SECRET
China takes no more at present (the monthly figures tend to be volatile) than about 0.1-0.2% of our exports about £37mns in
M
the first 5 months. We have also swung sharply from surplus into deficit with China, whose trading policy appears in general to be to run a substantial surplus with the EC to cover her large deficit with the US and Japan (though in fact China has recently, but probably temporarily, moved into a small surplus with Japan). The greater control of the HK economy presumably flowing from option (a) would enable the Chinese even more to manipulate their trade patterns to their own advantage. This for the moment at least, would be likely to be to our further disadvantage, in view of the strong all round position which the Japanese have in China and Chinese priorities post-Mao of making life sweeter for the domestic consumer benefitting primary products suppliers like the USA.
8. Export Credit
HK is the ECGD's biggest single exposure, accounting at present for some £3.2bns (of which £2.75bns is on Section 2 national interest business). Little of this is covered by HK government guarantee, beyond some £140mns in respect of MTR contracts. The predominant components of the total are for the Castle Peak A and B power stations. The Castle Peak financing arrangements are very complex but essentially the risk is on the utility China Light and Power and ultimately on the market itself, in the light eg of rapid growth in electricity demand and the scope allowed by the HK government to the utility to recover its costs and earn fair supuses from its prices. There seems no reason to think that ECGD's HK business should not continue to rise, with the expansion of the HK economy and growing UK exports.
9. It is difficult to see what the implications of options (a) and (b) could be for external commercial debts of this kind. ECGD and other Western credit insurers require commitments to China to be covered by a Bank of. China guarantee. The Chinese now have a (recent joint venture law to attract foreign investment but the numbers of contracts made under it are too few and small scale for any useful conclusions to be drawn. They also on occasion refer to the possibility of allowing foreign concessions presumably to own and manage an enterprise subject to the payment of Chinese taxes and, naturally, employment of Chinese labour within China:
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