SECRET AND PERSONAL
although they have acknowledged the need to resolve the problem if possible before Mr Patten's arrival. They have suggested further discussions in the framework of the Airport Committee (ie between the two JLG Delegations in Hong Kong) and have not yet put on the table their full list of difficulties with the Hong Kong Government's proposals.
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We have in the meantime been working with the Hong Kong Government on ways of meeting what seems to be the central Chinese concern: that any callable equity should be extinguished on or before 30 June 1997 (my letter of 19 May). There are a number of options for achieving this details are in the Annex. Any of these would meet the Chinese point. The problem is not with finding the money to do this
Hong Kong's financial position looks likely to remain strong in 1997. The difficulties are (i) presentational, to avoid the impression of a climb down in the face of Chinese pressure and (ii) in negotiating terms, to ensure that a move on callable equity will allow all of the remaining Chinese points of difficulty to be resolved.
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We
In terms of tactics, it looks as if the Chinese are waiting at least until the Prime Minister's meeting with Premier Li Peng in Rio on 12 June before relinquishing their hold over the airport financing arrangements. will let the Prime Minister have advice on the line to take with Premier Li Peng separately. But there is an opportunity to prepare the way for progress at the meeting with Li Peng when the Governor makes his farewell visit to Peking on 7 and 8 June. The Governor proposes, and the Foreign Secretary agrees, that Lord Wilson should
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