CONFIDENTIAL
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MDLOAN 7800
SWIRE RESPONDED THAT HE THOUGHT THAT THE CHINESE WERE NOW READY TO STRIKE A DEAL ON THIS ISSUE, WHICH HAD DRAGGED ON LONG ENOUGH.
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6. SWIRE WENT ON TO TALK ABOUT CHINESE INVESTMENT IN HIS GROUP. CITIC HAD PROVED TO BE MODEL SHAREHOLDERS. HE ADDED (EMPHASISING THE SENSITIVITY) THAT IT WAS POSSIBLE THAT THE CHINESE WOULD SHORTLY BE INCREASING THEIR SHAREHOLDING BEYOND THE PRESENT 12.5 PER CENT IN CATHAY. THE OPTIMUM WOULD BE ANOTHER 10 PER CENT. IT WAS POSSIBLE THAT CAAC WOULD MAKE THIS ADDITIONAL INVESTMENT (ALTHOUGH THAT WAS SENSITIVE WITH CITIC AND SHOULD OBVIOUSLY NOT BE PLAYED BACK TO THE CHINESE). IT WOULD CLEARLY BE HELPFUL IN THE ASA SEPARATION CONTEXT FOR CAAC TO HAVE A FINANCIAL STAKE IN CATHAY. MORE GENERALLY, SWIRE THOUGHT THERE WAS A GOOD CHANCE OF GETTING THROUGH 1997 WITH CATHAY REMAINING A SUCCESSFUL, BRITISH MANAGED AIRLINE. THAT WOULD BE A CONSIDERABLE ACHIEVEMENT, AND GOOD FOR WIDER CONFIDENCE IN HONG KONG. THE SECRETARY OF STATE STRONGLY AGREED.
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7. SWIRE ALSO MENTIONED THE TRANSITIONAL AFFAIRS ADVISERS. SAW SOME ADVANTAGE IN HAVING AN AVOWED GROUP OF ADVISERS RATHER THAN THE MORE SHADOWY FIGURES PEKING HAD OFTEN USED. THE SECRETARY OF STATE SAID THAT HE SAW NO REASON TO CONTEST THE PRINCIPLE OF PEKING WIDENING THE RANGE OF ADVICE THEY RECEIVED. THERE WAS SOME GROUNDS FOR CONCERN THAT THEY WOULD BUILD THIS INITIATIVE UP INTO AN ALTERNATIVE CENTRE OF POWER AND IT WOULD BE IMPORTANT TO KEEP A CLOSE EYE ON THAT. THE MORE SERIOUS PROBLEM WAS CHINESE MISHANDLING OF THE DIRECTLY-ELECTED MEMBERS OF LEGCO.
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SWIRE CONCLUDED BY RETURNING TO HIS MAIN POINT. CATHAY HAD ALWAYS HAD A CLOSE RELATIONSHIP WITH THE HONG KONG GOVERNMENT AND HAD GOOD ACCESS IN CHINA. THEY HAD NOT ALWAYS PROTECTED THEIR FLANK IN THE UK AS ASSIDUOUSLY AS THEY MIGHT HAVE DONE. Y K PAO HAD NEARLY UNDERMIND THEM WHEN HE HAD STARTED DRAGONAIR AND HAD LOBBIED VIGOROUSLY IN LONDON FOR ROUTES TO BE TAKEN FROM CATHAY AND GIVEN TO DRAGONAIR. THE CATHAY/DRAGONAIR LINK-UP HAD AVOIDED PROBLEMS ON THAT SCORE. BUT CATHAY WOULD ALWAYS REMAIN VULNERABLE TO POLITICAL PRESSURE FOR THEIR ROUTES TO BE GIVEN TO OTHER AIRLINES.
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THE SECRETARY OF STATE NOTED THIS AND CONCLUDED THAT WE SHOULD KEEP IN VERY CLOSE TOUCH WITH CATHAY ABOUT OUR TALKS WITH
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CONFIDENTIAL
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