CO537-5000 — Page 44

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1 October 1949

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Annex I to JIC(FE)(49)41(Final)

New Territories in advance of the main body with the obiect of testing British reactions and of lending support to banditry and subversive activities in the Colony. This force could be in position by the beginning of November and could be reinforced by the end of November in numbers sufficient to make it a serious external threat to the Colony.

17.

It is estimated that about 50,000 bandit/guerillas exist in Kwang tung alone. Those of them owing allegiance to the Communists are considered to be sufficiently equipped, mobile and co-ordinated to be used in co-operation with regular C.C.A. formations in offensive operations. Elements of small parties of these bandit/guerillas are likely to be encouraged to make armed incursions, without overt support, into the New Territories and Hong Kong by land or sea, although the execution of these methods is likely to be strictly controlled.

Economic Embargo

18.

If, as seems likely, the Nationalist blockade is still in force when the Communist army reaches the borders of Hong Kong, the Colony will offer the Communists their first major opportunity of unrestricted access to world markets. Nevertheless, the material considerations involved may not deter them from imposing an economic embargo.

19.

We cannot at present assess with precision the effect of

such an embargo but in view of the facts that:

(a)

In 1948 the China trade accounted for 20.7% of the Colony's imports and 17.7% of the goods exported;

(b) the elimination of the China trade might, on the basis of the 1948 records, result in a net reduction of the Colony's trading figures by anything up to 40%;

(c)

The reduction would be even greater if the Communists occupied Macao;

we consider that if a policy of economic anctions could

be successfully maintained by Communist China against Hong Kong, the Colony would, for a time at least, become an economic liability and require a grant in aid from His Majesty's Government.

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