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nothing said about it, and to go on making money, indifferent to the questions of principle which arise. Yet whilst Shanghai Chambor of Commerce was complaining of publicity about reinforcements, I am informed that during my visit to Hong Kong the cross rate of exchange in Conton for the Hong Kong dollar against the pound sterling improved by 1.50 dollars to 14.50. I was assured that my visit to Hong Kong was the principal element in this improvement. Yet no successful defence of Hong Kong can be conducted which does not have regard to the dominating position of the trading interests in the Colony. The Governor is very willing to cxamine ways and means of expanding Hong Kong's trade with countries other than China, and I believe that this is one of the most important things that the civil authorities can do to help prepare Hong Kong to meet the Communist challenge. The Governor will however, require further export advice for this purpose and I should like to see suitable appointments to his staff made as quickly as possible.

10. The Executive Council and the Local Defence Committee.

During my visit the Governor arranged for me to meet both these bodies. My meeting with the Executive Council on June 7th was most satisfactory. I made them A short speech reminding them of the policy of H.M.G. which I had announced in the House on May 5th and of the fuct that the re-inforcements we were sending provided solid evidence of our firmness and determination. I was careful to avoid even hinting at the possibility of re- inforcements additional to those already announced. There seemed to be no disposition on the part of the members of the Council to adopt an attitude critical of H.M.G. apart from one of thc Chinese Members. I had a discussion with the Local Defence Committee on the following day which was attended by the Commanders-in-Chief.

11. The Military Situation.

I held discussions with the Military Commanders on the spot, and each Commander outlined to me the role which he envisaged his forces would play in the defence of the Colony. The Army Commander made it clear that at the present time with existing forces available (three battalion. the whole force would have to be deployed forward in the New Territories in defence of the frontier leaving only the Hong Kong Defence Force and certain administrative and specialist troops to look after the internal security of the Cities and Port. As the H.K.D.F. is at present virtually non-effective the G.0.0. has decided to mako use of the first reinforcements to arrive (The Leicestershire Regiment) to ensure the security of the

base.

12.