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19. The cost of living, and the standard of living in Hongkong, has been largely on an increase in recent years both with the Foreign and Chinese communities. Western ideas, modern hotels and houses, motor roads, sporting facilities and cinemas, all have made their mark and it is doubtful whether either the hours of work or the output quantity, are what they were. I believe a careful investigation will show that food prices are kept up by various native rings. Increase of markets and larger production in the New Territories (if this is possible) appear the most direct means of combating the evil.
20. The cost of Government has gone up by leaps and bounds in recent years and although it puts more money into circulation, much of it is unproductive of commercial result. The Retrenchment Committee report might be again studied. The total expenditure for 1933 was $31,624,093 and was as to debt charges 5.6%, administration 38%, economic development 9.7%, social services 21.8%, defence 18.9% and pensions 6%.
Having arrived at this stage I am inclined to ask whether the system of trading in this Colony in the past is not now antiquated, and whether or not some close form of co-operation with the Chinese is not called for. Whether the system known as the Compradore system has not outlived its period of usefulness.
After reviewing the position as a whole, I have come to the conclusion that from what Hongkong is mainly suffering is due to external circumstances over which the Colony has no control and that the best policy is to leave matters as they now are and wait for the general im- provement in world conditions except that there might with advantage be a careful investigation with a view to some alleviation of taxation in respect of some of our basic industries and a transfer of the burden to the shoulders of the general community particularly in regard to luxury taxation.
22nd. August, 1934.
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W. E. L. SHENTON.
Confidential
SUPPLEMENTAL MEMORANDUM
(SIR W. E. L. SHENTON, KT.)
Economic Commission.
The question of bringing the Colony of Hong Kong or a part of it within the Chinese Customs area is a problem which has been often discussed in recent years.
It might include the Colony as a whole, the mainland exclusive of the Island of Hong Kong, or the New Territories only.
Negotiations for a Customs arrangement between the British and Chinese Governments progressed at one time so far as the drafting of an Agreement, whereby under certain specified terms the Chinese Customs revenue was to be collected by the Chinese Maritime Customs throughout the colony in addition to the arrangements already existing at Kowloon Railway Station.
This Agreement was ultimately cancelled on the initiative of His Excellency General Chen Ming Shu, then Governor of Canton, on the ground that the Agree- ment was detrimental to the interests of Canton, presum- ably because the revenue would go direct to Nanking. I believe also the refusal of Mr. T. V. Soong to agree to the port of Chung Shan (Tong Ka Wan) being a "Free Port" had a material bearing on the subject.
Here is an instance of China not wishing to benefit Hong Kong at the alleged expense of another part of China.
Some five years ago I was approached by a res- ponsible Chinese Official, in office at the time, who enquired whether I thought the British Government would agree to return the New Territories to China 25 or 30 years before the expiration of the Lease if China
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