TNAG-2259-FCO40-3255-Hong-Kong-Port-and-Airport-Development-Strategy-(PADS)-Brit-1991 — Page 256

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A Burns

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HKB 182/3

Copies:

Sir J Coles Mr Miles

Mr Paul, HKD

HONG KONG: PORT AND AIRPORT DEVELOPMENT SCHEME (PADS)

1.

Mr Miles' minute of 2 August to me on this subject, which you will have seen, is highly relevant to the briefing for the Prime Minister's visit to Peking in early September.

2. My own view has always been that we should give high priority to attracting maximum Chinese investment into PADS. This provides the best way of ensuring that the Peking Government are committed to the success of the Scheme and will not do anything, after 1997, to prevent the SAR authorities from honouring financial commitments entered into before that date. Encouraging Chinese investment is well covered, if I remember right, in the PADS Agreement which the Prime Minister will sign in Peking.

3. Hitherto the Hong Kong Government, to put it bluntly, have not been helpful to British companies bidding for PADS business. They have been afraid that any awards to British companies would be regarded by the Chinese in Peking as favouritism. It seems to me that there is no longer any reason for these fears.

4. The question is whether we should now press the Hong Kong Government to give better treatment to British companies than to others; and whether the Prime Minister, during his visit to Peking, should seek Chinese endorsement of such preferential treatment. I see the arguments in favour of this, given the amount of business that is at stake. But I do not see how this could be handled with the Chinese without arousing their old suspicions.

5. I therefore doubt whether we can establish, as Mr Miles suggests, that "winning consortia can be expected to include both British and Chinese interests". I think we should concentrate on removing the tendency of the Hong Kong Government to lean over backwards to avoid accusations of bias towards British companies. They should treat British companies just as favourbly as they treat all other outside companies.

6. The question of availability of ECGD cover is separate. ECGD's exposure in Hong Kong is already very high, but the successful conclusion of the PADS Agreement should have reduced Treasury anxieties about the future. The

political arguments are very strong for ensuring that adequate cover is available for British firms bidding for PADS

contracts. I think that the Prime Minister himself

would be very conscious of these arguments and be prepared to

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