CO537-4841 — Page 22

No. 3b

SECRET.

Copied to: Commissioner-General,

Singapore.

Governor, Singapore.

High Commissioner, Kuala

Lumpur.

54472/49

GOVERNMENT HOUSE,

HONG KONG

15 December, 1949.

Sir,

In connection with the forthcoming recognition of the Chinese Communist regime in Peking by His Majesty's Government I have the honour to draw your attention to some of the complications which are likely to arise with regard to Chinese Nationalist Government and Kuomintang assets in Hong Kong, and to seek your guidance and instructions.

2.

The defection of C. N. A. C. and C.A.T.C. to the Communist cause has shown vividly the difficulties which are likely to arise. The defection of these two companies was followed by that of the Chinese Government National Resources Commission Foreign Trade Office in Hong Kong, which was reported to be holding stocks of wolfram, tung oil, etc. to the value of some HK$20,000,000. The pro-Communist press and the Communist radio is conducting a steadily increasing campaign for what is termed "protection of the People's property" and banks, business organisations and other bodies are being increasingly exhorted to change over from the Nationalist to the Communist cause. Chinese Nationalist Government holdings and properties in Hong Kong are extensive. There are also undoubtedly many properties and considerable funds, held in the name of K.M.T. individuals who have held high official posts, which represent what they have salted away over the past few years.

3.

Most of these assets, whether corporatively or privately owned are likely to be claimed by the Chinese Communists as "property of the people". In the case of large scale assets such as banks, industrial undertakings and machinery, ships etc. the Communists may be able to establish title fairly easily. It will however be much more difficult for them to do so in the case of small scale assets held privately and represented by individual bank accounts and private houses owned by individuals. Nevertheless there may well be demands by the Communists for the entire properties and assets of individuals on their "war criminal" list to be handed over by the Hong Kong authorities to the Communist People's Government.

4.

The general policy I propose to adopt is that where satisfactory evidence of public (i. e. Government) ownership can be proved, (and this I think should include ownership by large public corporations) there should be a case for such assets being taken over by Chinese Communist authorities or interests. It is however up to the Communists to prove their legal title to such assets in the Courts of the Colony. A case in point is that of the assets of C.N.A.C. and C.A.T.C. mentioned above. On December 3rd 1949 CHOU EN- lai, Foreign Minister of the Peking Government, issued a somewhat threateningly worded statement addressed to the Hong Kong Government to the effect that the properties of C.N.A.C. and C.A.T.C. "belonged to the Central People's Government of the People's Republic of China and are under the direct control of the Civil Aviation Bureau of the

Central....

THE RIGHT HONOURABLE

ARTHUR CREECH JONES, M.P.