CONFIDENTIAL
FM FCO
TO IMMEDIATE HONG KONG
TELNO 2181
OF 20170OZ DECEMBER 91
CONFIDENTIAL
File (arver)
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MDHOAN 6969
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AND TO ROUTINE PEKING, UKREP JLG HONG KONG
PERSONAL FOR GOVERNOR FROM BURNS, AUSS
PEKING: PERSONAL FOR AMBASSADOR
UKREP JLG HONG KONG PERSONAL FOR PAUL
231
YOUR TELNO 3872: HMOCS MATTERS
Mr Stone
(Hank you) Ms Williams
back to me
1. I HELD A MEETING TODAY WITH THE TREASURY/ODA TEAM WHICH VISITED HONG KONG EARLIER THIS MONTH. THEY EXPRESSED MUCH GRATITUDE FOR THE FRIENDLY AND CONSTRUCTIVE WELCOME THEY HAD RECEIVED. OUR DISCUSSION FOCUSED ALMOST EXCLUSIVELY ON SAFEGUARDS. THE TREASURY FEEL VERY STRONGLY, AS DO THE ODA, THAT IT SIMPLY IS NOT POSSIBLE TO SEPARATE OUT COMPENSATION AND PROCEED INDEPENDENTLY WITH THAT. WE LOOKED AT THE TREASURY'S CAPITALISATION PROPOSAL AND POSSIBLE VARIANTS OF THE SCHEME CURRENTLY BEING CONSIDERED BY YOUR CONSULTANT FOR HYPOTHECATED LOANS. RECORD OF CONCLUSIONS FOLLOWS: BUT I THOUGHT YOU MIGHT LIKE TO HAVE A QUICK PERSONAL ACCOUNT AND A NOTE OF HOW I SEE THIS ISSUE BEING TAKEN FORWARD OVER THE NEXT FEW WEEKS.
CAPITALISATION PROPOSAL
2. THE TREASURY BELIEVE THAT IT WAS GENERALLY ACCEPTED IN HONG KONG THAT THEIR CASE IS BOTH TECHNICALLY FEASIBLE AND FINANCIALLY AFFORDABLE. THEY POINT OUT THAT THEIR CHEAPEST OPTION WOULD COST ONLY HK DOLLARS 2.3 BILLION AND THEREFORE CANNOT BE SAID TO BE IMPOSSIBLE FISCALLY. THEY ACKNOWLEDGE THAT THERE WOULD BE POLITICAL PROBLEMS IN SELLING THIS APPROACH TO THE CHINESE AND TO LEGCO. BUT THEY REMARKED SEVERAL TIMES THAT THE CHINESE ATTITUDE HAD NOT BEEN TESTED, AND THAT IT SHOULD BE POSSIBLE TO EXPLAIN THAT THE SCHEME WOULD RELIEVE THE SAR OF A LIABILITY, AND WAS FOR A DISTINGUISHABLE GROUP OF PEOPLE. THEY RECALLED EARLIER CHINESE INTEREST IN A SET-ASIDE FOR FUTURE PENSIONS WHICH WAS A FORM OF CAPITALISATION SCHEME. CHEN ZIYING HAD BEEN MAKING REASSURING NOISES ABOUT CONTINUITY IN THE CIVIL SERVICE. WAS IT NOT WORTH TRYING TO CATCH THIS TIDE?
COMMENT
3. IT IS HARD TO JUDGE WHETHER THE TREASURY NOW REALISE THAT AT
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