CONFIDENTIAL
HKG's first proposal (March 1992), which maximised borrowing by the AC and the MTRC and their second proposal (May 1992), which maximised equity financing by HKG. At a meeting of the Airport Committee on 18 June, the Chinese put forward a counter proposal involving an additional HK$17.5bn equity injection from the HKG reserves. This would shift the balance too far towards equity financing and would not in HKG's view be the most cost effective solution. Envisaging a period of bargaining, HKG responded to the Chinese side by offering an additional HK$2.5bn in equity on condition that other issues of concern to them were resolved satisfactorily. The Chinese have said this is not sufficient. In the absence of Chinese agreement on the overall financing, the HKG has been proceeding with the project on a step by step basis.
Land for Airport Railway
4. The other major issue of concern to HKG is whether the land grant for the airport railway should be additional to the normal Annual Land Disposal Programme. HKG have proposed that it should be, and it is likely that an acceptable compromise will be reached in due course.
Economy
5.
Economic fundamentals in Hong Kong remain very strong. GDP grew by 5.3% in 1992 and is expected to reach 5.5% in 1993. Hang Seng Index recently broke 9000 barrier and is still hovering near this level. Trade with China continues to boom, but could be affected in 1994 by measures to reign in the Chinese economy.
Negotiation of Separate Air Service Agreements (ASAs)
6.
The Joint Liaison Group continues to make very slow progress in all areas of work including the separation of Hong Kong's Air Service rights from the UK's ASAS. The problem continues to be over rights to fly to Taiwan. If the political block on making progress in the JLG was lifted by the Chinese, the backlog of ASAS could be cleared quickly. Swires keep in close touch with HKG on all this.
PUS/SwireNov
AB
CONFIDENTIAL
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