TNAG-2549-FCO40-3724-Hong-Kong-Cathay-Pacific-Airways-1992 — Page 17

CONFIDENTIAL

further stake in Cathay (CITIC already hold 12.5%) was significant in a number of ways. In a purely airline context, it probably meant that the Chinese had taken a firm decision not to set up a Hong Kong-based airline of their own. It should also make easier a resolution of the ASA problem in the JLG. And more generally, it represented another vote of confidence in the future economic success of Hong Kong. Swires understood that the purchase decision had been cleared in detail with Li Peng, and had also been discussed with Zhu Rongji (although Swires themselves had only talked to Lu Ping).

4.

Sir Adrian added that Mr Purves was anxious that the

HSBC decision to sell this block of shares should not be

seen as a sign that they were selling off their assets or reducing their interests in Hong Kong. In fact, HSBC had been reluctant sellers. Once it became clear that the Chinese wanted to buy a large shareholding, Swires had had to push HSBC into selling, since theirs was the only substantial block of shares which could be brought to the

market.

5. Sir Adrian said that he would be writing briefly to the Secretary of State to explain the deal and its significance.

Vichath

PF Ricketts

BE3ABU/2

CONFIDENTIAL