THE breakdown in the constitutional talks between Britain and China and the return of confrontation are a tragedy for Hong Kong and the worse for being an avoidable one. In order to understand where we now are it is necessary to look back a little. The need for co-operation between Britain and China over Hong Kong is imposed by three main factors. First, the existence of a lease covering 92 per cent of the territory withonly a few years left to run. There is no alternative to Hong Kong's reversion to China; the only question is the terms of the reversion. Second, the great disparity of power between Britain and China on this issue. And third, Britain's responsibility to do its utmost to ensure the best possible conditions for Hong Kong's future. Co-operation does not mean automatic acquiescence in China's views; though negotiation has always been necessary and has always been practised. But it does mean recognising that unilateral action and confrontation with China are more damaging to Hong Kong in its special circumstances than a negotiated settlement and are therefore inconsistent with our responsibility to do our best for the territory. The long-term welfare of Hong Kong must be the sole criterion. This principle was applied throughout the period from 1979 to 1992 and resulted in a series of important and beneficial agreements, in particular the Joint Declaration of 1984. Those agreements could not have been obtained in any other way. The same principle was applied to the development of democracy. From 1984, and particularly from 1989, there was a steady effort by the British Government to introduce directly elected seats in the Legislative Council and to increase their number. But wehad to do so by agreement with the Chinese Government to ensure the transition would be smooth and the arrangements would survive the hand-over in 1997. There was little benefit and considerable danger in disputed arrangements which would only last until 1997. The main advance in this effort was made in the talks with Beijing which I initiated in December 1989 and which were continued by Sir David Wilsonand then by Foreign Secretary Douglas Hurd, culminating in the understanding of February 1990. Some of this correspondence has since been published. The result was far from Westminster-style democracy. But it was a creditable achievement, given the low starting point and the political climate in China at the time. Above all, it would stick: the results were incorporated in the Basic Law. It is also clear that we had got as far as we could at the time. To try to go further would endanger the whole structure. The Chinese made the point explicitly to me in December 1989. If we tried to go it alone they would dismantle our arrangements in 1997 and there would be ''big trouble''. That was the background to Governor Chris Patten's proposals of October 1992. There were loose ends relating to the 1992 elections to be tied up. But there was little or no scope for change and the Chinese repeatedly told us so. Against that background and given those warnings, it was no surprise that the proposals in the Governor's speech of October 7 last year should provoke a very hostile Chinese reaction. The effect was compounded by the manner of the proposals, the refusal of prior consultation, and the public nature of the resulting exchanges. The shift from a shouting match to confidential negotiation in April this year was a welcome return to sanity. But the problem of substance remained and, despite the skill of the negotiators, it has apparently proved insuperable. There will now be a rupture. It is futile to argue that the immediate legislation will only be partial and will not tackle the so-called ''difficult issues''; and that therefore it should not count. The resort to unilateral action on any part of the agenda will be regarded by the Chinese as final, as they have made plain. Both sides must carry blame for the present crisis. The Chinese have always been difficult in matters affecting Hong Kong, even in the best years of co-operation. Dealing with them has always required unnatural reserves of ingenuity and patience. After Tiananmen Square they became even more difficult. Their refusal to offer any worthwhile concessions in the current talks has been a bad tactical mistake. It is not in their tradition, or their interests, to try to humiliate their opponents. But it seems that this is what they have sought to do. But the greater blame, I am afraid, must lie with the British. The Chinese position, extreme and unreasonable though it may have been, was a fact which was well known. It was a fact which should have been given full weight in British calculations; it obviously was not. Britain's public approach last year - to what should have been a delicate and private negotiation - meant that we started off under the worst possible auspices. Concessions that might have been quietly extracted last October were out of thequestion after months of trench warfare. They would not have been big in any event; but they would have been something. The same publicity made it much harder to conduct with dignity the kind of retreats that were essential if any settlement was to be reached. The Duke of York had marched his men to the top of the hill with every regimental band playing, and to the cheers of the assembled British press. It was going to be all the harder to march them down again. The sights were set high and, despite some significant concessions, they were kept unrealistically so. The final choice faced in November was in these circumstances bound to be a hard one: drastic lowering of objectives on the one hand; unilateral actionand lasting confrontation on the other. But the choice was in part of our own making. Finally, and this is the most serious aspect, faced with the choice, we have made the wrong decision. Why is it the wrong decision? For the simple reason that it is bad for Hong Kong. We are facing a choice of evils, and it is the larger evil. Here it is necessary to clear away a possible misunderstanding. No one, in Britain at least, is against more democracy for Hong Kong. But that is not the question; we are not