0003160 G.F. 316
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16.
The battle is now one, on our part, to preserve public confidence in our ability to maintain control here (which is what all but a handful desperately hope we can do); and, on their part, to break this confidence down and persuade or terrorize sufficient numbers into compliance with their commands. Neither we nor the Communists have much freedom of manoeuvre. On our side, we cannot afford to provide a casus belli which would compel Feking to intervene militarily in Hong Kong or provoke an unauthorised intervention by extremists in Canton. We have, therefore, to proceed very carefully in our action against the press, unions and particularly against the C.P.G.-owned concerns which provide the direction and backing for the local Communists. On the Communist side, they must at all costs gain more support amongst the general public. They cannot do this by causing disturbances which upset the life of the Colony; on the other hand, they cannot allow the issue to drop even temporarily. Their situation has been worsened rather than improved by the ambiguous terms of the editorial in the People's Daily in Peking on 3rd June. This, though arrogant and offensive, appeared to lay emphasis on the need to plan for a long drawn out struggle with the definite implication that the local hierarchy cannot expect active support from China other than by way of propaganda. The danger is that the more militant rank and file may take this editorial, which was given wide publicity here, at its face value and see in it an encouragement to further action, thus making it more difficult for the more moderate of Communist leaders to exercise restraint.
17.
A second major factor is the situation in China. Accounts of disorder approaching anarchy continue to come in. It may become increasingly difficult for Peking to exercise firm control over local Communist hotheads, both here and in Kwangtung. There is always the possibility that extremists in Canton might try to come to the aid of their fellow countrymen here, in defiance of Peking. However, the Chinese Army is the authoritative body in Kwang tung and it exercises firm control over the border area. This would seem to lessen the likelihood of such action.
The
18.
It is too early as yet to assess with any accuracy what effect the present confrontation with the Communists will have on the economy, If, as appears likely, it continues for some time, the consequences could be serious. damage done to Hong Kong's reputation as a safe investment centre for foreign and local business alike will continue until some sort of accommodation (tacit or otherwise) with the Communists is reached which can be seen to have some degree of permanency.
19.
There has been no noticeable effect as yet on exports and, provided that the present Communist-inspired stoppages are not switched from utility services to the industrial sector, there is no reason why there should be any significant loss of exports. In this main sector at least the economy should remain strong. The tourist trade, however, is likely to be affected to some degree depending on whether any more disturbances occur.
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