Mr Clift
CONFIDENTIAL
Mk И IN
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cc Mr Giffard
Mr Donald o/r Mr Elliott FED
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Gyffend Pan 718
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Sir Y K Pao spoke to me last night after the Chinese Ambassador's dinner about his recent visit to China.
2.
He had little to say about the future of Hong Kong as such but talked at length about the idea that the UK should offer China a loan of US$1 bn on soft terms and that Vice Premier Gu Mu should be invited to the UK to discuss it. (As you know, Sir Y K would like the visit in May so that Mrs Gu could name the fourth of his ships being constructed by Austin & Pickersgill).
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3.
He said that while he was in Peking, Gu Mu had sent Sir Y K 's cousin, Lu Xu-zhang, to enquire whether Sir Y K had had any UK reaction, particularly on the period and terms which might be available for such a loan, in response to what he had reported to London after his last visit to Peking. Sir Y K had replied that in reporting what Gu Mu had said he had not gone in to such detail. Lu Xu-zhang has suggested that after this visit to London he send a further message back to Gu Mu through the Chinese Ambassador here, Ke Hua.
4.
Sir Y K said that he had had a short talk with the Prime Minister at Newcastle on Friday, where she had named the second of his four ships, and with her permission would be seeing Sir Geoffrey Howe on Tuesday. He also has an appointment to see Lord Carrington.
5.
I asked Sir Y K what the Chinese wanted the loan for and why they had not gone to the World Bank or the international money market for it. He said that the loan would match the facilities made available to them by the Japanese. They were doubtful about the World Bank because of their uncertain relationship with the Americans; and it was his impression that there was a Hong Kong link in that while the Chinese were not directly linking the loan and the question of the future, the first could improve the atmosphere for the solution of the second.
6.
Sir Y K said that he recognised that such a loan might be difficult for the UK: perhaps the Hong Kong Government could arrange it eg a syndicate might be formed in Hong Kong for the purpose with a Hong Kong Government guarantee backing it.
I made clear that I could not yet speak for Hong Kong: speaking personally it seemd to me that such a proposal would be unprecedented and go much beyond what the Hong Kong Goverment considered to be their role. As Sir Y K knew they preferred to leave such matters to the financial institutions.
CONFIDENTIAL
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