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5 Sir Y K Pao confirmed to Mr Channon on 2 October that this is a

priority project for Chinese authorities; that the UK should play a lead role

in implementation and that self-financing will be required as part of

financing package (also to include equity and loans). The sheer size of this

project gives rise to serious problems in terms of the quantum of aid. It

may be possible to provide aid to discrete equipment packages (eg blast

furnaces). Davy consortium is considering introducing European partners to

share financing burden - DTI encouraging this.

6 Ningbo could provide major opportunity for UK exporters. It is

important that we should make clear our interest in the project and

willingness to at least consider a measure of soft-finance support, if the

apparently preferred position of UK companies is to be maintained.