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CONFIDENT IAL

Hong Kong taxpayer would have been glad to see

there in the interests of the Colony and its

economy. We even at present seem to be on the

point of admitting foreign airlines to the

Airport whose access to Hong Kong is in the

wider interest neither of the Colony nor of

our administration there. All this we have

done in the interests of our own airlines. But

in doing so we are sailing desperately near

the wind in regard to our obligations under the

recognise as paramount U.N. charter to give priority to the interests

of the peoples of our dependent territories of

which, of course, Hong Kong is by far the

largest still remaining. A loan from U.K.

funds to finance the expansion of the airport

would go some way at least to make our

position more respectable and help us to retain

it in the future. Otherwise I doubt very

much whether we ought to attempt to continue to

sustain it.

7.

Y

If it were thought necessary to attach

to any loan the conditions that it be spent

on U.K. goods and services and that in

consequence Hong Kong should not in this

instance follow its normal practice of going

to international tender, I would be ready to

accept this. Even if Hong Kong refused a

loan on these terms our moral and political

position would be improved. If they accepted,

we should have combined good business with

good morality, which is surely the best

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/position