4
these circumstances the general feeling in Hong Kong, which the Chinese merchants fully shared, was entirely opposed to the payment of "compensation" to Canton, and there was universal support for the view that no lasting settlement could be reached by this means. On the contrary, the payment of blackmail could only result in the creation of a disastrous precedent which could be exploited by the Cantonese at will. In these circumstances, and in order that the Canton Government might labour under ne delusion as to the state of feeling in Hong Kong, it was intimated to them in the course of the preliminary conversations that the Hong Kong Govern- ment would neither make any direct payment to Canton as compensation nor would they permit private individuals in Hong Kong to do so. On the other hand, an endeavour was made to bring the Canton Government to the view that the true interests of Hong Kong and Canton were interdependent, and in order to induce them to take the natural course of looking for aid to the British Empire, rather than to Russia, they were informed that the Hong Kong Government would be prepared to consider the grant of a loan for specific works of development in Kwangtung. The change of feeling in Hong Kong evidently came as a surprise to the Canton Government, and in order that the latter might consider the new situation more fully, the conversations were adjourned sine die.
Early in June. Mr. Eugene Chen, a journalist of Communist tendencies, was appointed Minister for Foreign Affairs of the Nationalist Government, and at once proposed the reopening of negotiations. The reasons for this step are not very clear, but it seems highly probable that the motive which chiefly influences the Cantonese is their acute need of money, mainly for military expenditure. This they doubtless hope to obtain from the proposed Hong Kong loan referred to above. The Russians, including Borodin, and even Karakhan himself, are believed to be in favour of ending the boycott, because they fear a revulsion of feeling against them, such as has developed in North China, if the struggle is prolonged indefinitely. In view of the threat of a war with the North and with Yunnan, General Chiang Kai-shek would probably welcome the additional security to his base which would result from a settlement.
Hong Kong, although prepared to continue the contest rather than consent to the payment of blackmail, stands to gain enormously from the termination of the boycott.
There are, moreover, other issues, such as the boycott at Swatow, and various claims in respect of loss of British life and property, which involve imperial, as opposed to Hong Kong, interests, and with which Hong Kong is not in a position to deal. Further, it can reasonably be expected that a marked improvement in general British relations with South China would follow a settlement of the boycott. This would imply, in the first place, a dissolution of the strike organisation, which is the focus of anti-British propaganda. It should also be followed by a period of great commercial activity. In these circumstances, the Conservative and Moderate elements in Canton should be strengthened and Russian influence correspondingly diminished. Correspondence bearing upon the negotiations is appended below:-
(1.)
Governor of Hong Kong to the Secretary of State for the Colonies,
(Received Colonial Office. March 23, 1926.)
(Telegraphic) P.
Hong Kong, March 23, 1926. Please let me know at the earliest possible moment whether I am authorised to discuss loan proposal and to present formal protest at suitable opportunity. A conference is imminent, since I have to-day received a letter from Wong Tsing Wai, in which he agrees to appoint C. C. Wu, Sung Tszman and Chan King Pok, who are all members of the Canton Government, to negotiate in Canton with representatives of this Government. I propose to appoint for the purpose Hallifax. Tratman and Kemp. The time is opportune for substituting British for Russian influence in Kwangtung. since the latter has been badly shaken.
5
(2.)
Secretary of State for the Colonies to the Governor of Hong Kong.
(Telegraphic.) P.
Colonial Office, March 26, 1926.
Repeat to Canton and Peking. Secret. Canton situation. I have been in consultation with Foreign Office regarding your telegram of the 23rd March, and what follows is the result of our discussion in the light of your further telegram of the 25th March and of Peking telegrams Nos. 129 and 133 :-
1. We do not consider that it would be expedient at this juncture to present formally claim for damages. But you may intimate in course of negotiations, if you wish, that His Majesty's Government are considering such a claim in the event of a settlement not being speedily reached.
There would be no objection to a protest against violation of treaty rights, but if such protest is made in the form of a note on tines proposed in your telegram of the 4th March it is suggested that-
*
in
(a.) Some phrase, such as Government actually exercising authority in
Canton," should be substituted for the term "de facto Government paragraph 4. While the latter term is not inaccurate, it has been so much canvassed lately that it might seem to imply some further measure of recognition.
(b.) Appeal in paragraphs 2 and 3 should be simply to treaties of Nanking and Tien-tsin, or even to treaty rights in general, and reference should not be made to specific articles of the treaties.
2.
Loan Question. The following serious difficulties present themselves :- (i.) A loan for railway works
(a.) Could not be open to public subscription,
(b) Would have to be confined to Kwangtung Province,
as otherwise we would be exposed to a charge by signatory Powers of infringement of consortium agreement.
(ii) See Peking telegram No. 133. The rights of Peking Government to sanction all financial contracts made with local authorities in China have hitherto been recognised by His Majesty's Government.
(iii) Any proposal that an endeavour should be made to secure the participa- tion of His Majesty's Government in such loan (whether by guarantee or otherwise) would, in view of present financial situation, result almost inevitably in delay, which would defeat your purpose.
In these circumstances, it would not appear that a loan would be practicable unless, firstly, it was devoted to works (preferably other than railway) within Kwangtung Province, and, secondly, the sum required was within the resources of Hong Kong. It is possible that arrangements could be made for a portion of the balance of the trade loan to be made available for this purpose.
If you consider that this modified procedure would serve purpose in view, please telegraph estimate of sum likely to be required. I imagine that, in order to ensure good behaviour over maximum period, the procedure would be to dole out advances from the loan as slowly as possible.
In the meantime, so far as immediate negotiations are concerned, you are authorised at your discretion to take the line that, if the Canton Government on their side furnish guarantees of good behaviour and secure termination of boycott, you on Four side will be prepared to recommend not only that claim for damages should be dropped, but that assistance for municipal improvements (or some such vague and general purpose) should be granted from Hong Kong funds.
His Majesty's Government do not contemplate recognition of independence of Canton, and it will be necessary, therefore, for any arrangement reached with Canton Government to be so adjusted as not to conflict with our obligations to Peking and other Powers. It is important that you should bear this in mind; in other respects the foregoing observations appear to agree, on the whole, with the policy outlined in your telegram of the 25th March.
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