CONFIDENTIAL
PRIORITY
PEKING COPY HONG KONG
Peking Telegram 732 and Hong Kong Telegram 1313: Air Services
BA tell us in London that Evans' discussions with Lu were informal
and exploratory. While we share Hong Kong's concern that CAAC
should not be misled into thinking that BA might be speaking on
behalf of the Government, we think they should have the same commercial
freedom as Cathay to explore new options with the Chinese which
might be to their advantage. We recall that Cathay too have held
exploratory discussions with the Chinese this year about joint
venture opportunities which were reported to DOT only after the
event. We do not wish to prevent such discussions taking place
provided that they are in all cases without commitment so far as
the UK aeronautical authorities are concerned and also that DOT are
kept informed of developments. So far both BA and CPA have observed
these conditions correctly.
2 We agree care is needed to prevent Lu playing BA and CPA off
against each other, especially if we are to build on BA's discussions
with CAAC at the talks commencing 7 December (our Telegram number
to Hong Kong refers). We have therefore asked BA to consult with CPA
about any royalty payments they may be envisaging since an over-
generous commercial agreement on Peking services could tempt CAAC to
ask for more on Shanghai and of course vice versa.