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Difficulties caused by geographical
position.
At the end of January, 1928, the experiment was discontinued and thence- forward the sales of Government opium declined while the number of seizures in- creased showing the resumption of more extensive operations by the smugglers.
The Government believes that the results of the above experiment merit careful consideration and that therein might possibly be found a solution to the problem of the reduction of consumption.
The Government for the purposes of this experiment placed on sale three grades of opium at $15.00, $8.33 and $6.66 per tael.
The price at that time ruling for smuggled prepared Chinese opium was $2.80 to $3.50 per tael.
It will be seen therefore that the lowest Government price was still consider- ably above and was not actually competitive with that of the smugglers.
Notwithstanding this continued disparity in prices it is an undoubted fact that there was a great falling off in the amount of opium smuggled into the Colony.
If the smuggler could have maintained his market and still have obtained even his former low price he could still have gained the same profit on his transac- tions and his risks would be unchanged.
It is clear therefore that a factor other than price competition influenced the position and destroyed the smugglers' market.
This factor was, in the opinion of the Government, the reluctance of the ac- tual consumer to run the same risks of punishment as theretofore for the purpose of obtaining smuggled opium even though this might be procurable at a price some $3.00 per tael below that of the cheapest grade of Government opium.
It seems highly probable that the consumer was influenced to purchase and use a smaller quantity of the higher priced Government opium which he could use with the knowledge that he was not infringing the law rather than obtain a larger amount of smuggled opium which he could use only with the fear of incurring heavy penalties.
The argument for reduction of price may be summed up thus :---
The present price of Government opium is prohibitive except to the wealthier members of the community.
A prohibitive price necessarily encourages smuggling.
A high, but not prohibitive, price cuts away the smugglers' market, increases consumption of the legitimate supplies but reduces gross consumption, because con- sumers prefer smaller supplies of the legitimate and unadulterated article to larger supplies of adulterated contraband which may involve them in fines and imprison-
ment.
The cessation of the use of smuggled opium would have a fourfold reaction in that it would reduce the gross amount of opium consumed, would reduce the demand for production in the interior of China, would reduce the profits of smug- glers which now go to increase the contraband opium trade, and at the same time would eliminate that criminality in matters relating to opium which now undermines the general respect for the law and submits the guardians of the law to the temptations of bribery.
5. The Colony of Hong Kong is geographically an integral part of China and there is constant intercommunication between the Colony and the neighbouring pro- vinces of the Republic.
On the northern side of the New Territories there is a land and river frontier extending for over 14 miles.