Page
SECRET
778
013541
MDHOAN 3309
SECRET
FM FCO
TO IMMEDIATE HONG KONG
TELNO 910
OF 10180OZ MAY 91
HKB 182 12.
13 MAY 1991
TOP COPY Q DIST?
INFO PRIORITY PEKING, UKREP JLG HONG KONG, CANBERRA
PERSONAL FOR DEPUTY TO GOVERNOR FROM BURNS, AUSS
(UKREP JLG HONG KONG: PERSONAL FOR GALSWORTHY) (CANBERRA: PLEASE PASS TO GOVERNOR)
PLEASE
OUR TELNO 877 : AIRPORT PROJECT BORROWING
1.
LORD CAITHNESS HAS SUGGESTED THAT WE EXPLORE FURTHER THE REQUIREMENT IN PARAGRAPH 12(A) OF OUR TUR. AS I SEE IT, THE
HK DOLLARS 10 BILLION CONDITION WAS INSERTED INTO YOUR PRESENT FISCAL PROPOSAL TO ENABLE YOU TO OFFER THE PRESENT BEST-ENDEAVOURS FORMULA TO REACH 25 BILLION FISCAL RESERVES BY 1997. THIS HAS CAUGHT THE CHINESE ON THE RUN BECAUSE IT THUS SEEMS EXPLICITLY TO DETRACT FROM THE VALUE OF THE 25 BILLION. THEY HAVE ONLY THEMSELVES TO BLAME FOR WILFULLY MUDDLING UP ESTIMATES AND GUARANTEES. BUT WE ARE LIKELY TO HAVE TO GET THEM OFF THEIR
HOOK.
2. ONE OPTION, AS YOU HAVE SUGGESTED, IS TO REDEFINE THE 10 BIILLION IN 1997 PRICES. ANOTHER OPTION IS TO REVERT TO THE EARLIER FORMULATION (YOUR TELNO 58 TO PEKING) OF A 14 BILLION SET ASIDE, PLUS INTEREST, BUT WITHOUT THE BORROWING PROVISION (AND WITHOUT THE EXPRESSED TARGET OF A 25 BILLION FISCAL RESERVE IN 1997). THIS HAS ITS DANGERS, OF COURSE: THE CHINESE MIGHT WELL ACCEPT THIS FORMULATION BUT THEN NOT AGREE TO ANY BORROWING OR INSIST IT IS ALL REPAID BY 1997. ARE THERE ANY OTHER OPTIONS WE CAN HAVE UP OUR SLEEVE, EG, CAN WE ADD A GLOSS TO THE 10 BILLION BY PROMISING TO INFORM THE CHINESE IF WE NEED TO TAKE ADVANTAGE OF THAT PROVISION IN THE AIRPORT CONTEXT?
3. SINCE THE 10 BILLION IS MEANT FOR HONG KONG-WIDE NEEDS, COULD WE PREPARE A STATEMENT OF THE COLLATERAL FOR SUCH A DEBT AND WHY THEREFORE IT CANNOT BE FOR HMG TO INCUR ANY LIABILITY TO REPAY AND WHY IT DOES NOT MAKE SENSE TO DEMAND REPAYMENT BY 30 JUNE 1997?
4. WE WOULD ALSO BE GRATEFUL FOR YOUR THINKING ON HONG KONG'S CONTINGENT LIABILITIES (PARAGRAPH 5 OF OUR TELNO 855). NOT ANOTHER AREA IN WHICH THE CHINESE COULD INSIST ALL LIABILITIES ARE DISCHARGED BEFORE 1997?
PAGE
SECRET
1