AMERICAN President Mr Bill Clinton is expected to deliver a year's grace to industrialists and businessmen in Hongkong, China and America tomorrow, when he outlines proposals to extend Most Favoured Nation trading status to China for a further year. But China's performance in the areas of human rights and arms proliferation will dictate next year's renewal. Mr Clinton has authorised his aides to present the plan to members of Congress for discussion before he decides on the final wording, which the White House is stressing could differ from initial recommendations. The President is keen to fix a compromise with key Congressmen in a bid to fend off stiffer conditions laid out in the Pelosi-Mitchell 14-point bill. Political observers in Washington have expressed concern at Mr Clinton's efforts to buy himself time, saying he will face an even bigger dilemma next year. Mr Mike Lampton, president of the New York-based National Committee on US-China Relations, said he believed that while Mr Clinton delayed, the trade and economic relationship between the two nations would be growing, making it tougher to raise tariffs. ''It will be more difficult for him to contemplate severe action against the trading relationship a year from now, but on the other hand it may be very difficult for him to honestly assert there has been significant progress,'' Mr Lampton said. ''This gives him a dilemma: trashing the US-China relationship or certifying the uncertifiable.'' Revoking China's MFN status - which could be on the cards a year down the line if China fails to meet America's expectations in terms of human rights, arms proliferation and improved two-way trade relations - would mean import duties on Chinese goods would rise an average eight per cent to 40 per cent. The Hang Seng Index moved into unchartered territory yesterday with a 91.79-point jump to 7,368.18. Investors leapt into the market on optimism that the hefty flow of US-Sino trade re-exported through Hongkong - especially toys and clothes - will not be tampered with this year. Stocks seen to be vulnerable to any conditioning of MFN were especially strong. Playmates International, which makes the Teenage Mutant Ninja Turtles range of toys, jumped 11.3 per cent (30 cents) to $2.95. Textile and garment maker Winsor Industrial was up 30 cents to $13, while Herald Holdings gained five cents to $1.27. All eyes will now be on how Beijing reacts to the news of threatened conditions. Yesterday, a Chinese official in charge of the textile industry warned that Beijing would retaliate against any conditions imposed on MFN. Speaking in Hongkong, the director of the China Textile Council, Mr Ji Jun, said: ''Once conditions are imposed, the MFN issue is no longer a trade issue, but an obstacle on bilateral relations between the two countries.'' While agreeing that both China and Hongkong's textile industry would be hit by MFN conditions, he warned that China's textile industry would clamp down on the raw materials it bought in from the US. Early this morning, Washington time, political observers were divided over the scope of the 1994 conditions. While one camp believed these would be restricted to human rights, leaving trade and arms proliferation concerns to be dealt with by other means,others were looking for a broader brush. Mr Lampton said his opinion was that conditions would embrace more than just human rights. He said: ''This kind of deferred result will create a certain degree of uncertainty for business over the next year, because people will be unsure of the degree to which the President will be able to certify that significant progress has been made. ''So business will still have some uncertainty, and in general uncertainty is not conducive to maximising trade and business activities.'' The Hongkong Government office in Washington welcomed the news, but said all the old worries would simply resurface next year. A spokesman said: ''We will be happy with MFN being renewed for another year, but disappointed that next year conditions have been set.'' Mr Richard Brecher, director of the business advisory services arm of the US-China Business Council - an American business body opposed to linking trade sanctions to human rights - condemned the year's grace as an empty gesture.