Cobr Mi Thomas
FED TRED
FR Barratt Esq CB Deputy Secretary HM Treasury Parliament Street LONDON SW1P 3AG
A Rall
METCAM:
T.S
He 1173
RECEIVED
INDEX
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42
DEPARTMENT OF INDUSTRY
ASHDOWN HOUSE
123 VICTORIA STREET
LONDON SWIE 6RD
TELEPHONE DIRECT LINE
731 FRA
8 MAR 1979
two AR 197
$26/1/175.7
£ HKG P Then cocht haben fél
HONG KONG MTRC PHASE II
SWITCHBOARD
08-212-6904
01-212 7676
FEZ 121/14
- 5 MAR 1979
15 February 1979
1..
A
مح
Thank you for responding so promptly to the pressure on us to counter the Japanese credit manoeuvres on this contract, the outcome of which you summarised in your letter of 25 January I have delayed replying 'till now because events were moving so rapidly.
G
As you know, in the event, ECGD directly matched the Japanese terms and the device of drawing the loan down on the first day and putting the money into fine securities was not employed. I recognise, however, that this approach would have been exceptional, and I have underlined this to Lazards and all others concerned. The operation was entirely successful, and the rolling stock contract was awarded to METCAM. Our speed of response has won high praise from the company and our friends in Hong Kong, and I am very grateful for your help in achieving this.
This leaves your more general point about Japanese finance and credit policies. The dominant feature of Japan's trade policy" has been, and continues to be, the aggressive drive to capture world market share in chosen product areas. Inthis, the manip- ulation of financing plays a key role, and their institutions trading houses, large and diverse industrial groups, and links between banks, companios, and central Government make suotorduge extremely difficult to detect.
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There is, therefore, a strong predatory strain in Japan's approach to credit support, though ostensibly abiding by the terms of the commentai. Whin particular cane, and the "development credits" allowed for gaining access to you male maske they require, are but two instauces. And, under pressure of appreciating yen, we are likely to see these trends continue, irrespective of whatever good intentions the Japanese Government mouth about reducing their balance of payments surplus.
I would go along entirely with your concern, therefore, Lint wo should take steps to curb Japan's aggressive credit policies. But I differ in the emphasis of what we should do about it. Certainly, let us consider how we might bring pressure to bear
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