CHINA will set up a shadow government in Hong Kong six months before the handover, Preliminary Working Committee member Sir Sze-yuen Chung said last night. It was the first mention of the plan to establish a shadow administration late next year or early in 1997. Sir Sze-yuen also revealed that the provisional legislature would be in place before 1997 to debate and scrutinise bills needed by the changeover. 'Under the circumstances there will be a period of about six months in which there are in Hong Kong two legislative councils at work. 'It is essential that both the provisional Special Administrative Region government and the British Hong Kong Government recognise their obligations and duty to explain this unusual situation and avoid any misunderstanding by the people of Hong Kong,' he said. Committee member Professor Lau Siu-kai said: 'The British Hong Kong Government will truly be a lame duck in the last six months with the setting up of a shadow secretariat.' Sir Sze-yuen, 78, a former executive councillor closely associated with the negotiations on the future of Hong Kong, has been tipped as a contender to be the first Special Administrative Region chief executive. He said the emergence of a shadow government, or second power centre, during the final stage of the transition was not unreasonable or excessive. 'It is inevitable that a shadow government will appear prior to the transfer of power in any government.' The shadow government, described by Sir Sze-yuen as the Provisional Government Secretariat, would have a few hundred staff, he said. He said the secretariat would not be involved simply in the clerical work of government, but would shape policy, draft bills and prepare budgets. This could mean a parallel administration for the last six months of British rule, with the possibility of two different sets of government officials, headed by the Governor on the one hand and the Special Administrative Region chief executive on the other. Senior civil servants, such as incumbent policy secretaries, could find themselves challenged by their opposite numbers, who could be their current deputies. Although Beijing officials have pleaded with civil servants to remain in government service beyond 1997, there has been no guarantee they would retain their existing posts. The selection of principal officials is the chief executive's responsibility. Sir Sze-yuen accepted the move would create concern, especially in government ranks, but said: 'We should assess the situation with reason, rather than with emotion.' He also predicted the chief executive-designate was likely to be sandwiched between the Chinese and the British governments, because the latter would attempt to pressure him or her into supporting current policies or legislation. The response of the chief executive-designate to these issues would have great effect on confidence in Hong Kong, Sir Sze-yuen said in a speech to the Hong Kong Management Association. Professor Lau said a shadow government or government-designate would have a number of important tasks. They would include preparing the first budget, electoral laws, the policy address and liaising with the central Government in Beijing. A large number of administrators and experts familiar with government operations would be needed to assist. Though the body would have no real administrative power, it would be more influential than the outgoing Hong Kong Government. The Governor's spokesman, Kerry McGlynn, said it was in nobody's interest to have a second power centre in Hong Kong. 'This is news to us. I did not know that the Joint Declaration and the Basic Law provided for a provisional government. 'What we have said is that we will co-operate with the Preparatory Committee and the chief executive-designate when he or she was appointed. 'In the interest of a smooth transfer nobody knows what the outcome of these discussions will be, but whatever arrangements we agree with the Chinese side, they will not undermine the effective running of the Hong Kong Government. 'Nor will they compromise or split the loyalties of our civil servants and it's perfectly clear under the terms of the Joint Declaration that Britain will be responsible for the administration of Hong Kong up to midnight June 30, 1997. 'We intend to stick to our side of the bargain and I'm sure the Chinese side will want to do so as well.'