CONFIDENTIAL
3.
They
that they were not proparod to guarantoo any part of the loan. asked the Hong Kong Government to take the latter's 25% option ($27.5 million) and to persuade the Yaurati Forry Company to take up the remaining $21.5 million. The Governor, howover, in reporting this approach, said that ho might profor to take up the whole $49 million and to offer the Forry Company no more than would leave control in the hands of the Hong Kong Government and of the Hong Kong and Shanghai Bank.
10.
Recent events in Hong Kong have made the tunnel project less of a good commercial risk but have groatly increased its political importance. The local Communist olomonts havo sought by propaganda, intimidation and violence to undermine the confidence of the people of Hong Kong in our ability to maintain our authority and administration thoro. They havo failed so far bocause the vast majority of Chinese have firmly and oponly supported their Government and the existing order. But the battle of sustaining public confidence requires that the outside world and Britain in particular should domonstrate support for Hong Kong and show confidence in their ability to withstand those pressures. The Hong Kong Government arc concerned that indefinite postponement of tho tunnol project would be interproted in Hong Kong as an indication of the outside world's lack of confidence in tho Colony's futuro. It is not known whothor, if Costains had to withdraw, one of the other tendering firms would still wish to procood but ovon if the project wore to be saved demago to confidence occasioned by the with- holding of British financial support would romain and a major and probably prostigious engineering contract would almost certainly be lost to Britain.
11.
Costains tonder expired on 28th Juno but they agrood to extend it until 31st August on cortain conditions one of which was that a further £35,000 should be paid by the Tunnel Company (the Hong Kong Government agrood to roinburse the Company 50% of this paymont). Successivo extensions have kopt the tender opon until now. In spite of the troublos and of their retroat from thoir previous position on sharoholdings and on guaranroos, the Tunnol Company still insist that they wish the project to procosd.
Mapa makan dan de Van D
CONFIDENTIAL
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