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13 October 1986
HKD Mr Ma
H K K 010/2 KK
RECEIVED IN KUCIST,
1 & DEC 1986
PRIME MINISTER'S MEETING WITH SIR Y. K.
PAO
DESK OFFICER
REGISTRY
INDEX
PA
Action Taken
Sir Y.K. came to see the Prime Minister this evening at his own request.
Ningbo Steel Works
Sir Y.K. said that he had come direct from talks with the Chinese Prime Minister in Peking about the Ningbo steel works. Prior to his visit, there had been deadlock on three points: the capital ratio, bank guarantees and the length of the period for which the Chinese Government would guarantee to purchase the steel works' output. As a result of his visit, all three of these problems were well on the way to a solution. The capital structure had been revised as described in paragraph 2 of Peking telegram no. 1969. The Chinese Government were now prepared to extend the period during which they would guarantee purchases from 20 to 30 years. The main outstanding problem concerned concessionary finance. Zhao Ziyang had made clear that the Chinese Government would want to see the project financed at an average rate of interest of under 7 per cent. He had charged Sir Y.K. with urging the Prime Minister to make available soft loans for the British share of the steel works project in order to bring the average rate of interest below that figure. Sir Y.K. stressed the importance of the project. He recognised that the sums involved were considerable. He suggested that Ningbo should be treated as a special case. He urged the Prime Minister to give favourable consideration to the proposal.
The Prime Minister said that the sums involved were very large indeed and well beyond the scope of our ATP programme. Indeed, they would amount to four years of total ATP grant allocation for the whole world. She did not see how we could possibly provide concessionary finance on this scale. She would ask Mr. Channon to go through the figures with Sir Y.K. and discuss whether there were other ways in which we might be able to help. But she repeated that she could see no way in which we could provide a soft loan of the scale which the Chinese Government were seeking. Sir Y.K. Pao expressed considerable disappointment at this reply and recalled that he was ready to put a considerable amount of his own money into the project. He would like to take up the Prime Minister's
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