GOVERNMENT HAD TOLD THE CHINESE SIDE THAT IT WOULD BEAR 80 PERCENT OF THE CONSTRUCTION COST OF THE AIRPORT.
7. NOT EVERYTHING THAT LU HAS TOLD THE PRESS HAS BEEN UNHELPFUL.` HE DID SA THAT THE GOVERNMENT COULD RESORT TO MEASURES SUCH AS LOANS, PR..ATE SECTOR PARTICIPATION AND THE ISSUING OF BONDS TO RAISE FUNDS. BUT HE WENT ON TO SAY THAT THE USE OF THE RESERVES FOR THE AIRPORT SHOULD BE THE LAST RESORT.
COMMENT
8. LU APPEARS TO BE IN A PARTICULARLY TETCHY MOOD. FROM HIS APPEARANCE ON TELEVISION, AND FROM WHAT MEMBERS OF NCNA AND THE JLG TEAM HAVE TOLD US, HE IS OVERWORKED. HE HAS PROBABLY BEEN PURSUED BY JOURNALISTS DOING ALL THEY CAN TO CREATE A STORY.
9. NONE OF THIS HOWEVER EXCUSES HIS COMMENTS. HIS REMARKS ON THE EXCHANGE FUND ARE MISLEADING, IN THAT HE APPEARS TO HAVE CLAIMED THAT IT IS COMPOSED OF ONLY THE FISCAL RESERVES AND THE FUND FOR THE ISSUE OF HONG KONG'S CONVERTIBLE CURRENCY. HE HAS OMITTED THE VERY SIZEABLE ACCUMULATED INVESTMENT EARNINGS.
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10. LU'S COMMENTS ARE TOTALLY AT VARIANCE WITH HIS OTHER REMARK (REPORTED SEPARATELY) THAT ISSUES BETWEEN THE TWO SIDES SHOULD BE DISCUSSED PRIVATELY. I DO NOT THINK WE CAN LET THEM GO UNANSWERED. NORMALLY, WE WOULD TAKE UP SUCH UNHELPFUL ACTIONS DIRECTLY WITH THE NCNA. BUT WE HAVE TO REMEMBER THAT LU IS NEW TO THE JOB. WE HAVE TO WORK WITH HIM IN THE YEARS AHEAD. THERE ARE RISKS IN PUTTING HIM ON THE SPOT IN HIS FIRST FEW WEEKS IN HIS NEW POST AND, IN PARTICULAR, DOING SO THROUGH NCNA WHOSE RELATIONSHIP WITH THE HKMAO IS AN UNCERTAIN QUANTITY ESPECIALLY AT PRESENT.
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11 I AM THEREFORE PLANNING TO ARRANGE, THROUGH NCNA, FOR A CONFIDENTIAL COURIER (PROBABLY MOAKES FROM THE PA'S OFFICE) TO TRAVEL TO CANTON TOMORROW (13 DECEMBER) WITH A LETTER FROM THE FINANCIAL SECRETARY TO DELIVER TO LU OR HIS PRIVATE SECRETARY PERSONALLY. WE WOULD SIMPLY TELL NCNA THAT THE LETTER WAS ON A SENSITIVE FINANCIAL MATTER. AFTER THE LETTER IS DELIVERED, GALSWORTHY WILL SPEAK PRIVATELY TO GUO FENGMIN, WHO WAS RECENTLY BRIEFED IN PERSON ON THE EXCHANGE FUND, TO EXPRESS MY CONCERN AT THE EFFECT WHICH LU PING'S REMARKS ARE HAVING AND AT HIS APPARENT MISUNDERSTANDING OF THE EXCHANGE FUND. WE WOULD NOT OF COURSE MAKE THE FACT OF THE LETTER, OR ITS CONTENT, PUBLIC.
12. THE FINANCIAL SECRETARY'S LETTER WILL EXPRESS CONCERN AT SOME OF LU'S REPORTED PUBLIC COMMENTS. IT WILL STRESS THE IMPORTANCE OF MAINTAINING A CONFIDENTIAL FINANCIAL DIALOGUE. ISSUES BETWEEN US SHOULD, AS LU PING HIMSELF HAS SAID, BE HANDLED PRIVATELY. THE LETTER WILL ALSO DEAL WITH THE APPARENT MISUNDERSTANDING ON THE EXCHANGE FUND, EXPLAINING WHAT THE POSITION REALLY IS. IT WILL REPEAT OUR COMMITMENT NOT TO USE NON-FISCAL RESERVES TO FINANCE THE AIRPORT. IT WILL EXPLAIN THAT THE HKG DOES NOT INTENT TO PUBLISH ITS LONG RANGE FINANCIAL ESTIMATES, ANY MORE THAN ANY OTHER GOVERNMENT DOES. IT WILL CONCLUDE BY LOOKING FORWARD TO A CONTINUATION OF CONFIDENTIAL DISCUSSIONS ON THE AIRPORT IN WHICH WE HOPE THAT THE INFORMATION PASSED TO THE CHINESE SIDE WILL REMAIN CONFIDENTIAL. OUR COMMON AIM MUST BE TO PRESERVE FINANCIAL AND ECONOMIC STABILITY.
13. GRATEFUL FOR CONFIRMATION DESKBY 13003OZ THAT YOU SEE NO OBJECTION TO THIS PROPOSAL.
Redacted under FOI exemption 27(1)