operating in a vacuum. We have to reckon with the fact of deep Chinese opposition to any greater degree of democracy in the territory. The real question is whether pushing ahead with a greater degree of democracy in the face of such opposition will endanger what Hong Kong has already, and do more harm than good. The Chinese have said repeatedly that if we implement the October package, or indeed take any unilateral action on this subject, they will dismantle the legislature in 1997. No one should doubt they will carry out that threat (though there are apparentlystill some illusions on that score). The result will be that, if the legislation is passed, after two years of improved democracy, from the 1995 elections, the legislature will be replaced with a much less democratic assembly and democracy will have suffered a permanent setback. Even in theterms the Governor has set, the policy will be self-defeating. And this does not take account of the damage to the territory from an ugly standoff with China in the remaining years of the transition; the effect of China setting up an alternative centre of authority; the interference with major construction projects;the inability to tackle the great backlog of administrative and legislative work needed if there is to be eventually a smooth transition; and, above all, the strain on the Chinese commitment to the Joint Declaration. It is a disastrous bargain for Hong Kong. The justifications, I am afraid, are unconvincing. We are told that only in this way can the rule of law be maintained. But the rule of law in Hong Kong depends crucially on the sanctity of the Joint Declaration. And the course on which we are now embarked will put strain, at the very least, on the Chinese adherence to that document. If we act unilaterally, we give them every excuse for doing the same. Chinese threats, in the event of unilateral action, include a restructuring of the judiciary. Again, howwill that preserve the rule of law? It is argued that only in this way can we ensure fair and open elections in Hong Kong. No one claims Hong Kong enjoys full Westminster-style democracy. It is also true, as a general proposition, that the smaller the electorate, the easier it is for corrupt electoral practices to take place. But no one, I assume, suggests the present electoral state of Hong Kong is corrupt. Or that the 1991 elections, under which the United Democrats did so well, were rigged. Or that the agreement of February 1990, providing for a steady increase of directly elected seats, is something to be cast aside. And if we are talking about securing a fair and open society, how will the present unilateral course, with its inevitable Chinese backlash, resulting in a much more subservient legislature, and much greater political pressure and intrusion from the mainland, contribute to that end? In terms of democracy, law, the attributes of an open and liberal society, not to mention the great public works and the smooth running of the administration, Hong Kong will find itself worse off after 1997 as a result of the present policy than it was in 1992. Where is the gain for the territory? The final justification will no doubt be that at least we shall go down fighting and that honour will be preserved. But it will not be the British who will go down fighting; they will have left the battlefield. The Hong Kong population, or the less moneyed sections, who lack the papers and the means to set up abroad, will have been led into a confrontation they do not want and left to face the music. There is little honour there. I am sure the Governor and his advisers have done all for the best, as they conceived it. But I fear that they have consistently misread China; and, if they persist in their present course, they will misread the true interests of Hong Kong. The policy may, for a time, play well in Britain. But that cannot be the criterion. What can be done now? Clearly, short of a policy reversal, the overriding objective must be to limit the damage as far as we can. Every effort must be made to keep lines open to Beijing. It is possible that, on reflection, the Legislative Council will refuse to pass one or the other of the packages put to them. That could open the way for a British retreat with some semblance of dignity. We must urge the Chinese Government to postpone final decisions until they have seen the result of the Legislative Council discussion. Though it must be admitted that by our present policy we have deprived ourselves of really effective means of influencing future Chinese decisions on Hong Kong. We must hope that over large public works, practical co-operation for the benefit of the future SAR will be able to continue. We must urge the case for this, if only in China's best interest. We must hope that, despite the strains, the Joint Declaration and the Chinese commitment to it will hold. If it does, and there is a fair chance, there will be some irony in the fact that the product of a discarded policy should provide the safety net toprotect us from the full consequences of its successor. But the announcement remains bad news for all Hong Kong people. It is also bad news for those in Britain who have tried to bring a measure of reason into a relationship with China over Hong Kong, which, over 150 years, has been over-influenced by emotionand misunderstanding. The danger now is that Sino-British dealings over Hong Kong will end as they began, in misconceptions and hostility. Except this time, it is Britain and Hong Kong who are the weaker parties. Experiences of China, Sir Percy Cradock's memoirs - to be published next spring - will be exclusively serialised in the Sunday Morning Post. The book, which tells the inside story of Sino-British negotiations over the past decade, has already been the subject of controversy after the Cabinet Office insisted Sir Percy remove some passages critical of Mr Patten. Sir Percy Cradock was British Ambassador to Beijing from 1978 to 1984 and the Prime Minister's Foreign Policy Adviser from 1984 to 1992, negotiating both the Sino-British Joint Declaration and the Memorandum of Understanding over the new airport on Britain's behalf.