CO537-3715 — Page 29

report, of course, has no foundation, but is typical of the extent to which anti-American propaganda is carried.

4.

Chinese communists in Hong Kong, possibly encouraged by the toleration which has been shown to them so far, are becoming more blatant in distributing literature calculated to incite bad feeling against the Nanking Government. In one particularly flagrant instance it has now been decided to prosecute the publishers of certain literature of this kind which wes printed in Hong Kong without conforming to existing regulations about registration. Communist activities in schools also appear to be on the increase. The local Chinese press has carried further reports about students and student nurses being persuaded by communist propaganda

to join communist guerillas in Kwangtung Province. It is known that certain schools in the Colony are sedu- lously inculcating communist doctrines, and it is proposed to take action to deport a number of teachers who are responsible for persuading young students to go into China to fight against the Nanking regime.

5.

Conditions across the Hong Kong border remain as unsettled as ever. Bunditry and smuggling are rife, and the depreciation of the Gold Yuan is likely to aggravate this trend and to encourage smuggling still further. The New Life Evening News, a Hong Kong Chine se newspaper, has been banned from Canton as from October 20th for publishing an allegedly incorrect report to the effect that a certain Chinese army unit, which had been engaged in anti-smuggling duties on the border, had been recalled to Cantor and disbanded because it had been actively engaged in armed smuggling. The latter part of the report was undoubtedly true.

6.

On 21st October the Legislative Council passed an Ordinance to give effect to the Customs Agreement between Hong Kong and China designed to control smuggling. While this agreement has had a good press from the Chine se it is feared that it will contribute very little towards decreasing smuggling, since under present conditions the profit to be made from smuggling more than covers the risks. From Hong Kong 's point of view, however, the agreement will be very valuable since the main onus for making the agreement effective will in practice rest on the Chinese authoritics themselves. The mere fact of the agreement will make accusations of non-cooperation directed against Hong Kong more difficult to justify.