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7. Against this background it might be that, in a situation in which Peking had defeated us in Hong Kong, they would seek to oblige
us to remain in nominal control of the Colony, though in fact in
complete pawn to Peking, in order that they might continue for as
long as possible to earn foreign exchange through Hong Kong. If
this were their decision they might seek to prevent any large exodus
of Europeans from the Colony, so as to ensure that they had a
substantial number of hostages in their hands whom they would use to bring pressure to bear on H.M.G., and on British commercial concerns, to carry on in Hong Kong for China's benefit. (When the Communists took over control of Shanghai they did not permit the
foreign firms to close down, remove any assets, or withdraw their foreign employees.) Alternatively they might decide to forego the (reduced) economic benefits which a Hong Kong administered as Macau
is now might bring them, and decide to inflict on us the supreme humiliation of forcing us out of Hong Kong in circumstances of total capitulation (in such circumstances Peking might again decide that sufficient hostages must remain in Hong Kong to ensure, for example, that we handed over all Hong Kong's sterling balances to China). But so long as Mao Tse-Tung dominates China it seems extremely unlikely that Peking would be willing to co-operate with us in permitting us to effect an orderly withdrawal from the Colony; and such a withdrawal would only be possible with the co-operation of
the Chinese.
8.
Both the Governor and the C. B.F. feel certain that such co-
operation would not be forthcoming, and therefore discount entirely the possibility of an orderly negotiated withdrawal on our part, at least for the time being. We had no grounds for taking a rosier
view of the situation. One can only guess at the circumstances in
which it would become clear that, to put it bluntly, we were licked.
But the most likely situation would appear to be one in which the Communists in Hong Kong, with the backing of Peking, had decided on all-out confrontation, and had pursued the policy with vigour and determination to the extent that the security forces (both police and British troops) had reached exhaustion and had still not been able to restore, and maintain, law and order. Once this point had been reached the morale of the police would crack, and so would the morale of the public (it must be remembered that in an all-out confrontation there could well be Chinese troop demonstrations at the frontier, accompanied by Red Guard incursions across the border). There would be a swing of public opinion in Hong Kong against us; and that, coupled with sustained pressure from Peking, would lead to a quick collapse of our position in Hong Kong. Probably the best
we could then do would be to try to fall back on to perimeter zones
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