CHINA is allowing greater flexibility regarding legislators serving beyond 1997 in an apparent effort to break the deadlock over political talks. Lu Ping, the director of the State Council's Hongkong and Macau Affairs Office, said yesterday that the criteria under which legislators elected in 1995 could serve after 1997 could be determined by the working panel preparing for the Special Administrative Region (SAR) Preparatory Committee. The working body will be officially launched next week. The SAR Preparatory Committee, to be set up in 1996 under the Basic Law, will decide whether legislators elected in 1995 can sit on the first SAR legislature. The criteria it will use have yet to be defined, but will include a requirement for legislators to uphold the Basic Law. China has previously said the criteria would have to be decided by the SAR Preparatory Committee itself, and could not thus be published before 1996. Britain has demanded that a set of objective criteria on who can serve beyond 1997, or ride on the ''through train'', be published before the 1995 polls to elect the legislature. Mr Lu said the criterion of ''upholding the Basic Law'' must be taken in a ''very positive sense''. People who were simply not opposed to the Basic Law could not be taken as upholding the mini-constitution, Dr Tang Siu-tong of the Heung Yee Kuk quoted Mr Lu as saying. Speaking before meeting a kuk delegation, Mr Lu said it was up to the National People's Congress Standing Committee to decide whether objective criteria could be spelled out before the 1995 elections. Despite a willingness to lay down criteria earlier, Mr Lu maintained that all legislators must be confirmed by the SAR Preparatory Committee. Officials said that Article 104 of the Basic Law - which requires legislators to swear to uphold the mini-constitution and to pledge allegiance to the SAR when taking office - was inapplicable to the first legislature. Because the 1995 legislators would be elected under the British administration, there was a change in sovereignty involved when they straddled 1997. A confirmation process was therefore required, Mr Lu said. He agreed that the criterion of upholding the Basic Law needed elaboration. But while China and Britain appeared to be getting closer on the through-train issue, they held different views on how many legislators could hold foreign passports and the abolition of appointed seats. Mr Lu said the number of foreign passport holders in the 1995 legislature should be less than 12. Governor Chris Patten has said he will not impose nationality restrictions. Mr Lu also said appointed seats in the municipal councils and the district boards should be retained; Mr Patten has proposed scrapping all appointed seats before the 1994-95 elections. But Mr Lu expressed hope that negotiations on the electoral arrangements, the airport financial package and the Sino-British Joint Liaison Group's work could be accelerated. Although China has approved phase one of the Central and Western reclamation project, Mr Lu said talks were needed on the financial arrangements for the airport project as a whole and its associated rail link. Referring to UK Foreign Secretary Douglas Hurd's comment this week that Hongkong should be treated as a ''political city'', Mr Lu said it would be a great misfortune for Hongkong if that were to happen. Although different economic forces would be welcome in Hongkong, various political forces could never be allowed. ''If Hongkong people become the chips in a politicians' card game, Hongkong will be finished,'' he said. Vice-Premier Qian Qichen issued a similar warning earlier in the day. He told Mr Hurd that what concerned Hongkong with regard to politics was only how to maintain its prosperity and stability. attain a smooth transition, and preserve its status as an international economic, trade and financial centre.