motor of the new economic development.

Hong Kong will always be a particularly valuable partner for southern China because it has such special skills. As the noble Baroness, Lady Dunn, said, it has a well-educated workforce with a high level of English. Hong Kong certainly has a high level of skills and it has developed considerable international contacts and expertise in entrepot trade. That is why it is so well placed to serve as a service centre for the whole South China region and, indeed, well beyond. I hope that British companies will take full advantage of the opportunities presented by these remarkable developments in southern China. I hope also that the press and other commentators on China will pay due credit to the successes that economic reform has produced there.

The noble Lord, Lord Tanlaw, said that he thought that it was important to keep politics and business separate. I would rue the day that politicians failed to have an understanding of the needs of business whether in China or anywhere else. I believe that what the noble Lord intended us to understand was that politicians should not dabble in business. I am sure that all those of us who have been involved in business —albeit in my case some 18 years ago —have some sympathy with that view. Nevertheless, it is critically important that politicians—whether in Hong Kong, Britain or China—understand properly the need of business to get on with its job. That means having a good degree of contact.

Many of your Lordships have spoken about the airport, including the noble Lord, Lord Judd, who replied on behalf of the Opposition. I am pleased to have this opportunity to say a few words about the new airport and to seek to answer some of the questions that have been raised about certain aspects of the project. All sides are agreed that Hong Kong needs a new airport. The existing airport at Kai Tak is already congested and has been for years. Only very minor further expansion—hardly any, I fear—is practicable there. The Kai Tak airport is also in the heart of urban Kowloon, which could so much benefit from having that land area available in the future.

The projects involved in the new airport at Chek Lap Kok are huge, but they are vital if Hong Kong is to sustain and improve its position as a financial and trading centre in the region well into the next century. They will provide not only a new airport but greatly expanded port facilities and much more land to improve the living environment of many people.

In September 1991 the Prime Minister signed a Memorandum of Understanding with the Chinese Premier on the airport. It listed all the core projects. The Chinese undertook to support the projects and to take a positive attitude to funding proposals, including government-guaranteed borrowing by corporations. The Hong Kong Government undertook to build the airport to the maximum extent possible by 30th June 1997. To allay Chinese concerns about the impact on Government finances, the Hong Kong Government undertook to plan their finances with the firm objective of having not less than 25 billion Hong Kong dollars in the reserves on 30th June 1997.

The aim of the Hong Kong Government has not changed: it is to build the airport in the most cost-effective way possible. Detailed cost estimates have now been prepared. There has been some increase in costs over the original estimates for the very reason of inflation that my noble friend Lord Marlesford has mentioned, but rigorous control mechanisms are now in place. A key point is that the cost to the Hong Kong Government has not increased.

We and the Hong Kong Government have been discussing with the Chinese the details of the financial arrangements. It is understandable that the Chinese Government wish to be clear about exactly what is being proposed. There are time constraints. As the noble Lord, Lord Judd, has said, Hong Kong needs to be able to proceed with the projects in the summer if there are not to be delays. It is common ground that any problems should be resolved as quickly as possible. Last Friday, while we were in Rio, my right honourable friend the Prime Minister discussed these issues with the Chinese Premier, Mr. Li Peng. They both reaffirmed their commitment to the Memorandum of Understanding. They agreed that further high-level talks should be held, either at ministerial or official level, in order to reach quick agreement on the financial arrangements. The preparations for those are now being made. In view of the critical importance of the new airport, I was delighted to hear the noble Lord, Lord MacLehose, refer to the airport as a sure-fire winner. We must ensure that it is so.

Let me reiterate that these are most exciting projects. They will lay a firm foundation for Hong Kong's infrastructure development well into the 21st century. The Government will be very active in ensuring that all goes well.

A number of points were raised during the debate. I shall refer to as many as I can in the time available to me. First, perhaps I may say to my noble friend Lord Geddes, who once again enhanced our debate in what he said, that on the subject of defence lands, negotiations are taking place with the Chinese in the joint liaison group. I am afraid that the details must remain confidential. The Chinese are aware that land is a valuable commodity in Hong Kong and that some of the land previously used for military purposes must be made free for redevelopment. But the talks are going on and we shall not let the matter rest.

