CONFIDENTIAL
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Thoy
that they were not prepared to guarantoo any part of the loan. asked the Hong Kong Government to take the lattor's 25% option ($27.5 million) and to persuade the Yaunati Forry Company to take up tho romaining $21.5 million. The Governor, however, in reporting this approach, said that ho might profor to take up the whole $49 million and to offor 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 havo made the tunnel project less of a good commercial risk but havo greatly increased its political importance. The local Communist clononts have sought by propaganda, intimidation and violence to undormino the confidence of the people of Hong Kong in our ability to maintain our authority and administration there. They have failed so far because the vast majority of Chinoso have firmly and oponly supported their Government and the cxisting order. But the battlo of sustaining public confidence requires that the outside world and Britain in particular should dononstrato support for Hong Kong and show confidence in their ability to withstand these prossuros. The Hong Kong Government are concerned that indefinite postponement of the tunnel project would be intorproted in Hong Kong as an indication of the outside world's lack of confidence in the Colony's futuro. It is not know whothor, if Costrins had to withdraw, one of the other tondering firms would still wish to procood but ovon if the project wore to be savod denago to confidence occasioned by the with- holding of British financial support would romain and a major and probably prostigious ongincoring contract would almost certainly be lost to Britain.
11. Costains' tonder expirod on 28th Juno but they agrood to oxtond it until 31st August on cortain conditions one of which was that a further £35,000 should be paid by the Tunnol Company (the Hong Kong Government agreed to reimburse the Company 50% of this payment). Successive extensions have kopt the tender opon until now. In spite of the troubles and of their retroat from their previous position on shareholdings and on guaranroos, tho Tunnol Company still insist that they wish the project to proceed.
CONFIDENTIAL
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