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general manager of the Bank of China announced that the next move in the anti persecution struggle would be the refusal by "compatriots" to pay taxes and fees of any kind to the Hong Kong Government-
Reliable information shows that the local Communist leaders are somewhat concerned about the morale of the strikers, many of whom apparently wish to return to work. Others have been classified as greedy because they were asking for increased strike pay.
The expense of continuing to subsidise strikers is worrying the Communist hierarchy. A senior Communist has said they could not afford to pay out more money. Nevertheless, there is no doubt that they intend to continue with their confrontation. The incitement of pro Communists to refuse to pay taxes could become a direct challenge to Government authority, and foreshadow a broader civil disobedience campaign-
30 Although the four day disruption of food supplies from China did not achieve the success anticipated by the Communists, the present attempt to tighten control over dealers and carriers of mainland produce could presage further disruption of supplies. Any prolonged interference with food, however, would not only antagonise the local populace but have an adverse effect on China's economy.
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4. The Peoples Daily" editorial of 5 July will give further encouragement to the local Left Wing leaders and the call to "mobilise the students" may result in an increase in activity in this field which, up to the present, has played a relatively small part in the confrontation. There is no promise in this editorial of any further assistance from China and information from reliable sources continues to show that the local Communist hierarchy realise that they will have to rely on their own efforts to achieve success in the present "struggle" with the Hong Kong Government However the more militant of the rank and file still harbour the delusion that the Chinese Communist army will intervene if the situation so demands. This may account for Communists at union level seemingly seeking a head on collision with Government through the medium of a funeral procession for the "three martyrs" whereas the leadership shows little enthusiasm for such an event. We would be faced with a serious security problem if, once more, those in "authority" in the local Communist movement bow to the will of "the masses" on this issue.
50 In broad terms however the situation at present is well under Government control. So far none of the Communist attempts to exert their will has met with the success anticipated. Indeed over the weeks the Communists have alienated the general public through interference with essential services and food supplies and their representation in many essential services has been decimated. Although their aim is clearly to wear down the Government, many of their rank and file are becoming restless. Any apparent inability of the Communists to continue to subsidise strikers could well undermine yet further the morale of their supporters.
(Passed as requested)
(Advance copies passed to Messrs. Wilson, Bolland, de la Mare
and Denson and Private Office Commonwealth Secretary)
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