TNAG-0948-FCO40-1167-Effect-of-nuclear-exports-to-China-on-Hong-Kong-Guangdong-nu-1980 — Page 72

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There are at present two main reasons why the deal may not materialise. Firstly, Peking, who would have the final decision on a project of this importance, may eventually decide not to proceed at all with a venture which is currently being pursued at the initiative of Guangdong. Peking's current attitude is one of caution, although they are willing to look at the results of a feasibility study. Secondly, there can be no certainty that the Hong Kong connexion will ensure the level of benefit to UK industry indicated above: the Chinese could award the whole of the contract to one of our competitors, and the French have been particularly active. Consideration of the issues involved should take account

of these possibilities.

5 The major issues which need to be considered are those of nuclear proliferation and foreign policy; the relationship between China and Hong Kong; and industrial policy including nuclear co-operation with countries who are potential suppliers of PWR nuclear steam supply systems.

NUCLEAR PROLIFERATION AND FOREIGN POLICY CONSIDERATIONS

6 Successful negotiation of the contract would reflect the importance of, and potential for, commercial co-operation between China, the UK and Hong Kong; and increase China's interest in Hong Kong's stability and prosperity. It is, however, apparent that the Chinese will not take commercial discussions much further until they have a firm indication of the non-proliferation terms and conditions we will seek. They have stated that they will not accept inspection of the nuclear installation and the French have already assured the Chinese that they would require no more than an undertaking not to divert from civil to military purposes any nuclear materials and equipment supplied.

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In looking at the problem, we must consider:-

(a) our long-term policy towards the Chinese on this issue;

and

(b) short-term tactical considerations

CONFIDENTIAL