CO537-4849 — Page 27

THIS IS A COPY

THE ORIGINAL HAS BEEN RETAINED IN THE DEPARTMENT UNDER SECTION

694) OF THE PUBLIC RECORDS ACT 1954

Kwangsi leaders will impede the formation of a cohesive

administration. The families of many high Nanking officials have arrived in the Colony, but not many of the officials themselves. The most well known political personality now in Hong Kong is Dr. T.V. Soong, who arrived on the 24th January after relinquishing the Governorship of Kwangtung. Ho has announced his inter- tion of staying in Hong Kong for the present, but his further plans are not known. He remains in his OWNL house in the Colony well guarded by police as well as by a considerable personal body-guard. The Left-wing press rumoured that he lined his pockets well before leaving Canton; it is widely believed that he did take most of tho Provincial Treasury with him to convert into U.S. dollars in Hong Kong. It is also rumoured that he will use funds at his disposal to purchase war materials to support the regine in South China against the Communists, and generally act as their economic and financial agent and adviser. Lung Yun ex-Governor of Yunnan is still in the Colony and remains quiet.

4.

The new set-up in Kwangtung, consisting of General Hsuch Yo as Governor and General Yu Han-mou as Pacification Commissioner is not likely to be fundamen- tally friendly towards Hong Kong, but may be able to hold the position for some whilc. Militarily however Kwang- tung is in a very weak position and the Communist guerilla-bandits in the East River region present a formidable throat. They may at any time turn their attention to the Hong Kong border areas in order to cut- off Canton from its main source of supplies. To cut the Canton-Kowloon Railway would be a simple matter. broadcast from North Shensi during J uary announced that the Liberation Ary in South China, including the "Kangtung/Kiangsi/Hunan Column" under Lin Ping (former Political Commissar of the East River Column) was being re-organised and would increase in strength during the coming months. The presence of the Nationalist Govern- ment in Canton is also certain to lead to more determined Communist efforts to spread unrest in Kwangtung. Hong- kong is likely to bc boset with a surfeit of Chinese officials passing to and fro or staying in the Colony on various protexts.

5.

The K.M.T. in Hong Kong are visibly breaking up and they reflect the general dofcatism which has spread through the Notionalist cause. There are many symptoms of this general disintegration. The "National Times" the K.M.T. daily organ, suspended publication on January the 16th on the pretext that it was to be re- organised. However, the real reasons were financial. The K.M.T. "Hong Kong and Macao Headquarters" have recent- ly given up some three quarters of their office space and the Central News likewise have given up office space. The pro-K.M. T. press are generally trimming their sails and adopting a neutral fonce-sitting line. The only manifestation of K.M.T. activity has been the Overseas Chinese Affairs Commission which set up an office in Hong Kong during November. They were told to close down on the grounds that they were a branch of a Chinese Government department operating without permission in the Colony, but the actual closure of the office did not take place until January the 10th after several repeated warnings had been given to them.

6.

Communist circles in Hong Kong remain quiet but confident. The Police raid in December when valuable documents were seized may have imposed new caution on them, and certainly it has made then concerned whether this Administration will continue to show tolerance to their activities. This is borne out by reports

that other Communist centres in the Colony have been destroying diaries and other documents which