Towards the end of the debate the noble Lord, Lord Judd, made a number of comments, particularly about nationality. I say to him and to the House that we are well aware of the problem that some categories of people do not yet have any certainty about their right of abode in Hong Kong after 1997. The consequence of the lack of clarity as to how China's nationality law will apply from 1997 is clear to us all. We are pressing the Chinese in the general liaison group for early answers so that this uncertainty can be cleared up. We shall also tackle the question of the children born before 1983, which I know is of concern to a number of noble Lords.

The noble Lord, Lord Judd, also asked about the Chinese public security bureau presence in Hong Kong. I understand that this is a very small presence of liaison officials. Their task is to help cut through the red tape on the other side of the border and thus ensure that there is co-operation in solving the recent worrying violent crimes in Hong Kong so that it is as good as it possibly can be. I am sure that in that regard the House would be supportive of this presence. I am told that the presence of this small group of liaison officials has been well received in Hong Kong as seeking to deal with the problem in a sensible way. I am grateful to the noble Baroness, Lady Dunn, and to the noble Lord, Lord MacLehose, for their assenting nods on that subject.

The noble Lord, Lord Judd, moved further into the field of the Vietnamese boat people, a matter which concerns us all. Welcome progress is being made regarding the Vietnamese boat people in Hong Kong. The Minister with special responsibility for Hong Kong visited one of the camps during his recent visit to the territory to assess the situation for himself. The flow of migrants arriving in Hong Kong has almost ceased whereas the number of migrants returning voluntarily continues to rise. The second phase of the orderly repatriation programme has been agreed with the Vietnamese Government and I hope that we shall soon see a humane end to this long-standing problem. I can tell the House that, from my discussions with the foreign minister of Vietnam some weeks ago, the aid which we are putting into Vietnam to help with those who return to Vietnam is extremely well appreciated by the Vietnamese Government. The programme for that continues.

The noble Lord, Lord Judd, also asked when UNHCR last reviewed the system of repatriation. I cannot give him an exact date but I can tell him that from my talks with Mrs. Ogata on Monday in New York there does not seem to be a problem now. I believe that UNHCR has accepted the way in which we are now managing the return of the Vietnamese boat people. I note what the noble Lord said about urging the United States to end its embargo on Vietnam. This country has been seeking to persuade the United States of that for some considerable time.

As your Lordships are well aware, it is now just five years before Hong Kong reverts to Chinese sovereignty on 1st July 1997. The Government will be working to ensure that this takes place with minimal disruption to the daily lives of Hong Kong people. "Business as usual" may not sound a very inspiring objective, but in the case of Hong Kong it is likely to be of most benefit to the people most closely concerned. We are indeed concerned with the people of Hong Kong. That is why we, for our part, are not planning any dramatic changes. It is confidence that is needed in Hong Kong. It is an end to uncertainty that is so much sought after.

I believe that Britain's record in Hong Kong is one of which we can be proud. The success story of Hong Kong is due not least to the people of Hong Kong themselves. But Britain has also provided over the past 150 years an administration which has been effective and fair. We have sought very largely to leave the people of Hong Kong free to run their own affairs, and this has been done with remarkable and outstanding success. This is a lesson that I am sure will not be lost on the Chinese, when they resume sovereignty five years hence.

This has been a most interesting and fascinating debate. I end by thanking once again the noble Lord, Lord MacLehose of Beoch, for introducing it today. It has served us extremely well.

5.47 p.m.

Lord MacLehose of Beoch

My Lords, I thank all noble Lords who have spoken this afternoon. It has been a most illuminating debate in terms of the vigour of points of view produced and the variety of sources of knowledge about Hong Kong and China which have been reflected in what has been said. I am most grateful to the noble Baroness the Minister for the fullness of her reply and its very positive content. I am glad that she covered so satisfactorily the questions asked about the Government's intentions with regard to democracy and the airport. I do not wish to comment on any of the points made by her or by noble Lords. I beg leave to withdraw my Motion for Papers. Motion for Papers, by leave, withdrawn.

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