CONFIDENTIAL
China
17. In the negotiation in Peking in June 1979, the opportunity was taken to sound out the Chinese on their attitudes towards the desig nation of alternative Hong Kong-based carriers on the regional route: between Hong Kong and the People's Republic of China and towards the suggestions (which had by then become public) for competing services on the London-long Kong route.
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18.
The leader of the Chinese delegation said he did not expect there would be any difficulty if we were to designate Cathay Pacific, or an airline specially revived or established for the purpose by one of the rival companies such as Jardines on the regional routes. However, he thought, it would be "very difficult" (an expression which he has always used to mean "impossible") if CPA were to operate service between London and Hong Kong: since, as he put it, this would mean giving Cathay Pacific in effect a route between London and Shanghai which the Chinese were refusing to BA at this stage and which would not be available to CAAC. On the other hand he did not think that a decision to allow BCAL or Laker to compete with BA on the London-Hong Kong route would give the Chinese any cause for
concern,
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19. He Wat S
not asked what the Chinese reaction would be if CPA were to be authorised to operate a service between London and Hong Kong and if a subsidiary of CPA were to be designated for the regional routes. If this were contemplated, it would clearly be prudent to clear the proposal with the Chinese in advance.
Taiwan
20. Taiwan's reactions to the establishment of a service between London and Hong Kong by CPA would probably be much the same as those of the Philippines and Korea, except that CAL have little hope of ever establishing a direct route to London, Since we have no diplomatic relations with Taiwan, any reactions would be at airline level.
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21. If CAL were to seek compensation in the form of the grant of rights beyond Hong Kong which would affect BA's interests, it must be assumed that these would be refused.
22.
It is unlikely that the Taiwanese would react in any way if competition on the London-Hong Kong route were provided by BCAL, Skytrain, or whole-plane charters.
Japan
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23.
It seems unlikely that the start of a Hong Kong-London route by CPA would have any direct effect upon our relations with Japan. JAL already operate three services per week oń the Silk Route between Hong Kong and London; and although in practice these serve a partial offset to CPA's large excess of fifth freedom earnings on regional routes the Japanese might well be inclined to regard anything
CONFIDENTIAL
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