CONFIDENTIAL
government of Hong Kong before 1997.
5. I have reported separately, and at length, on the substance of our discussions in minutes on the airport, constitutional issues, financial and monetary matters and on managing the Chinese. But a few general comments would be in order.
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6. Hong Kong is booming as usual. Outside government we found the focus of interest had turned to the economic prospects of Southern China and the implications of further economic reform in China as a whole. The business community is fascinated at the ever-growing prospect of Hong Kong becoming the key to Southern China and the whole Golden Crescent
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stretching from Japan and Korea in the North to Singapore and Jakarta in the South. Equidistant between the extremes, blessed with a dynamic economy and leading the way into the Chinese hinterland, the Hong Kongers we spoke to seemed convinced that the boom would continue. Certainly the figures for the investments which are pouring into Shenzen and Guangdong Province from Hong Kong are impressive: and a lot of the money is recycled through Hong Kong from China. The paradox is that the continuing growth of Southern China must rest on assumptions (about the attitude of Peking) which are essential to Hong Kong's prosperity too. So optimism about Southern China is not really compatible with gloom about Hong Kong (not that we met much of that).
7. In the short term ie until mid-May the critical issue is how to achieve Chinese agreement to the airport financing plans. This is going to be very sticky. The Chinese are in a suspicious and obstructive mood. The time-table is break-neck (in order to get work started so as to meet the 1997 deadline). There has been little time for consultation outside Hong Kong, the figures remain confusing to the lay observer (British or Chinese), and the press handling has left something to be desired. But the plans themselves are I believe thoroughly sensible and well thought out. As I told the Governor we have been most impressed by the skill with which they have been developed. One cannot be certain about cost escalation, but our official interlocutors took considerable comfort from the way tenders were turning out, and pointed to the large contingencies margin they had allowed.
8. So we must join the HKG in doing all we can to persuade the Chinese that they need to give a green light. As always we need to allay their suspicions - born of uncertainty about the market mechanisms involved and a fear of being bounced and get over the idea that delays in approval mean completion delays, higher costs, less private sector finance: in short - higher costs to the SARG and more risks (as they would see it) to China. The risks to the project and thus to the
EM8AAK
CONFIDENTIAL
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