1312297
COMMENT:
CONFIDENTIAL
FM SEOUL
TO PRIORITY FCO
TELNO 118
OF 030739Z MARCH 92
39
HKA 182/3
FOLLOWING PERSONAL FOR HEAD HKD
34
YOUR TELNO 81: KOREAN BID FOR HONG KONG'S NEW AIRPORT, LANTAU BRIDGE
1. DURING HIS RECENT VISIT HERE, LORD CAITHNESS RAISED THIS PRIVATELY WITH ME. WHAT FOLLOWS REFLECTS MY COMMENTS TO HIM AND FURTHER REFLECTION.
2. FIRST, THE RELATIONSHIP BETWEEN THE ROK AUTHORITIES AND HYUNDAI REMAINS DELICATE. NOT ONLY IS THERE EX-CHAIRMAN CHUNG'S POLITICAL CHALLENGE TO THE GOVERNMENT (AND THE PRESIDENT HIMSELF FOR HIS 'MISMANAGEMENT' OF THE ECONOMY), THERE IS A CONTINUING DISPUTE ABOUT THE COMPANY'S RETROSPECTIVE TAX BILL AND A NEW PROBLEM OVER THEIR ACCESS TO CHEAP BANK CREDITS. THESE ISSUES ARE LIKELY TO REMAIN UNRESOLVED UNTIL WE SEE THE RESULTS OF THE 24 MARCH GENERAL ELECTION. IF CHUNG'S PARTY DOES WELL (UNLIKELY AT THE MOMENT), THE HYUNDAI CORPORATE STANDING IS LIKELY TO IMPROVE AND WITH THAT ITS BUSINESS POSITION. IF CHUNG'S PARTY DOES POORLY ITSELF, BUT AS A THIRD FORCE IN WHAT HAVE HITHERTO BEEN TWO-WAY CONTESTS HAS A SIGNIFICANT SPOILING INFLUENCE (QUITE POSSIBLE), THE KNIVES COULD BE OUT FOR HYUNDAI. BUT AS I TOLD LORD CAITHNESS, THERE IS A SIGNIFICANT DIFFERENCE BETWEEN OFFICIALLY SPONSORED MOVES TO MAKE LIFE DIFFICULT FOR HYUNDAI (EG OVER ACCESS TO CREDIT) AND ANY ATTEMPT TO PUNISH THE CHUNG FAMILY FOR THEIR POLITICAL HUBRIS BY UNDERMINING THE ENTIRE CORPORATE STRUCTURE. TO ATTEMPT THE LATTER WOULD BE ENORMOUSLY DAMAGING FOR THE NATIONAL ECONOMY AND WOULD HAVE UNTOLD CONSEQUENCES, PARTICULARLY FOR THE ARMY OF SUBCONTRACTORS.
3. IN THIS REGARD, IT SHOULD NOT BE FORGOTTEN THAT HYUNDAI HAVE JUST SUFFERED A LONG AND DAMAGING STRIKE IN THEIR MOTOR VEHICLE SUBSIDIARY. YET THE GOVERNMENT WERE PREPARED TO THREATEN THE STRIKERS WITH A MASSIVE MOBILISATION OF RIOT POLICE AND THE PROSPECT OF A VIOLENT CONFRONTATION IN ORDER TO END THE STRIKE WHICH WAS DAMAGING AUTOMOBILE EXPORTS AND PUT SUBCONTRACTORS OUT OF BUSINESS. AND ANOTHER PART OF THE HYUNDAI GROUP HAS JUST WON A MAJOR CONTRACT FOR PROVISION OF NEW SUBWAY CARS FOR THE SEOUL SUBWAY, AGAINST STIFF COMPETITION FROM GEC WHO WON THE ORIGINAL ORDER SOME YEARS AGO.
4.
BECAUSE OF THE PROFOUND UNCERTAINTIES OF THE POLITICAL SITUATION HERE OVER THE NEXT 2-3 YEARS AND BECAUSE OF THE CHUNG FAMILY'S OWN CURRENT INVOLVEMENT IN POLITICAL HARD-POUNDING, IT IS DIFFICULT TO SPECULATE ON WHAT THE GOVERNMENT MIGHT DO IF HYUNDAI NEEDED TO BE BAILED OUT OF A LARGE OVERSEAS PROJECT. THERE ARE PRECEDENTS FOR THE GOVERNMENT FORCING COMPANIES TO WHOM THEY HAVE TAKEN A DISLIKE, AND WHICH HAVE BECOME OVERSTRETCHED, INTO BANKRUPTCY. EQUALLY THEY HAVE FREQUENTLY COME TO THE ASSISTANCE OF PRESTIGE COMPANIES IN TROUBLE. IF HYUNDAI WERE TO FACE TROUBLE OVER THIS PROJECT, AND THE COMPLEXION OF THE GOVERNMENT IN POWER WERE BROADLY SIMILAR TO THIS ONE, THE GOVERNMENT WOULD ALMOST CERTAINLY SEEK TO RESUME THE PROJECT AT THE EXPENSE OF HYUNDAI'S
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