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the Colony; that would lead to unfortunate speeches

in the Legislative Council and public controversy

generally in Hong Kong, to the detriment of their

relations with and confidence in H.M. Government,

and to trouble with M.P.s and others here. In the

last resort the Governor could, of course, use his

reserve powers to prevent any diversion of the

defence contribution to other heads of expenditure,

but in modern times that is always something

to be done only a the very last resort, and

in this case it would aggravate all the undesirable

!!

consequences mentioned above.

4.

As you say, the question of stationing two

additional units in Hong Kong has been the subject

of ministerial discussions. It is, we understand,

not likely to be decided until the Minister of

Defence has returned from his Far Eastern tour.

It seems however that in the decision on that subject

may lie the solution to our difficulties over the

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defence contribution.

While we and the Governor

are perfectly ready to consider the defence

contribution as something separate from the refugee

problem, as shown above local opinion will not

readily do so; for all practical purposes, therefore,

any decision about the contribution must be taken

against the background of the other problem.

It is the Governor's view that, if the posting of

the two additional units to Hong Kong is approved,

should

he will be able successfully to put to his

unofficials the argument that H.M. Government is au

making special defence arrangements for Hong Kong

at great expense, that they have therefore had

it in mind to ask Hong Kong for an increased

defence contribution but that, in recognition the problem caused by the refugees and by way of

repognition o

of

/indirect

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