TNAG-0034-FCO40-70-Relations-with-China-1968 — Page 115

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(c) The Chinese have been holding the Blue Funnel ship

s.a. "Demodocus" in an anchorage outside Shanghai since

about 29 February allegedly because some of its officers

have been "stealing" military information.

8. It is against this background of uncertainty that we must assess how to deal with the approach that the Governor has now received which purports to come from Chou En-lai. We share the Governor's assessment that the intermediaries can probably be

relied upon and that the approach is therefore a genuine one. The combination of the mildness of the approach and the tough-

ness of recent Chinese actions against us would be not untypical

of the Chineso. There is clearly advantage in probing Chinese

intentions with regard to Hong Kong, and a positive response

to the approach would seen the most effective way open to us to do so at present. In view of recent Chinese conduct, the prospects

of reaching some accommodation with the Chinese over Hong Kong

admittedly do not seem bright; but this does not mean that it

is not worth trying. The immediate problem is whether, by agreeing to informal discussions on the basis of the Chinese "demands", we shall be starting on the slippery slope to a

Macao-type situation (1.0. a situation in which, while we hold nominal power in Hong Kong, our actions are in fact dictated by various local communist organisations). I think, however, that

if we proceed with the utmost caution we should be able to avoid

this. The conditions set out by the Governor in his proposed

reply in paragraph 5 of Hong Kong telegram No. 330 should provide

adequate safeguarda for the initial moves.

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