CO537-4841 — Page 23

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SECRET.

Central People's Government". CHOU En-lai declared that the sacred · property right of the Central People's Government should be respected by the Hong Kong Government, which must "bear full responsibility if the properties of the two companies are illegally encroached upon, moved or damaged and be responsible for the due consequences". I felt that it was undesirable to let this statement pass unanswered.

A reply was therefore issued through the Hong Kong Public Relations Officer on December 6th in the following terms; "The Hong Kong Government feels that there seems to be confusion in some quarters as to the position when property is in dispute in British territory. Such disputes in British territory are governed by the rule of law and not by any executive action on the part of the Government, It is important that this principle should be clearly understood. #t

It

5.

There is a further important aspect of the question of assets in connection with the effects of recognition which I must raise, namely the degree to which recognition is retrospective to any given date, and the degree to which subsequent transactions are affected. appears from the case of LUTHER V. SAGOR (short reference) reported in 1921 3 K. B. 532 that in the normal course of events when the United Kingdom recognises a foreign Government recognition dates back to when that Government became the effective Government of any particular area. It also appears from the case of BOGUSŁAWSKI and ANOV v GDYNIA-AMERYKA LINE (reported in Weekly Notes of August 12th, 1949) that this might operate to defeat transactions by the Government previously recognised as the lawful Government taking place between the date when the new Government became the effective Government and recognition. It further appears however from the latter case that this effect can be avoided by the adoption of a formula of recognition which recognises one Government right up to a particular day and the new Government as from such day. view of the numerous transactions which, it would seem have been effected in Hong Kong by the Nationalist Government, or by para-statal concerns in which they hold shares or otherwise control, it would seem to be most desirable as far as Hong Kong is concerned when His Majesty's Government decides to recognise the Chinese Communist regime, to follow the formula in the BOGUSŁAWSKI case so that the Hong Kong Courts will not be plagued by numerous applications on behalf of the Communist Government to recover property disposed of by the Nationalists. The pro-Communist press in Hong Kong has referred frequently in recent months to numerous and extensive dealings by Nationalist interests to dispose of Nationalist properties.

In

6.

In bringing these considerations to your attention, I should be grateful therefore if the effects of recognition on the question of K.M.T. Nationalist assets in Hong Kong will be borne in mind. I should in the meantime be grateful for any guidance that can be given on the legal aspect of recognition based on past precedents (Spanish Civil War, Poland and the London Polish Government etc.), particularly in relation to: (a) the date on which the "Central People's Government of the

People's Republic of China" will be considered the effective Government of China and recognised as such;

(b) the effect of such recognition on all Chinese Government

organisations which have properties, assets or funds in Hong Kong; and

(c) the position regarding privately-held assets owned by existing or former high officials of the Nationalist Government, or K. M. T. party members.

In this last connection there may well be demands for extradition of certain individuals, which I will wish to refuse as they will clearly be based on political motives, although demands may be founded on allegation of the commission of extraditable offence. I would be grateful for your views on this aspect also.

I have the honour to be,

Your most

Sir,

obedient, humble servant,

Навалетий

GOVERNOR.