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agreed to bring the New Territories within the Chinese Customs area, naively pointing out that China would prefer to receive back a highly industrialised area rather than an agricultural strip of land.
The feeling of Britishers in the Colony at the time was such that it would have been futile even to mention the subject.
The New Territories were leased by China to Great Britain for 99 years by a Convention signed at Peking on the 9th June, 1898, to come into force on the 1st July, 1898.
One of the main objects of China's new Reorganisa- tion Scheme is to industrialise China, and it is hardly likely she would agree to anything which would have the effect of giving the advantages she hopes to obtain from the scheme to a foreign country save on terms that would be quite unacceptable.
Although the large amount of smuggling that is going on from Hong Kong to China is unfortunate, and a state of circumstances that no country can officially recognise, nevertheless it cannot be denied that some of the worst offenders are China's own officials and those connected with them.
The smuggling is the direct effect of excessively high tariffs, coupled with the inability of China to effectively police her own borders.
While the state of China is such as it is to-day, I see no reason why our merchants should be deprived of perfectly legitimate trade in merchandise, whose ultimate destination is unknown to them, but which may be purchased for the purpose of being smuggled into China, which if not done by them would certainly be done by Japan.
I imagine there is a practical difficulty in bringing the Colony or a part of it within the Chinese Customs area by reason of the fact, that not only will China want
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to collect revenue in the area concerned but so also will the Hong Kong Government, with the result that there would be double taxation.
What one has to weigh up is whether the giving up of the Free Port Status in favour of a scheme which has for its object the industrialisation of the Colony will pay us best.
If in the affirmative then we give up the main object for which the Colony was established, and has ever since been a fundamental principle.
Personally, I am in favour of retaining the Free Port Status rather than initiate a policy the effect of which is certainly problematical, having regard to the Japanese policy.
I have already in my general Memorandum dealt with some of the objections to and reasons for a protec- tive tariff.
A customs arrangement would be the Foreign Office policy, but not necessarily for the benefit of Hong Kong, regarding the Colony as a unit by itself.
Another matter which the Commission might well take into consideration and that is what should be Hong Kong's policy in the event of China inflating her currency by taking some of the silver content out of her dollar, for instance bringing it down to the value of one shilling or ten pence, or adopting some other form of inflation.
Should the Hong Kong Dollar remain at a high premium as against China or should we also inflate?
It has always been a basic principle to keep the Hong Kong Dollar in line with that of China, and avoid an appreciable disparity between the two.
An inflated Hong Kong Dollar would mean a hand- some present to the issuing Banks whilst a high premium would drive trade from the Colony to China. If the
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