14
He and Sir Frederick L eith-Ross both thought it
inevitable, in the long run, that we should have to give
up extra-territorial rights as in Egypt, but that we should walk very warily. It was the Japanese who were
likely to get a foot in where our position was weakened.
It had to be remembered that in 1932 our position in
the International Settlement had had a good deal to do
with getting the Japanese out of China. It also had
to be remembered that the main economic need of China
was the investment of foreign capital in China, and that
was not to be secured by the abolition of extra-
territoriality, which would reduce the confidence of
foreign investors. Sir Frederick Leith-Ross had
suggested to him that the Chinese found the collection
of income-tax in the International Settlement very
difficult, since some foreign tax-payers used their
extra-territorial rights for the purpose of evading
income-tax. Sir Frederick thought it possible that if
that difficult could be surmounted it would go far to
help the Chinese. The Chancellor's own attitude was
that sooner or later we should have to abandon extra-
territorial rights, but that it was largely a matter of
time and method. In any event he could not agree to a
time-limit, which was really only another method of
giving way.
The Secretary of State for Dominion Affairs, who
had also travelled in China in 1929-30, agreed generally with the opinions that had already been expressed as to
the views of British residents in China, which were not
likely to have changed. He agreed also that Shanghai
must be excluded from the scheme. While we should not
take the initiative in raising the matter with the
Chinese, he thought that if the Chinese took it up we
should avoid becoming the spearhead of a resistance.
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