CONFIDENTIAL
124613
MDHOAN 5748
WHETHER IT WOULD BE PRACTICABLE TO PRESS ON WITH THE PROJECT IN THE FACE OF INCREASING CHINESE HOSTILITY. IT WOULD BE HELPFUL TO HAVE YOUR ASSESSMENT ON THIS. WE IMAGINE THAT AS CHINESE OPPOSITION BECOMES MORE STRIDENT, INTERNATIONAL INVESTORS WOULD BECOME INCREASINGLY WARY AND SERIOUS TENDERER'S MIGHT LOOK FOR A SUBSTANTIAL QUOTE RISK PREMIUM UNQUOTE FOR THEIR PARTICIPATION. GIVEN THE UNCERTAIN WORLD ECONOMIC OUTLOOK, AND IN PARTICULAR THE POSSIBLE EFFECTS OF WAR IN THE GULF, THERE MUST BE A REAL DANGER THE PROJECT AS NOW CONCEIVED WOULD PROVE TO BE UNMANAGEABLE.
4. EVEN IF YOUR JUDGMENT WAS THAT THE PROJECT WOULD BE FINANCIALLY VIABLE IN THESE CIRCUMSTANCES, THE IMPLICATIONS FOR CONFIDENCE AND RELATIONS WITH CHINA GENERALLY WOULD NEED TO BE WEIGHED CAREFULLY. A CONTINUING MAJOR ROW WITH THE CHINESE OVER PADS WOULD PRESUMABLY JEOPARDISE COOPERATION ACROSS THE BOARD. HOW WOULD LOCAL OPINION REACT TO SUCH A SITUATION?
5. OPTION (B) IS ESSENTIALLY WHAT THE CHINESE ARE ASKING FOR. LEAVING ASIDE THE WIDER IMPLICATIONS FOR CONFIDENCE IN THE AUTHORITY OF THE HONG KONG GOVERNMENT, THERE MUST BE A RISK THAT THIS APPROACH WOULD RESULT IN UNACCEPTABLE DELAY TO THE PROJECT WITHOUT ANY GUARANTEE OF A SATISFACTORY OUTCOME. ON THE OTHER HAND THE SPECIAL CHARACTERISTIC OF THE AIRPORT PROJECT, INCLUDING ITS UNPRECEDENTED SCALE AND POST-1997 IMPLICATIONS SUGGEST THAT IT MIGHT BE POSSIBLE TO HANDLE CONSULTATIONS WITH THE CHINESE OVER PADS IN A WAY THAT LIMITED THE DAMAGE LOCALLY. WAR IN THE GULF AND THE UNIQUE INTERNATIONAL FINANCIAL AND ECONOMIC CLIMATE THAT WOULD RESULT MIGHT ALSO PROVIDE A CREDIBLE
PRETEXT FOR INTRODUCING A BREATHING SPACE.
WE ARE CONSCIOUS THAT IT IS FOR YOU TO JUDGE WHETHER OPTION (C), OR VARIANTS OF IT, WOULD BE PRACTICABLE. IF IT WERE IT
6.
MIGHT OFFER THE KIND OF FACE-SAVING COMPROMISE WHICH SIR A DONALD HAS IMPLIED WE SHOULD BE AIMING FOR.
HURD
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