China raises stakes in HK row

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CHINA yesterday came closer than ever before to risking economic damage in Hong Kong as it intensified its war of words with Britain and the colony's Governor, Chris Patten. Claiming an effective veto over all development projects in the colony, Peking said any government contracts it had not approved would be invalid after it took control of Hong Kong on 1 July 1997.

The warning came after the territory's sensitive stock market had closed, but the Hang Seng index, reacting to earlier Chinese threats, fell more than 170 points, or nearly three per cent, to 5,810.63. A further sharp fall is almost certain today.

Since Friday, when Hong Kong's legislators voted funds for a key airport project in defiance of China, the battle for public opinion in the colony has become increasingly heated. Peking's aim is to convince businessmen, international lenders and investors that the price for Mr Patten's plans to expand democracy in Hong Kong is becoming unacceptably high.

As the Legislative Council's Finance Committee was preparing to vote on Friday, the head of the Chinese side on the Sino-British Joint Liaison Group (JLG), Guo Fengmin, suddenly raised the question of a planned new container terminal for the port of Hong Kong. Saying the matter had not been raised in the JLG, he threatened that China would not honour the contract. The next day he attacked the legislature for agreeing to finance a site preparation contract for the planned new airport at Chek Lap Kok, despite 'repeated opposition' from China. The contract was formally completed yesterday behind closed doors, in an apparent effort to avoid further controversy.

Yesterday, however, as China's ambassador in London, Ma Yuzhen, was summoned to hear a Foreign Office protest at Mr Guo's comments on the container terminal, Peking fired another broadside. Its Hong Kong and Macao Affairs Office said: 'Britain's administrative power over Hong Kong will terminate on 30 June 1997, and it will then have no right to handle any affairs after the date. Contracts, leases and agreements signed and ratified by the Hong Kong British government which are not approved by the Chinese side will be invalid after 30 June 1997.'

The Hong Kong authorities swiftly replied that the 1984 Sino-British Joint Declaration on the future of Hong Kong, and China's Basic Law on the running of the territory after 1997, made it clear that existing laws and contracts in Hong Kong would continue to be valid unless they contravened the Basic Law.

One official source said Peking was fudging the legal questions involved in an attempt to isolate Mr Patten. He noted that China had specifically welcomed private investment in Hong Kong, and said it would take a 'positive attitude' to deals continuing through 1997. Although Britain was willing to consult China on official contracts and franchises spanning 1997, said the source, 'their interpretation of consultation is that they have a veto over whatever we do.'