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7. Sir Y K Pao said that the Chinese (it was not clear at this point whether he was referring to Gu Mu or Zhao Ziyang) had asked Sir Y K's views about the possibility of a separate currency for the Special Economic Zones. Sir Y K's response
had been to ask whether the Chinese wanted the reserves of such a currency held in Hong Kong or in China. When the Chinese
said that they would probably favour China, Sir Y K had said that in this case there seemed little point in issuing a new currency. He had suggested that Gu Mu should discuss such financial questions during his visit to the UK. He reminded Lord Carrington that he would like Gu Mu's wife to launch his ship here in May. (At this point Sir Y K's comments became increasingly obscure.) He said that the Chinese Ambassador would be giving him a lift to the airport directly after the meeting with Lord Carrington. He intended to suggest to the Chinese Ambassador that he should send a telegram to Peking. This would say that Sir Y K had discussed the matter of a loan with the Prime Minister and with the Chancellor. Lord Carrington intervened to say that it was important that he. should not suggest to the Chinese that such a loan was agreed. It would be prudent to clear his lines first with Sir Geoffrey Howe. Sir Y K Pao said that he had no intention of committing Sir G Howe; he could say that Sir Geoffrey Howe had undertaken to look into the matter and would let him know. Lord Carrington suggested that the FCO might contact the Treasury and pass on a message if necessary to Sir Y K Pao in Hong Kong (he would be back there on 20 March and would be back in London again at the end of the month). He could, if necessary, speak to Sir Geoffrey Howe again on his next visit.
8. In conclusion, Sir Y K Pao mentioned that at the ship launch on 12 March Mrs Thatcher had said that she hoped to spend six days in China; two in Peking, one in Shanghai to launch Sir Y K's boat and three days elsewhere. She had asked the Chinese Ambassador for suggestions. The Ambassador and Sir Y K had suggested Xian and Guilin. Lord Carrington said that his impression had been that the Prime Minister could not spare so long for China; she also had to visit Japan and Hong Kong. But if she were to have a little extra time he agreed that Xian was a good choice both for the cultural relics and for the Rolls Royce factory.
9. Lord Carrington asked whether Sir Y K had seen Deng Xiaoping this time. Sir Y K Pao said that he had not but that Zhao Ziyang had confirmed that Deng was still firmly in charge and had explained to him the current policies of thinning out the bureaucracy.
to retire.
Lord Carrington asked whether Huang Hua was going Sir Y K Pao said that this seemed likely but there was no obvious successor. Under their new retirement rules (Ministers at 65) there was provision for exceptions to be made for those who had special skills. Huang Hua might therefore stay on. He commented that Hu Yaobang's position in the leadership was still weak. Zhao Ziyang, on the other hand, appeared to have established a good reputation and was well regarded.
10. The meeting closed at 11.30 a.m.
Far Eastern Department
Foreign and Commonwealth Office
17 March 1982
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