CO537-1656 — Page 13

11.

A possible limited concession of this nature would be the retrocession of the New Territories to China. This,

as indicated in paragraph 5 above, is in any case likely to be Lemanded by the Chinese in the near future. Such an arrangement would however raise many difficulties. As indicated in paragraph 2 above, the requirements of defence, air communications, and public utilities such as the water supply would make it difficult to disentangle Hong Kong and Kowloon from the New Territories. The far lower standards which the Chinese Government would administer in such matters as security and public health for Chinese territory would make our position in our portion of the city of Kowloon most embarrassing and difficult. For instance, in the absence of social services in the Chinese province of Kuang Ting, or indeed elsewhere in South China, it has been the common experience of the Hong Kong Goverment that vast numbers of semi-destitutes from China tend to flow in to the Colony to take advantage of such free board and lodging as a progressive British Government may provide for destitutes in the Colony. The obvious remedy of restricting the free entry into Hong Kong of Chinese immigrants has been shown to be almost completely impracticable and was strongly resented by the Chinese Government when it was attempted, Such restrictions would be even less possible with the Chinese in control of the New Territories and the British boundary running close round the main Island and cutting through the city of Kowloon,

12. A possible compromise which has been suggested for surmounting these difficulties would be to arrange for the following:-

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(a) An Anglo-Chinese joint board of management for the

airfield and for the water storage and supply system.

(b) A Joint Municipal Board for the urban district of the New Territories adjoining the British portion of Kowloon.

(c) Chinese Government representation on a Fort

Authority for Hong Konɛ.

The third possibility, namely that Britain should cede the sovereignty of Hong Kong to China, retaining a special position under a lease or other arrangement, would have the immediate advantage of enabling British administration of the island to continue, while affording a major concession

to the Chinese nationalist point of view. But the substitution of a lease for a fixed period would make the handing over of the island to the Chinese more difficult to resist when the term of the lease had expired.

14. To cede Hong Kong to China outright would clearly raise very serious issues. Such a step should not in any case be considered until at least:

(a) It is evident that a strong and just government has been established in China which has shown itself able and willing to afford security and fair trading conditions, for foreign enterprise in China.

(b) The strategic implications of new weapons such as rocket projectiles and atomic bombs have been fully worked out.