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In
denying access while historic bends remain in default. 8. There have also been periodic problems over air services. March CAAC turned own BA's application for a one year extension to the 1984 commercial agreement which permitted BA to carry traffic on the Hong Kong-Peking sector of their London/Peking service. CAAC have argued that since Cathay Pacific have now begun to operate on the route, demand no longer justifies continuation of BA's service. In fact, demand exceeds the capacity offered by CAAC and CPA and it is possible that the Chinese attitude reflects their wish to keep the way open for Dragonair. (Sir Y K Pao is a major shareholder). BA hope to reopen discussions with CAAC to propose that the surplus capacity carried by BA between Hong Kong and Peking be utilised to satisfy the present excess demand. CAAC's reaction to our position suggests there may be room for manoeuvre.
Economic and Commercial
9. Compared to our competitors, British industry has been slow to exploit the new commercial opportunities in China. Exports are now increasing rapidly (£163m in 1983: £396m in 1985), but we still have much ground to make up (FRG: £1700m in 1985; full statistics at Annex I). Our main exports are machinery, chemicals, scientific
instruments and steel recent successes (see Annex II).
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10. Factors in our favour in China are:
a) excellent political relations; b) the Chinese wish to reduce dependence on Japan and the USA by importing more from Western Europe; c) our strengths match the main Chinese development priorities (energy, transport, telecommunications; industrial
renovation);
d) British firms have a good record on willingness to transfer
technology.
Obstacles are:
a) China is poor (1985 GNP/capita US$310m) and only a minor export market for Britain (0.5% of exports worldwide in 1985);
b) British firms seem less able than others to adapt to China's competitive and difficult market conditions: high operating costs; frustrating bureaucracy; opaque and rapidly changing framework of commercial and financial legislation; protracted and tough negotiations (exacerbated by recent shortages of foreign exchange);
/c)
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