ร
3
CONFIDENTIAL
GEC and NNC estimate that hundreds of manufacturing firms would be involved in
roducing components for the project and that orders would be placed widely among small firms as well as larger companies.
C
POLITICAL
11 It is anticipated that the China Light and Power Company will participate in the new company which will be set up to manage the Guangdong nuclear power station, although the exact nature of that participation is still for negotia- tion between the Chinese and Hong Kong authorities. Whatever the eventual shape of the management company, in the early years of power generation CLP are likely to be the principal client of the power station, paying in Hong Kong dollars for electricity supplies. The Chinese see this flow of Hong Kong dollars as crucial to the project's viability, and the time-scale of the project implies that China would be looking to CLP for a supply of Hong Kong dollars after the 1997 expiry of the United Kingdom's lease for the New Territories. The project therefore has favourable implications for long-term relations between Hong Kong and China. The Hong Kong Government would also welcome the project as a way of strengthening economic links between Hong Kong and Guangdong Province and helping maintain confi- dence in Hong Kong at a time when the Territory's future is under scrutiny.
12 The project would also thicken Anglo-Chinese bilateral relations by substan- tially elevating the level of our contribution to Chinese economic development. This in turn would re-inforce the overall orientation towards the West that has begun to mark China's world view in recent years.
D
13
FINANCIAL
In the inter-governmental discussions held in Guangdong in July, the Chinese expressed dissatisfaction with the financial terms offered by a DoI-led delegation including representatives of GEC, Schroder Wagg, BNFL and ECGD. The UK side proposed a finance package which included export credit at a 10% rate of interest over 15 years, including cover for local costs up to a value equal to 15% of the UK . content. Disappointed that those terms did not match those envisaged in the fea- sibility study on the project, which had foreseen offshore finance available at an interest rate of 72%, the Chinese asked for an aid element to be included in the package to reduce the effective interest rate to them.
14 In asking for a "Government to Government loan", the Chinese laid great
emphasis on offers of soft finance from other Western countries and Japan; details of soft funding offers by Belgium, Japan, Denmark, Sweden, Australia and Canada are set out at Annex B. And in the light of this evidence of an increasing willing- ness in other West European countries to provide aid in pursuit of their commercial interests in China, our Embassy has urged that serious consideration should be given to the UK's position.
15 Moreover, were the French to be in a position to bid for the whole of the Guangdong power station, there is reason to think that they would exceed Consensus terms. An offer of finance made by the French to the Chinese in 1980 in support of an all-French bid for the project widely thought to have included an interest free period up to commissioning was regarded by the Chinese as extremely attractive and will inevitably have coloured their expectations.
Cost of Aid
16.
The Chinese request for soft finance, if met in full from the ATP for the whole project, would imply an aid input of over £300m. This is clearly an unacceptable price to pay even for such potentially valuable contracts.