CO537-2188 — Page 4

5. Re Z of Mr. Mayle's minute of 21.1.47 about the necessity for consulting the Treasury on the financial aspect of a Municipal Council before going ahead with this project, we should of course, have to make it clear to them that it would not be possible at this stage for the Governor to make any kind of estimate of the financial result of the proposed change. As will be seen from paragraph 33 of his despatch this could not be done until the proposed Commission (which is to include members of the new Council) has got to work and is in a position to make detailed recommendations for the transfer of functions from the Central Government. I wonder therefore whether it is, in fact, necessary to "consult" the Treasury at this stage since the intention to make a change in the Government of Hong Kong - and probably on the lines now recommended by the Governor was in 'fact announced by Mr. Hall in the House of Commons on

1st May, 1946, and whether it would not suffice to "inform" them of the proposed development.

6. I have added a sentence in paragraph 4 of the draft telegram pposite on a point which had not occurred to me when minuting on the question of whether there should be any external control over the Municipal Council. See paragraph 42 of the Governor's despatch at 69 and paragraph 23 of my minute of 18.11.46. It seems clear! that obligations assumed under international agreements for conventions must be safeguarded in any transfer of responsibility from the Central Government to the Municipal Council.

7. Mr. Mayle has asked me to prepare a draft on the assumption that the Governor's view will be accepted. Ultimately it will be necessary to reply to the open despatch at 169 by an open despatch or telegram which can be published with the Governor's. But since there are still points to be cleared up, as set out in Mr. Lloyd's minute of 12.12.46. ? proceed again at this stage by a secret telegram as in draft herewith.

8. Mr. Roberts-Wray has not yet seen these papers for which he asked in his minute of 11.11.46. in connection with his correspondence with Mr. Hazlerigg at (1) and (2). As the stage has now been reached of making detailed comments on the Governor's constitutional proposals (taken from Mr. Lloyd's minute of 12.12.46) I am passing through Mr. Roberts-Wray in case he may wish to comment or at any rate know of the position that has been reached.

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14.2.47.

I am afraid that I am not altogether convinced by the Governor's reply. At least two of the main arguments now put forward against our alternative Central Government proposal apply, with almost equal force, to any form of constitutional advance. The arguments in question are those relating to (a) the difficulty of ensuring adequate representation of minority interests (mostly European) on any body elected on a popular franchise paragraph 3 of the telegram, and (b) the semi- illiterate and transient nature of the population see paragraphs 8(b) and (c) of the telegram.

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Indeed,