China Threatens to Cancel Contracts in Hong Kong After 1997 Turnover

Business confidence was shaken here Monday when China warned that it could abrogate any long-term contracts after it takes back the colony from Britain in 1997.

The Hong Kong government promptly responded by hinting that any such abrogation would violate the 1984 Sino-British pact.

But the blast from Beijing, seen as part of a campaign to wreck Gov. Chris Patten’s plans for democratic reform before the 1997 hand-over, sent a shiver through the local business community.

“From a business point of view, it’s obviously very worrying,” said Ian Perkin, chief economist at the Hong Kong General Chamber of Commerce.

The Hong Kong stock market, one of the world’s highest-flying markets for much of this year, reacted violently to the running dispute. At midday today, the Hang Seng stock index was off 274.85 points, or 4.3%, to 5,535.78, after tumbling 176.04 points on Monday.

Investors already had been shaken by the growing dispute between China and Hong Kong, which erupted Oct. 7 when Patten unveiled plans for more democracy.

Beijing says the proposals are irresponsible and has kept up a steady drumbeat of criticism.

“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 June 30, 1997,” said a Chinese government statement distributed by the New China News Agency.