RESTRICTED
Government to Government Agreements
6. We can now see why the Chinese were so reluctant to include a target figure
for joint economic activity ($14 billion) in the Economic Co-operation Agreement.
In the new economic climate, this is a dead letter. But the Science and Technology
Agreement whose commercial benefits we had always accepted were likely to be long
term, is going well and there has already been some useful commercial spin-off.
The allocation of £30,000 per year from the BOTB funds for selected exchanges
under this Agreement should inject new life into it, and enable HMG to guide a
core of exchanges into sectors which seem to us to have the best commercial pros-
pects. The Air Services Agreement has enabled flights to be established on the
trunk route between London and Peking though disagreement over which Hong Kong
scheduled airline should fly the Hong Kong/Shanghai route has prevented/services opening on
that route. We are also looking at the possibility of negotiating other agreements.
A Shipping Agreement would be welcomed by British shipowners as a vehicle for regu-
lar discussions on shipping matters, and the recent US/China Maritime Agreement
sets a precedent which offers some hope of negotiating an equitable sharing of
cargo carrying. But the interests of Hong Kong would have to be preserved, and
it remains to be seen whether the Chinese position on Hong Kong has relaxed enough
to make an agreement possible. We are also looking in the longer term at the pros
and cons of agreements to facilitate investment in China by British companies, eg
Much depends an investment protection agreement, and a double taxation agreement.
on how Chinese commercial legislation in this area develops.
Defence Sales
7.
Chinese defence equipment purchases must take their share of the overall
retrenchment but there still seem to be reasonable prospects for UK defence sales,
and our early declaration of political willingness in principle to sell defence
equipment to China should still give us some edge over our competitors.
There are
some indications that the Chinese are waiting for the US to change their restrictive
policy on defence sales to China, as a gesture of commitment to supporting China.
This could mean that they would hold back from buying British for a time; but the