SPORT
GUARANT
CREDITS
DEPAR
174
HKK
CITY
EXPORT, CREDITS GUARANTEE DEPARTMENT
RECEIVED VOY NO. 51
-7 JUL 1978-
Telephone: 01-606 6699
WAKE+
INDE
रिहत
~tion
Aldermanbury House
Aldermanbury
London, EC2P 2EL
Telex: 893601
22 June 1978
237
C B Benjamin Es
Department of Industry
1 Victoria Street
London SW1
De on
CHINA:
Chris,
COUNTER-TRADE
FED
сору
to HUGD
+ TRED
Thy
$28/6
We discussed briefly on the phone the proposals contained in your letter of 20 June.
There are two aspects of this which cause us concern. The first relates to the detailed terms suggested for any ECGD supported facility. We are content with 85% financing of UK goods and services but can see no justification either in terms of the items to be supplied or in terms of our experience with the Chinese so far for making any provision for local cost financing. Nor can we agree to the figure 81⁄2 years credit being offered. Whilst this is permissible under the Consensus arrangements our current business and our discussions with buyers and banks about future business have not envisaged going beyond 5 years and we can see no reason for going further than this at this stage. If the Chinese themselves make an issue of it then obviously we would be prepared to consider how far beyond 5 years the business could justify. Treasury agree with these views.
The interest rate for officially supported finance on 5 years terms for China would be 7%. Although the details of the Japanese arrangement are far from clear all our information suggests that they will adhere to the Consensus rate, ie 74%, for the officially supported element. There is therefore no basis for our considering other than Consensus terms. Finally, on the detailed terms, we are at present talking in terms of US$/ financing with UK banks and would expect any arrangements from the present coal machinery exercise to be denominated in the same currency.
My second, and principal, concern at this stage is the whole question of the timing of the exercise in relation to our own current activities towards developing ways and means of supporting project business with China. As I understand the situation, you are talking about receipts from coal exports commencing in 1982, or even later if the power station project runs late. If the Chinese are to relate the two sides of the operation, conceptually if not in terms of actual payment obliga- tions, and allowing for the likely delivery time for machinery etc. contracts are not likely to be signed for some two years yet. The need for the ECGD facilities to be spelt out in detail is therefore less than immediate. For our part we are currently in discussion with our lawyers and a number of banks about the
/deposit