CO129-606-4 Hong Kong Loan- government grant 1-4-1947 - 2-3-1948 — Page 12

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Possibly the part of the proposals which will give the Treasury most food for thought is the suggestion that if this settlement is agreed, the Colony should be freed from financial control. This is, of course, most desirable from their point of view as well as ours, particularly as from now on there will be an unofficial majority in the Legislature. Treasury control has always proved to provide nothing but endless friction in such cases. Paragraph 25 and 26 of the despatch are not very helpful on this point: the most that the Governor can do is to hope that over the next few years "any large deficit" can be avoided.

The truth is that noone can foretell what is going to happen to Hong Kong over the next few years. So much depends on the issue of the conflict in China. With a stable Government there the Colony would be in for a prosperous time. But the Kuomintang does not look like providing such a Government, and if the conflict is prolonged and nears Canton, the entrepot trade of Hong Kong will suffer. I would not like to say what would result from a Communist South China. All one can say is that our position looks like being precarious and difficult in any

case, and that if it is at all possible to eliminate one likely cause of friction with the Hong Kong Chinese themselves - i. e. detailed Treasury control - it would be well worth while to risk having to re-impose it if things went too wrong.

On a sum of all these considerations, and bearing in mind that in any case there is bound to be a good deal of argument about the figures, I see no reason why we should not state our proposals generally on the lines of Mr. Mayle's draft. But I am anxious that they should be fully endorsed by those responsible for the general finandal policy of the Office, (who may wish to discuss further) and that as indicated at the beginning of this minute, we should not give the impression of having swallowed the Governor's views lightheartedly.

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9th February, 1948.

Mr.Gorell Barnés

Barnes

You asked me for the views of Finance

Department on this.

As I explained I have some difficulty in expressing my personal views as I am still substantively Financial Secretary, Hong Kong, and I am personally interested in compensation for the war losses which I suffered, but having declared my interest I submit the following.

The