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(b) It would place the contractor in an advantageous position to secure other contracts in Hong Kong, notably the projected development of Kai Tak Airport (estimated cost about £12m) and the mass transit system which the Hong Kong Government are now considering, with a view to implementing the first stage (estimated cost about £95m) at an early date.
(c) Politically British financing would be a significant factor in demonstrating our confidence in Hong Kong's future and cementing our relations with the Colony (which have suffered some setbacks recently). Conversely foreign financing of the project could be politically damaging to us, since there is sufficient basis in the history of the ECGD negotiations for our failure to offer acceptable terms to be represented as indicating a lack of confidence in Hong Kong's future; this is the current view of the Governor and I see no reason to disagree with his assessment.
Arguments against reconsideration
(d) There is no change in the purely commercial considerations involved. The Company is not adequately capitalized to borrow so large a sum for a project of this nature. Because repayment of the loan is dependent on the successful operation of the Tunnel, some security is required in the event of the Tunnel's failure as a commercial operation: otherwise the loan will be providing equity investment and it is not ECGD's function to guarantee such investment.
(e) The political risk that Hong Kong might cease to exist because of a Chinese takeover.
5. I feel that the political considerations urged in (c) above, although not pressed by us to any great extent last year, now justify our taking a further look at our terms, particularly in view of the Governor's current assessment of the possible effect in Hong Kong of an arrangement with the
CONFIDENTIAL