TNAG-0616-FCO40-764-Policy-of-UK-on-status-of-Hong-Kong-1977 — Page 52

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DSR 11C

CONFIDENTIAL

4.- Among China's economic partners in Western Europe,

the United Kingdom has in recent years played a

diminishing role (with fewer exports to China in 1976 than

Italy). A main factor was the reluctance of British firms

to undertake fixed price contracts at a time of rapid

inflation. The Chinese may also have mistrusted the

British Government's policies towards the European Communit

which China wishes to strengthen, and towards the Soviet

Union. Now, however, the Chinese have made it clear that

they see the United Kingdom as an important potential sourd

of equipment and technology in the civil and defence fields

As long as British exporters' terms are competitive,

substantial commercial opportunities are offered, to the

advantage of British employment and the balance of payments

5. .At present, China is particularly interested in

obtaining Western European assistance in the defence field.

There have been a number of recent visits and expressions

of willingness to purchase military equipment. This

primarily reflects China's need to improve her military

capability vis-à-vis the Soviet Union. Chinese equipment,

based for the most part on old Soviet models, is from ten

to twenty years out of date. It is true that China's

nuclear capability, the size of her army and the difficulty

of the terrain make a successful Soviet attack very unlikel

Nevertheless, Chinese leaders have made it clear that they

are giving high priority to modernising the equipment of

the Chinese armed forces. Given their ambitions on the

civil side as well, they will be reluctant to increase the

proportion of Chinese Gross National Product devoted to

Instead their aim appears to be to procure

defence.

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CONFIDENTIAL

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