THE flurry of diplomatic exchanges in Beijing since the weekend has led to speculation that Britain and China are about to resume negotiations over Hongkong's future constitutional development. British Ambassador to China, Sir Robin McLaren, and his counterparts in the Chinese State Council's Hongkong and Macau Affairs Office have been in close contact in an effort to end the impasse over the 1994-95 electoral package put forward by the Governor, Mr Chris Patten. Officially, both governments are reluctant to say anything about the behind-the-scenes discussions. While there is consensus that the two sides are engaging in ''talks about talks'' before any formal announcement is made, it is probably closer to the truth to say that the talks have already begun. The stumbling block towards reopening official negotiations is not a logistic one, such as when or where to hold the talks or who should participate. The real problem lies in both sides assessing what can be achieved if such talks go ahead. Once they agree to hold formal negotiations, it is inevitable that an outcome will be expected. Both Chinese and British negotiators are well aware that failure to reach a satisfactory agreement could result in more damage to already strained relations. Until yesterday, the only thing both sides had in common was the will to resume negotiations. China and Britain are both well aware of the consequences of not holding talks - a possible breakdown of relations which will make governing Hongkong during thetransition extremely difficult. A seamless transition in 1997 would be impossible. The Executive Council's delay in authorising the gazetting of the bill for Mr Patten's package is seen as a gesture on the part of the British to listen to Beijing and to find a solution to the impasse. It would have been extremely hard to re-open dialogue if China had insisted on Mr Patten abandoning his proposals as a pre-condition to talks. In an attempt to skirt the problem, negotiators from the Chinese side are suggesting that the talks should focus on transitional matters and co-operation instead of Mr Patten's package. China's attempt to resume talks is not surprising given that preparations for electoral arrangements have reached a crucial stage. Once the Patten bill is tabled to the law-making body, its fate will rest with Legislative Councillors, making it more difficult for either China or Britain to influence the outcome of their decision. BUT what can formal talks achieve? This must be the question addressed by both sides before agreeing to return to the negotiating table. In weighing the options, both China and Britain have their own motives. China has made it known that it intends to set up another stove - that is to set up its own structure to oversee transitional matters and help prepare for the setting up of the post-1997 Special Administrative Region government if Mr Patten's controversial package is implemented. Insisting that such a step will help to ensure a smooth transition despite critics' reservations, Beijing officials know that without the co-operation of Britain before 1997, there is bound to be disruption in the eventual hand-over. If talks were to take place - and given that Mr Patten has already made it clear that he will not withdraw his package - Beijing must either drop this as a condition to talks or pretend that the condition simply does not exist. It could be that Beijing may think it can simply ignore Mr Patten's package as the negotiations would be about transitional matters and co-operation. Dropping the condition that Mr Patten must abandon his proposal would be seen as a major concession, although Beijing would surely deny it. With such a price to pay, Chinese officials must want a positive outcome from the negotiations - an agreed model which is close to, if not an exact mirror-image, of the Basic Law blueprint. But there is no guarantee that even if the British side gives so much ground, that the Legislative Council will in turn give its approval. Although China may not recognise the legitimacy of the Legislative Council, it is nevertheless the territory's law-making body. Without Legco approval, the efforts for an agreed formula will be futile. Equally, Mr Patten is caught in a dilemma, although of a different nature. One obvious advantage of resuming talks is to brush aside the impression that relations between the two sides have broken down and that Hongkong should expect a bumpy ride over the next four years. Mr Patten says he is prepared to talk to the Chinese side at any time and anywhere, on his reform plan but rejects any pre-condition to abandon his proposals. HOWEVER, if Beijing insists that the Government defer the gazetting of the electoral bill, the situation changes. At stake is not simply a delay; it is the message sent out by such a decision that matters. Many, especially those in the liberal camp, would consider successful negotiations a blow to their hopes of democracy. This will obviously dilute the liberals' support for Mr Patten. They would then have no choice but to push for an even more democraticmodel. On the other hand, Mr Patten cannot be certain that China would agree to a package closer to his own plan. Will he accept any Chinese proposal for much less democracy? If so, what effect would that have on his credibility and his ability to govern in theremaining four years to Chinese rule? If Mr Patten concedes this time, will China demand more of a say on the next important issue that comes up? In the run-up to 1997, it is inevitable that China will want more of a say in Hongkong's affairs. It is hoped that by resolving the row over political reforms, in exchange, the British side can win China's co-operation over other matters such as franchises and airport projects. But the lesson for Britain from the signing of the Memorandum of Understanding on the new airport is still fresh in many people's minds. In the memorandum, Britain conceded much, including giving China a veto on Hongkong's domestic issues. But has China loosened its control? The stumbling block now is the deep distrust between the two sovereign powers which makes the situation extremely difficult.