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Nanking telegram No. 238 to Foreign Office

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and sensible, which cannot be represented as some kind of a victory (and see in this connexion first paragraph of my telegram No.99). At the same time they are fully aware of their power to make things difficult for the Government of Hong Kong if no settle- ment is reached.

5.

(7)

Regarding the Chinese Government's original proposal I can only repeat my belief that a settlement on the lines suggested in paragraph 4 of my telegram No. 181, although it may well cause initial embarrassment to the Government of Hong Kong owing to its being blazoned forth by the Chinese as a victory, would be likely to cause less trouble in the long run than would any other settlement to which the Chinese could be brought to agree. I think that in practice our choice now lies between further negotiation on that proposal and a reference of the whole issue to international arbitration (Hong Kong telegram No. 259 para-

graph 5). I have the impression that Minister for Foreign Affairs would prefer to avoid the latter and if we show our readiness to embark on it we may possibly be able to secure some reasonable modification of original proposal.

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