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imperium in imperio, such as the Strike Committee, results in Such a war of the dissolution of the boycott organisation. attrition will be very serious in its effects upon Hongkong; but Canton will also suffer, and this Colony has the assistance of the Trade Loan which I shall endeavour so to use that it may mitigate the financial difficulties due to the approach of Chinese New Year (13th February). Canton merchants will have no such financial backing, and I hope that the contrast between the position of the Hongkong Chinese and the Cantonese in February next may prove to be a salutary object-lesson and shake the belief prevalent among the Canton officials that they have stranglehold on this Colony. If this is to be achieved, I must be in a position to give liberal help to British and Chinese merchants in Hongkong, and I trust that II.M.'s Government will insure that such help is forthcoming.

a

8. In conclusion, I may say that the failure of the negotiations attempted as the result of Mr. Fletcher's visit to Canton is not, in my opinion, entirely to be regretted. I have grave doubt whether a permanent settlement of this Colony's present troubles could be secured by payment of blackmail to Canton, and I per- sonally attach great weight to the objections to the proposed bargain set out in the third paragraph of my secret despatch dated the 24th December.* As I wrote at the close of my secret despatch dated the 23rd December,† all official-opinion in Hong- kong is emphatically against making any such payment. But we felt that the burden of a war of attrition would fall mainly upon the Hongkong merchants, both Chinese and European, and that if these merchants preferred to make a speculative pay- ment in the hope of ending the boycott rather than suffer their present loss of trade, the Hongkong Government would not be This was also the justified in obstructing such a settlement.

unanimous opinion of the Executive Council as well as of the Hongkong Chinese merchants. I must, however, confess that I am somewhat relieved that owing to the action taken by the Canton Government and the Strike Committee, a settlement by payment of blackmail has been prevented.

9. This despatch confirms and amplifies my telegram of the 4th January.

I have, &c.,

C. CLEMENTI,

Governor, &c.

**No. 3.

+ No. 2.

C365/26; not printed.

Secret.

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ENCLOSURE 1 IN NO. 4.

S.S.

Lung Shan," 2nd January, 1926.

The Honourable Mr. Chow Shou-son

GENTLEMEN,

and Mr. R. II. Kotewall.

As one of the delegates appointed by the Chinese merchants of Hongkong to negotiate with the Strike Union, I have the honour to enclose the annexed statement, containing an epitome of our work, by way of report to yourselves, and, through you, to the Honourable the Secretary for Chinese Affairs.

I much regret that our mission, as such, has totally failed, but personally I venture to think that our labours have not been en- tirely in vain, because the knowledge and insight of the present situation in Canton which we gained from direct contact with the interested parties should be of some use to those who come after us, and the friendly atmosphere we have created should be of service hereafter.

As far as I can make out, the economic position of Canton is sound. All the people whom I met were emphatic and sincere in The Govern- their admiration of the present Administration. ment seemed to have achieved some measure of success in its endeavour to be a Government of the people and for the people. I understand that for the first time for some years the Govern one cent in connection with the New ment did not "borrow Year. There is no doubt that the people have complete confi- dence in the Government and are generally contented.

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I do not agree with Mr. C. C. Wu that the Canton merchants are indifferent as to the settlement, nor that on the whole they have not financially suffered. But I do believe that there is a feeling among some sections of the commercial community that since the settlement has not as yet come about, it might as well not come about until after the Chinese New Year.

As to the attitude of the Canton officials, I believe that they are very desirous of an early settlement, but-especially regard- Of the officials we ing Mr. C. C. Wu-only on Canton's terms. have met, Mr. Wu seems the least inclined to be sympathetic with Hongkong. I believe Mr. T. V. Sung and Mr. Lok King Fo are honestly desirous of helping if they could.

After listening to the strikers, I am satisfied that they, too, are genuinely willing to settle. But there is no doubt, to my mind, that they, like the Canton officials, have no love for Hongkong, and I think the reason for their willingness must be looked for in other directions. The conditions obtaining in places other than Canton may furnish such reasons. No doubt the intimate connection between Hongkong Chinese and the Chinese in Kwang Tung has to be remembered. Apart from such reasons I cannot profess to understand their readiness to settle, since I understand Canton can go on indefinitely in its present position.

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