CO537-3715 — Page 31

Secretariat File No: 1170/47s

SAVINGRAM

42

To the Secretary of State for the Colonies

From the Governor, Hong Kong.

Date 26th October, 1948

No:

89.

SECRET

(R) British Consul General

CANTON

(No. 67.)

(NO.5%)

British Embassy,

NANKING

Conn. General

SINGAPORE (No.14.)

G...C., HONG LONG

Following is a political report for Hong Kong for

the two weeks ending 18th October 1948.

Marshal Li Chai-sum has now confirmed that four prominent anti-K.M.T. political leaders, General Tsai Ting- kai, Tam Ping-Shan (both members of the K.M.T. Revolutionary Committee) Shen Chun-Ju and Chang Po-Chun (both members of the China Democratic League) have left Hong Kong for Communist territory in North Chine. It is still not known definitely how and when they travelled, but it appears most likely that they boarded a Soviet ship, and they may have proceeded to Dairen. No report from Communist-held China has yet appeared announcing their safe arrival though it is under- stood that Marshal Li Chai-sum has received a message to this effect.

2. Confidence in the new Chinese Gold Yuan currency has been severely shaken by the Military defeats in Manchuria and North China. The black market rate took a sudden plunge on about October 7th, and in the space of a week depreciated about 50%. This has created alarm among local Chinese and led to rumours of imminent social unrest in Canton which are not however confirmed by reports from that city. Serious obstacles to legitimato trade have been raised by this fall in the rate of the Gold Yuan, and an impetus has been given to suggling of rice and other prime commodities out of China into Hong Kong where they can be sold for a stable currency. The fall has been steadied in the last few days, but confidence in the ability of the new currency to hold its own has boon seriously shaken. Hong Kong so far has fortunately not been accused of responsibility for the fall, and Chinese generally attribute it entiroly to the civil-war nows.

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Hong Kong's efforts to cooperate with China in supporting her tottering economy and plugging leaks in her financial control measures continue to receive a favourable press. The agreement over the Deep Bay map in connection with the Hong Kong/China Customs Agreement was finally confirmed by an exchange of letters on 18th October in Nanking between H.M. Charge d'Affaires and the Chinese Vice- Minister of Foreign Affairs. A bill before the Hong Kong Legislative Council to give effect to the Agreement has already passed its first roading. Moanwhile as mentioned above the fall in the value of the Gold Yuar is likely to lead to an increase in smuggling which no agreement will be able to control, the more so since the Chinese side of the Hong Kong frontier remains in a condition of chronic unrest, with bandit or Communist groups continually making raids on Chinese Customs and military posts.

4.

On October 10th three Chinese soldiers were caught by the Hong Kong Police while attempting to rob three