training of Chinese students in Britain and consultancy advice to the Chinese by British consultants. Britain has no capital aid programme for China. There is a strong case for capital aid to China both on developmental and commercial grounds but there are competing claims on the aid budget. An early capital aid programme would give China a clear signal of HMG's wish to take the political opportunity for closer relations afforded by the Hong Kong agreement and would not only improve the bilateral atmosphere generally and manifest our wish to increase trade but would also provide the best possible background for implementation of the agreement. The options for using perhaps £5M of the small amount of money still unallocated for 1985/86 are to be considered by the Foreign Secretary in January and the relative importance of China will have to be assessed in that context. As a Communist country, China is also strictly speaking - ineligible for aid-trade provision (ATP) finance. However the possiblity of ATP funding for China could be re-considered, subject to Ministerial agreement, if a suitable project were identified.
China is eligible for the full range of normal ECGD credit insurance facilities on Consensus terms (interest rate currently 10.7%). The Chinese say these terms are unattractive and frequently ask about softer credit. They have had soft loans from a number of countries including Japan, which has provided massive loans for the development of energy, transport and industry but also from several European countries including Belgium, The Netherlands, Denmark, Sweden, Italy and (most recently) the Federal Republic of Germany; during Chancellor Kohl's recent visit, the FRG promised China soft loans for capital projects in addition to the successful FRG technical co-operation programme already under way.
On the advice of the Export Guarantees Advisory Council, ECGD has recently re-graded China from Category B to Category A (the lowest risk category for assessing credit insurance premium). This will make a significant difference to the premium payable for the Guangdong nuclear project and improve the competitiveness of the UK bid for that project. The improvement will also apply to other business insured by ECGD.
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Import Restrictions
Chinese exports to the EEC of textiles are restrained under the EC/China Textile Agreement. Certain other Chinese products are also subject to quota. The UK has quotas for shoes, hats, gloves, pottery, matches, silk and certain flax items. Other Chinese products such as TV sets are not allowed to be imported into the UK at all. The EC/China Trade and Economic Co-operation Agreement (recently renewed) obliges the EEC to strive to reduce restrictions on imports from China. For 1985 the EEC has decided to increase UK import quotas for Chinese pottery by 5% from
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