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BY LU YING ON PHILCOX/POTTER NET, A COPY OF WHICH IS BEING
SENT TO YOU BY BAG. WE BELIEVE CHINESE TOOK FULLY ON BOARD THAT HMG
WOULD NOT BACK THE PROJECT UNLESS GEC SECURED THE WHOLE
CONVENTIONAL ISLAND. THE MINISTER REMAINED CONCERNED, HOWEVER,
DESPITE USEFUL INDUSTRIAL VISITS TO GEC FACTORIES, THAT GEC COULD
NOT MATCH FRENCH DEPTH OF PWR EXPERIENCE AND SERIES PRODUCTION: WE
BELIEVE THIS, RATHER THAN PRICE, IS THE MAIN CONCERN. BUT WE ALSO
BELIEVE CHINESE ACCEPT THAT THEY IN THE END MUST GIVE GEC THE
CONVENTIONAL ISLAND TO SECURE. HONG KONG'S PARTICIPATION IN THE
PROJECT. THEY WILL NOT COMMIT THEMSELVES TO GEC UNTIL THEY HAVE
EXPLORED FURTHER THE EQUITY QUESTION AND ARE CONFIDENT THAT A
SATISFACTORY OFF-TAKE AGREEMENT CAN BE ACHIEVED. WE BELIEVE THAT
THE OFF-TAKE ISSUE CAN BE RESOLVED BUT ARE LESS SANGUINE ABOUT
RAISING THE FOREIGN EQUITY HOLDING, NOT LEAST BECAUSE OF THE OPEN-
ENDED NATURE OF SUCH A COMMITMENT. I UNDERLINED THE DIFFICULTY ON
EQUITY WHILST TRAVELLING IN THE CAR WITH THE MINISTER TO HEATHROW
YESTERDAY, WHILST AT THE SAME TIME REITERATING THAT FROM THE CHINESE
POINT OF VIEW IT WAS REALLY THE OFF-TAKE AGREEMENT WHICH WAS
IMPORTANT.
9. ON CAPITALISATION I AM SENDING YOU IN THE BAG A COPY OF THE
EXCHANGE OF CORRESPONDENCE BETWEEN MINISTERS. (THIS SHOULD NOT BE
REVEALED TO CLP AT PRESENT.)
10. WE FELT ALL THE WAY THROUGH THE DISCUSSIONS THAT DESPITE THE
CHINESE WORRIES ABOUT GEC'S LACK OF EXPERIENCE ON 900 MW SETS THEY
RECOGNISED THE STRENGTH OF THE UK'S POSITION IN HONG KONG. IN FACT
AT ONE POINT THEY USED THE EXPRESSISON QUOTE. HONG KONG CARD UNQUOTE.
11. ON TIMING OF DISCUSSIONS WE WERE ANXIOUS NOT TO HAVE TALKS ON
HONG KONG ASPECTS BEFORE TECHNICAL DISCUSSIONS IN PEKING, HENCE
COMPROMISE OF PARALLEL TALKS. LI PENG AND VICE-GOVERNOR YE BOTH
HOPE, SUBJECT TO THEIR GOVERNMENT'S APPROVAL, TO TAKE PART IN HONG
KONG DISCUSSIONS.
12. YOU SHOULD KNOW LI PENG WENT TO FINLAND FROM UK IN RESPONSE TO
LONG-STANDING INVITATION UNRELATED TO GUANGDONG BUT HE IS RETURNING
FROM FINLAND TO PEKING ON WEDNESDAY VIA ZURICH.
13. WE ARE CONSIDERING IN LIGHT OF OUR DISCUSSIONS APPROACHES TO THE
FRENCH AND HONG KONG GOVERNMENTS. DEPENDING ON THE DISCUSSIONS WITH
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