partly from their assessment of the commercial risk attaching to a project of this nature and partly from the political risk of developments in China leading to the liquidation of Hong Kong. The requirement of a joint guarantee admittedly formed part of the original conditions for cover laid down by ECGD early in 1967, at a time when that department can only have been concerned about the commercial
risk. However in April of that year
? (Lord) Brown felt able to agree that the joint guarantee requirement could be dropped. That decision implied that not too serious a view needed to be taken of the commercial
risk.
In reimposing the condition of a joint guarantee I suspect that the main consideration weighing with ECGD now is the political risk which, at the height of communist confronta- tion last year, led them to ask for a Hong Kong Government guarantee on terms and conditions that proved quite unacceptable to that government. It might help you and ECGD if I were to say something about the political risk.
The threat to Hong Kong's continued existence is basically the same now, both in nature and degree, as it has been since the communists came to power in 1949. It does not lie in the internal situation of the Colony; the events of 1967 have shown that communist pressures within the Colony can be contained if they are not supported from outside. But once the Peking Government conceives the intention of taking the Colony over, then Hong Kong's days will undoubtedly be numbered. At no stage in the turmoil of the Cultural Revolution in China has there been any evidence of such an intention nor do we see it as a likely development of the revolution, now that the worst frenzies of this remarkable phase in Chinese history appear to have passed.
The 1967 troubles in
Hong Kong were due to the spontaneous reaction
by local communists to the cultural
/ revolution
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