CONFIDENTIAL
2
its own staff and equipment simply for the purpose of operating between Hong Kong and Shanghai.
5.
In the meantime the Chinese have dropped their objections in principle to through services by more than one airline (as they have now conceded this to the Americans). The price they have asked for allowing CPA to fly from Shanghai to London is however permission for CAAC to fly with full traffic rights through Hong Kong to both London and the USA. (CAAC have at present Peking - London rights with no stop at Hong Kong). Quite apart from the fact that we have never granted any foreign airline traffic rights on the London - Hong Kong route (and would scarcely want to make the position of the British airlines now competing so fiercely on the route yet more difficult) these proposals would clearly load the balance of the air services arrangements even more in China's favour. The DOT are not necessarily averse to discussing what might be possible in return for a Shanghai/London service. We cannot however accept that the implementation of the arrangements negotiated last year should be made dependent on our readiness to agree to quite new proposals.
6.
If the Chinese cannot accept HKA on the terms described in para 4
and continue to maintain, as they are entitled to do, that CPA should cease operations, there will be no air services between Hong Kong and Shanghai after 15 August (CAAC's services are linked in the CMU with those of the British designated airline). In such circumstances we would be prepared to issue the permits the Chinese have applied for to start operating services to Hong Kong from three other Chinese cities. The Chinese will no doubt argue,
that there is no link in the CMU between these services and the services on the Shanghai route. Our reply would be that we cannot agree to implement those parts of the CMU which benefit only the Chinese while they are acting against the spirit of the CMU where British interests are concerned. If the designation of HKA is not accepted DOT would also like to suspend CAAC's services between Hong Kong and Canton for which permission has been given on a temporary basis from month to month. So far we have resisted this sanction on the grounds that it is out of proportion to the damage we have suffered and would be badly received in Hong Kong.
14 August 1980
cc: Mr Davies, FED
Mr Clift, HK&GD
Miss Brown
A E Stoddart
Maritime, Aviation and Environment Dept