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N Brice Esq
MEE Division
Department of Industry
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Your reference
Our reference
Date
9 November 1981
PA
JJ7
Г
Doar Norman
1
GUANG DONG
ник 166/11
RECEIVE PE RESTRY . $1 1 2 NOV 1981
DESK OFFICER
INDEX
PA
56
REGISTRY
Asdon Taken
VIDA, Pamela vojčka
PGD 12/41
At Mr Manzie's meeting this morning to discuss the paper enclosed with Keith Newton's letter of 6 November to Richard Ranson, it was agreed that we should drop the idea of offering credit at the prevailing concensus interest rate of 72%; and that no submission should be put to Ministers at this stage. But Mr Manzie invited comments on other aspects of the draft paper, so that a clean version could be kept on file for future reference.
I have a couple of comments:
(i) Negotiated contract. It was agreed at Mr Manzie's meeting that
although this was the UK objective, and was also the method referred by CLP, it was by no means assured that the Chinese would agree.
I suggest that the paper should bring this out by modifying the first paragraph of this section.
(ii) Equity.
I do not think it is helpful to link the Chinese attitude to equity for this project with their general attitude to joint ventures. Nor do I think that it is accurate to link their preference for equity to the "unhappy experiences of 1978/79". These problems resulted from bad planning on China's part, and the projects involved would have had to be cancelled whether or not they had been joint ventures with foreign equity participation. It is true that the Baoshan steel works may have been better planned if the Japanese had been more closely committed to its success, but that is a special case. I suggest that the first paragraph under this heading should be revised on the following lines:
"The Chinese have made it clear that they are keen to see some degree of equity participation by foreign interests in this project. They probably hope that such participation will constitute a guarantee of commitment by the foreign parties. This project is so much bigger than any other joint venture so far concluded with China that general conclusions are difficult to draw from past experience. But equity participation, in the western sense of the term, is not a necessary element in co-operative ventures with China, and Chinese joint venture