GRS 1000
SECRET
SECRET
DEDIP
EM HỒNG KONG
TO IMMEDIATE FCO
TELNO 766
OF 130845Z MARCH 86
*
TOP COPY
FOLLOWING PERSONAL FOR PRIVATE SECRETARY FROM GOVERNOR.
MY TELNO 683
SIR Y K PAO.
1. WE HAVE SENT SEPARATELY OFFICIAL BRIEFING ON SIR Y K PAO'S BUSINESS INTERESTS AND IN PARTICULAR THE AMBITIONS OF DRAGONAIR.
2. Y K WILL VISIT PEKING IN APRIL, AFTER HIS VISIT TO LONDON. ANY LONDON DISCUSSIONS ON HONG KONG COULD THUS BE OF MORE THAN USUAL IMPORTANCE: AND SINCE HE IS TO SPEND THE WEEKEND AT CHEVENING AND ALSO SEE MR RENTON THEY MAY FIND IT USEFUL TO HAVE SOME MORE CONFIDENTIAL AND PERSONAL ASSESSMENT OF HIS POSITION IN HONG KONG
TODAY.
A
3. AT THE BUSINESS LEVEL HE IS OBVIOUSLY AMONG THE MOST SUCCESSFUL OF HONG KONG BUSINESSMEN (ALTHOUGH K S L LP KA SHING IS IN THE SAME LEAGUE). HE WAS YEARS AHEAD OF THE OTHERS IN SEEING THE EFFECTS OF THE DOWNTURN IN SHIPPING AND IN TURNING HIS ATTENTIONS TO PROPERTY, TRADING AND FINANCE. SUSPECT THAT, IN PART, EN PURSUING HIS INTERST IN DRAGONAIR HE HOPES TO MAKE HMS MARK IN ANOTHER INTERNATIONAL PRESTIGEOUS AREA OF BUSINESS.
4. THERE IS NOW A CHINESE AND THEREFORE POLITICAL ELEMENT INVOLVED. Y K PAO MAINTAINS THAT THE INITIATIVE IN SETTING UP DRAGONAIR CAME FROM THE CHINESE STATE COUNCIL (PROBABLY ZHAO ZIYANG HIMSELF) WHO ORIGINALLY WANTED A HONG KONG/CHINESE AIRLINE TO COMPETE IN CHINA WITH CAAC. THEY DISCOVERED THAT THE FIRST HONG KONG BUSINESSMAN TO GET INVOLVED DID NOT MEET THE NATIONALITY REQUIRMENTS FOR A HONG KONG AIRLINE. Y K PAO WAS THEREFORE PERSUADED BY THE CHINESE TO BECOME A SUBSTANTIAL SHAREHOLDER. CATHAY PACIFIC SUSPECT THAT THE AMBITIONS OF THOSE NOW PROMOTING DRAGONAIR INCLUDE REPLACING CATHAY AS THE HONG KONG AIRLINE IN 1997. CATHAY DO NOT PROPOSE TO CO-OPERATE IN ANY ARRANGEMENT WHICH COULD LEAD TO THIS: HENCE THE IR INSISTENCE THAT ANY AGREEMENT BETWEEN CATHAY AND DRAGONAIR SHOULD INCLUDE A CONTROLLING INTEREST WHICH WOULD MAKE DRAGONAIR A SUBSIDIARY, SHORT HAUL, AIRLINE COMPLEMENTARY, TO CATHAY. WHETHER Y K PAO'S AMBITIONS (AND THE FACE OF THE ''BARONS'' IN PEKING BEHIND THE INITIATIVE) CAN BE RECONCILED WITH THIS REMAINS TO BE SEEN. IF THEY CANNOT WE MAY HAVE ANOTHER BATTLE OF TITANS ON THE SCALE OF HIS
SECRET
/BATTLE
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