DISCUSSIONS WITH SIR Y K PAO AT CHEVENING 13-14 SEPTEMBER
(e)
China Issues
BACKGROUND
Ningbo Steel Project
1. Consortium led by Davy McKee and including FRG company are pursuing steelworks project be built at Ningbo. This is the birthplace of Sir Y K Pao who introduced the project to Mrs Thatcher in 1985 and who has taken a close personal interest in it being built by UK companies. Total value about £3 billion. This would be very important business for UK steel plant industry. If it is to be won for UK some measure of HMG support may be necessary although the minimum required has yet to be identified.
2. In July Davy consortium reached understanding on broad principles with Chinese delegation to UK led by Vice Minister. Consortium team now in Peking to agree establishment of joint venture (to be announced during Queen's visit to China in October) which would place consortium in position to negotiate a contract. Davy report that Chinese central planning authorities are taking positive interest in the project. Sir Y K Pao has informed Ministers in the past that the prospects for the project are good.
3. There have been indirect indications that the Chinese would welcome some form of support for the project from HMG and Sir Y K Pao has raised the question of soft loan support. However, both Governments have reached agreement in principle on the projects to be covered by the soft loan facility (not including Ningbo) that would entirely absorb it.
It is possible that regular ATP could be made available for China and that further soft loans could be considered once the present facility is firmly committed. The provision of concessional finance for Ningbo as currently envisaged raises serious problems because of its size (possible UK content of £l billion) and the fact that international agreements would require a grant element to at least 25% of this (£250 million grant would equal around 4 years worth of the current ATP grant budget).
State Visit to China: Return Banquet
4. Space on Britannia is very limited. The Queen, The Duke of Edinburgh and the Royal Household account for 12. The list put forward by the Chinese authorities totals 34. When Commonwealth Ambassadors, local civic leaders and essential Embassy and Consulate-General staff are included there is no space available for guests who do not have a direct role in the State Visit.
PR5AAG