CO537-2187 — Page 29

Mr

Seel

I have noted the decision on this file with regret. I am afraid that it is going to be extremely difficult to make any real progress with the plan for making Hong Kong the shop window of China, whilst there is the least doubt about our future tenure.

The following are some of the important questions which have arisen, or will arise, in the near future, and which will be gravely prejudiced by the absence of an authoritative statement to the effect that we are going to retain what is, after all, a British Colony.

First and foremost, there are the activities of the Kuomintang. It is clear from recent reports that this organisation is doing its best to increase its influence over the Chinese inhabitants of Hong Kong and is achieving a certain amount of success. The latest reports tell of attempts to gain control of the trades union. So long as we are not prepared to say publicly that we intend to remain in Hong Kong, we cannot take any very effective action to minimise or put an end to Kuomintang influence.

Next there is the Airport. In discussion with Sir Alexander Grantham, we have agreed that every effort should be made to get an early decision to contruct an international airport at Deep Bay in the New Territories. I am afraid that there is very little chance of our getting Treasury agreement to this expenditure without an authoritative statement that in the event of negotiations with the Chinese concerning the New Territories and of our surrendering the lease, we shall insist on continued control of the installations in the New Territories, of which this airport would be one.

Then we have the question of the University. In this case the Treasury, in reply to our letter seeking their agreement to a contribution from the Exchequer, have raised two questions, one of which is what are our intentions in respect of Hong Kong. I have discussed the reply to be sent to the Treasury with Mr. Galsworthy, and we think that we may be able to deal with this particular question in the form in 'which it is raised here without an authoritative declaration. But there is always, of course, the possibility that this will not satisfy the Treasury.

The next question is that of a loan for rehabilitation, etc. We were advised last year by the Bank of England and the Treasury that Hong Kong could not raise money in this country on such favourable terms as other Colonial territories. The reason was the uncertainty about the future of Hong Kong. We have so far managed to postpone going to the London market for money, but we shall probably have to do so in the near future on unfavourable terms in consequence of the uncertainty which no doubt still persists.

There