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(3) that reference should be made to the strategic aspect, even if we had to say that there was no case for retaining Hong Kong from that point of view.

Miss Ruston also mentions point No.1 in her note and I agree that it should be included. As to the second point, I have endeavoured to include all the factors supporting the Chinese case and I must confess that, as a matter of tactics, I feel that it would be better to leave the Foreign Office something to work on. There is, of course, also the possibility that we might go much further than the Foreign Office would have suggested in any case. I also agree with Mr. MacDougall that a reference should be made to the strategic aspect, but we shall have to leave the Defence Departments to supply the material.

I have amended my note as above and in one or two other respects and now submit it, together with its two annexures, as a draft paper for the Far Eastern (Official) Committee for joint consideration by the Foreign Office and ourselves in the first instance, in accordance with the arrangements agreed with the Foreign Office (Nos.20 and 27). In accordance with those arrangements, the paper is to go to the Far Eastern (Official) Committee for consideration when it has been agreed between the Foreign Office and ourselves and at that stage the other interested Departments will have an opportunity of putting in their comments, if any. This I think covers the point raised in the penultimate paragraph of Miss Ruston's minute.

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The draft paper is designedly inconclusive. may find, as the result of the discussion with the Foreign Office, that it will be possible to reach agreement with them on an official level on the two issues involved to a far greater extent than I at least anticipated when the Foreign Office put forward their memorandum as a basis for discussion (No.19), with its conclusions that we should consider the return of Chinese sovereignty over Hong Kong and the termination of the existing lease of the New Territories in return for a 30 year lease of Hong Kong. In case it may be of some use at the discussion with the Foreign Office I have set out in the note attached to the file at No.39 my own personal conclusions on the two issues and the action to be taken. If conclusions on these lines could be agreed with the Foreign Office, I don't think that there would be the same objection to including them in a memorandum for Ministerial consideration as there was to the Foreign Office conclusions referred to above. it would, I think, be desirable to preface them with a few words recognising that the issues involve domestic and political considerations and that the conclusions are subject to such considerations.

But

The reports from Hong Kong (Nos.35 and 36) that the question of the return of Hong Kong to China may be raised as a major issue when the Chinese National Assembly meets in Nanking next month, make it very desirable that H.M.G.'s attitude towards the "Hong Kong problem" should be determined as soon as possible. These reports also affect the first question dealt with in the memorandum, namely whether we should take the initiative in approaching

the

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