CO129-606-4 Hong Kong Loan- government grant 1-4-1947 - 2-3-1948 — Page 10

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I have revised the draft in consultation with Mr. Palmer.

The proposals as put forward in the letter are for a general financial settlement between H.M. G. and Hong Kong whereby

(1) The repayment of past loans-in-aid to

Hong Kong amounting to

(2) There would be a free grant to

....£3,250,000

Hong Kong provided that Hong Kong accepts certain liabilities

arising out of the War as a final charge

(3) There would be a grant towards the

cost of the rehabilitation of the University up to

(4) There would be an interest-free

loan towards the cost of con-

£5,000,000

.....£ 250,000

struction of a new airport up to ...£3,500,000

The foregoing thus involves grant assistance to the extent of £8,500,000 and loan assistance up to £3,500,000.

The proposals are in line with those put forward by the Governor of Hong Kong. Where there is any difference, the reasons are explained in the draft letter to the Treasury.

Our proposals are based on the two very important assumptions set out in paragraph 3 of the letter. Mr. Palmer would prefer to include in the letter our proposals for dealing with the contingency that the first assumption proves to be false and that Hong Kong is obliged, contrary to the Governor's recommendations, to make ex-gratia payments of compensation for war damage. This might happen, for example, if the announcement of a war damage scheme in Malaya gave rise to a strong public demand for one in Hong Kong which couldn't be resisted. We could not, however, put forward any such proposals without consultation with the Governor and that would inevitably take time and delay the submission of our proposals for the general financial settlement with Hong Kong. It is clearly very desirable that these proposals should go in as quickly as possible, so that they can be considered in conjunction with the Malayan principles, and I think that what is said in paragraph 3 of the draft as it stands safeguards the position sufficiently. If the Treasury are not prepared to consider our proposals on the basis of the assumption that it is eventually decided that no compensation should be paid in respect of war damage in Hong Kong except where there is a legal liability, it will, of course, be open to them to say so, and we shall have to go into the matter further. But there is an obvious advantage, from our point of view, in not implying that this question must be gone into, as we should do if we were to put forward proposals in this letter to meet the contingency that compensation will have to be paid for war damage in Hong Kong.

by marle

4.2.48.

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