HK shares hit by China criticism

THE Hong Kong stock market began 1993 with a sharp fall yesterday after a fresh Chinese attack on the democracy proposals of the Governor, Chris Patten, but British officials said the latest criticisms were in keeping with a somewhat more conciliatory line in Peking.

The head of China's Hong Kong and Macao Affairs Office, Lu Ping, said in an interview with a Hong Kong television station on Sunday night that Mr Patten would have to withdraw his proposals completely before Britain and China could discuss political development in the colony. If he went ahead, China would reverse his reforms in 1997, when it takes control of Hong Kong.

Mr Lu's remarks caused a fall of nearly 75 points, or 1.3 per cent, yesterday in the Hang Seng index, Hong Kong's main stock market measure, even though he appeared to be seeking to reassure the business community that the political row need not have economic consequences.

Early in December, China said it would not honour government contracts after the 1997 takeover unless it had specifically approved them in advance, a statement which wiped hundreds of points off the Hang Seng index and severely damaged business confidence. Apparently recognising that this had been too blunt an instrument, Chinese officials did not repeat the threat in subsequent broadsides against Britain and Mr Patten.

In his interview, Mr Lu said that although the Chinese side no longer trusted Britain, 'we accept our obligations' on commercial contracts. The Chinese government would make a blanket statement acknowledging the validity of general leases and contracts spanning 1997. This will allay speculation that Peking wants to approve every public housing lease and taxi licence in Hong Kong. Major leases would have to be discussed in the Sino- British Joint Liaison Group (JLG), said Mr Lu, but a British official noted: 'We do this anyway.'

The Chinese official was uncompromising, however, on the political question, saying there had been no signs of improvement in the Sino-British relationship. Under an agreement reached in 1991, the British and Chinese foreign ministers are supposed to meet twice a year, with the next talks due in Peking in March. But Mr Lu repeated an earlier statement by Qian Qichen, the Foreign Minister, that this would depend on developments, Britain's attitude and the actions of the British side. 'If Britain stands tough, then I will have to follow suit,' said Mr Lu.

But as well as seeking to calm nerves in the business community, Mr Lu also appeared to making more of an effort to court Hong Kong opinion in general. China planned to set up an advisory body in Hong Kong to give views on a smooth transition, but this would not be a rival power centre to the colonial administration, he said. He believed most Hong Kong people were patriotic - China would not judge individuals by whether or not they supported the Patten package, which will be put before the territory's Legislative Council next month. The debate is expected to last several weeks.

In keeping with Peking's strategy of isolating the Governor, Mr Lu said Hong Kong's people 'may have to face a lot of hardship' if there was confrontation with China. The close relationship between the economies of Hong Kong and southern China might also work against the territory if there was a protracted row over Mr Patten's plans.

A British official said the main aim of the interview appeared to be to keep China's options open, while playing down threats which were too specific. Last month's assault had the effect of rallying international support for Mr Patten and unsettling potential investment and loans to China as well as Hong Kong.