CONFIDENTIAL
Benefits of Hong Kong
6. The Chinese derive considerable benefits from the Colony,
which provides them with easy access to world markets and serves
as an invaluable base for travel and intelligence activities.
With the rapidly changing situation in South-East Asia, the
value of the Colony as a listening post and staging point will
increase. Hong Kong also depends heavily on China for essential
supplies, especially food and so is of direct economic value to
China; about one third of China's foreign exchange earnings
comes via the Colony. These earnings play a major role in
financing China's trade deficits with other areas of the non-
communist world. Moreover, the Chinese are currently deeply
preoccupied with their dispute with the Soviet Union; in the
event of hostilities the commercial importance of the Colony
would increase particularly in the event of a Soviet blockade
of the China coast. Balanced against these solid advantages the
presence of a flourishing colonial society on Chinese territory
must be a source of some embarrassment to Poking. The Russians
continue to tease the Chinese on this point but the Chinese have
so far swallowed their ideological pride presumably because of
the tangible benefits which the Colony brings.
Future Chinese Policy
7. Much will depend on how the Chinese leadership evolves
over the next decade. At present the moderates seem firmly in
the saddle. As long as they remain at the helm, it is reasonable
to expect the policy towards Hong Kong of comparative restraint
/ and
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CONFIDENTIAL