M. McQuite
SECRET AND PERSONAL
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Ao My
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PS
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PS/LPS PS/PUS Sir E youie
ми допаю
18 December 1981
Mr Elliott JED
(for advice on "X"po)
Ruy L 21/xn
Dear Roderic,
Prime Minister's Meeting with Sir Y.K. Pao:
17 December
Thank you for your letters of 16 and 17 December.
On his arrival Sir Y.K. Pao requested that his meeting with the Prime Minister should be private. After the meeting the Prime Minister gave me an account of what had transpired but she is most anxious that the conversation should be fully protected. I should therefore be grateful if this letter is shown only to those who really need to know its contents.
Sir Y.K. said that he had had a long talk with Mr. Gu Mu, Deputy Premier of China, and also with Deng Xiaoping. He had also seen Huang Hua.
Gu Mu said that he had never been to the United Kingdom. Sir Y.K. wondered whether it would be possible to invite him here, perhaps in February. He had said that the Chinese were very concerned about their relationship with the United States. They had implied that if the Americans moved closer to Taiwan and in particular developed a significant relationship in the arms field, this would be too much for the Chinese to digest. The latter therefore wished to get nearer to the United Kingdom. But Deng Xiaoping had questioned the desirability of this on the grounds that the UK was too poor to help. Sir Y.K. argued that British economic policy was working and there were ways in which Britain could be helpful to China.
The subject of Hong Kong had arisen in these conversations. Sir Y.K. thought it desirable that there should be early high level discussions with the Chinese about the matter. In this connection the Chinese had drawn attention to the ways in which Japan was helping China at present. They had apparently produced both substantial export credits and an untied loan equivalent to $1 billion in value. He had been asked by the Chinese whether Britain would consider providing a similar kind of assistance. The Chinese would then be happy to discuss Hong Kong. They were not making a
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