TNAG-0963-FCO40-1182-Air-services-between-China--Hong-Kong-and-the-UK-1980 — Page 5

CONFIDENTIAL

HONG KONG/SHANGHAI AIR SERVICES : ESSENTIAL FACTS

1.

Services between Hong Kong and Shanghai started in June,

operated by CPA and CAAC, When CPA started to fly to London,

they stopped operating to Shanghai, since under the terms of the

Confidential Memorandum of Understanding (CMU), an airline was

not permitted to operate both on that route and on the trunk

route to London. We therefore suggested to the Chinese that a

subsidiary of CPA, Hong Kong Airways (HKA) should be allowed to

operate in place of CPA; they objected to this arrangement on

the grounds that HKA was undistinguishable from CPA. KKA was

then reconstituted in a different way to weaken its links with

CPA (although it would still lease CPA aircraft) and we formally

designated it to operate on the route. The Chinese, however,

still did not accept HKA. We therefore stopped CAA's service

to Shanghai. Recently, in an effort to settle the problem, we

have granted licences for CAAC to operate from Kumming, Tianjin

and Hangzhou to Hong Kong until 31 March (although they were

entitled to operate these services, we had been withholding this

permission as a bargaining counter). A further round of talks

takes place in Peking in December, at which the Hong Kong

Government will be represented.

2。

>

The Chinese have made counter proposals including rights for

CAAC through Hong Kong to London and across the Pacific. There

is little in this for us, but we have told the Chinese that we

are willing to discuss their proposals once the existing agreement

is implemented in full. We would not give them rights Hong Kong/

London (which is technically an internal or cabotage route on

which only UK airlines may fly) and there is little likelihood

that we would give them rights over the Pacific either.

CONFIDENTIAL