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12. Once the Japanese became established at Macao, they
would have a valuable stepping-off place for the expansion
of commercial activities in South China. There are distinct
signs that efforts are being made to establish Japanese
interests in Central and Southern China in those areas in
which hitherto British interests have been predominant.
successful Japanese activities in this area would almost
certainly react unfavourably on the economic position of
Hong Kong.
Any
13.
In this connection the active interest which Japan
is taking in proposals for the creation of an inland port at
Honam Island is not without significance. In January,
1935, Japanese agents approached the Canton authorities
with an offer of several million dollars for the whole
The Chinese authorities are anxious to refuse
site.
this offer, however, and have invited British interests
in Hong Kong to take up what amounts to a mortgage of an
essential part of the property. Any establishment of
Japanese vested interests in the vicinity of Canton would
have very serious effects on British trade and on
security in Hong Kong, possibly even greater than could
arise out of the Japanese occupation of Macao.
our
14. The extension of Japanese influence in the area
of Southern or Central China would be bound to react
adversely on our interests in every respect and is, there-
fore, extremely undesirable. In particular, since
Japanese political influence goes hand in hand with
Japanese commercial activity, the local Chinese, if
subservient to Japan, would not be in a position to
offer us that assistance which a friendly neutral could.
Political considerations.
15. It is realised that British policy in the Far East
aims at friendly relations both with China and Japan,
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