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Our concern is not made the less by the fact that these suggestions as they relate to this Department are not true. As I understand it, Galsworthy told Percival on his return from visiting Hong Kong that he had not raised with them the additional conditions which were the subject of Galsworthy's letter of 24th November and Percival's letter of 6th December last year. If this is so I am not clear what "raising the conditions" is intended to refer to. Another difficulty here is that Cowperthwaite's references seem to apply not merely to our own conditions for covering half the £10 million loan but to Treasury's conditions for guaranteeing the other half. The confusion that can exist between these two aspects of the proposal can be seen from a draft letter which John Gowers has very kindly prepared to send to Hannam in which he refers to one of the Treasury's requirements (that the Tunnel Company's money should be committed before the loan was drawn on) as though it were an E.C.G.D. commercial underwriting requirement.
6.
The question is what should be done about this. Gowers is quite rightly proposing to write to Hannam by this week's Bag and I will be agreeing the draft letter with him explaining to Hannam the position as we see it. I wonder, however, whether some more formal approach should not be made to the Government of Hong Kong to make it clear that at least any public announcement that is made (if one is necessary) should accurately reflect the position. It is not unfortunately possible to stop inaccurate comment on a gossip level but here again I think all Departments should use whatever means are open to them to make the realities of H.M.G.'s position clear.
7. For our part we see no necessity to take up a defensive posture on this matter. We were prepared to consider comercial proposals which were subsequently withdrawn and when the whole matter became political we made our position plain that we could only continue to examine these proposals in commercial terms. Whether Treasury wish it to be generally known that H.M.G. was prepared to give a guarantee in respect of half this scheme I do not know. It will be a pity if it were not so, however, since here again this appears to represent a very generous approach on behalf of H.M.G.
8. I am sure that you and Hawkins to whom I am copying this letter will wish to consider what action should be taken, vis-a-vis, Hong Kong to settle this matter, if it is to be settled, as sensibly but also as fairly as possible. E.C.G.D. have no intention of being made a scapegoat for the Hong Kong Government's second thoughts in this matter.
Pers
Flitters
(K. W. Cotterill)
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