China threatens trade links in Hong Kong reform row: Major supports 'resolute' Patten

CHINA warned Britain yesterday that trade relations would 'inevitably' suffer if Chris Patten's proposed reforms for Hong Kong go ahead.

But the Prime Minister gave his firm backing to the Governor in the Commons yesterday and said that the Government expected Peking to abide by agreements with Britain. John Major said Mr Patten had acted 'sensitively, resolutely and

correctly'.

Li Lanqing, the Chinese Minister of Foreign Economic Relations and Trade, refused to elaborate on the trade threat. A possible precedent was set this year when French companies were excluded from bidding for the Canton underground railway in retaliation for France's decision to sell Mirage warplanes to Taiwan.

Mr Li said responsibility lay with Mr Patten for the 'serious consequences' of pressing ahead with proposals to introduce more democracy to the colony before sovereignty reverts to China in 1997. Since Mr Patten's decision a week ago to publish his draft legislation, China has been stepping up pressure on Britain daily.

Politicising trade relations carries considerable risk for China. Mr Patten said he was surprised at Mr Li's comments. Apparently referring to China's aim of preserving its Most Favoured Nation trading status with the United States and hopes of joining the General Agreement on Tariffs and Trade, he said the threat could have 'all sorts of consequences'.

This week, Lu Ping, the mainland official in charge of Hong Kong affairs, warned that if the US linked the Hong Kong issue with MFN renewal, pounds 4.8bn of American investment in the colony would suffer.

China is not one of Britain's main trading partners. Two-way trade last year totalled pounds 1.4bn, but was heavily weighted in China's favour - exports to Britain were worth over pounds 900m.

But British companies, faced with recession in the West, are keen to get a share of construction contracts as China speeds up economic reform.

The Hong Kong stock market took the threats in its stride - aware of Peking's inability to retaliate on trade without damaging its interests.