CO129-571-15 Sino-Japanese War- manufacture and import of aircraft to China 18-1-1938 - 5-1-1939 — Page 137

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a declaration though quite possible might involve

inconsistencies because Japan no longer recognises the Chiang Kai-shek Government) because Japan obviously

does not wish to embroil herself with third powers and

because the Chinese Government have shown themselves

capable of putting up a better defence than was expected.

It is also now clearer that our interests in China have

better chances of favourable treatment under a Chinese

régime than under a Japanese, and that consequently the

complete defeat of China is not in our interests. Hong Kong

is no longer the only means of obtaining munitions from

abroad; hey are coming in from Russia and may also soon

come in over the Burma road. It may therefore be argued

that Hong kong need not perhaps fear Japanese reprisals to

the same extent now as formerly, On the other hand the

establishment of such a factory would be a complete reversal

of the policy so far followed and it is difficult to imagine

anything more likely to drive the Japanese to extremes than

such a step. It may of course be argued that the factory

need not export machines to china or Japan, but it is

obvious that the market in other parts of the Far East is

not sufficiently great to warrant such a large capital

outlay as would be involved, and that, if exports to the se

two countries were forbidden, it would probably prove

difficult to finance the undertaking.

The whole complex

of arrangements at present enforced in Hong long is built

up on the assumption that Hong Kong must behave as a neutral,

and the establishment of such a factory as this if

accompanied, as it would be, by exports of military aircraft

to China is in contradiction to that behaviour.

7.