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7. Hong Kong is in addition a useful trading outpost for China, ospecially
as rogards commercial dealings with countrios with whom it doos not have
diplomatic rolations. Preliminary negotiations for grain doals with
Australia and Canada havo often taken place in Hong Kong. Wostor firms,
too, can readily mako contact with Chinoso commercial organisations in tho
Colony.
8. Hong Kong as hostage for our good bohaviour. As montioned in Section B,
paragraph 21 abovo, China could at any timo bring pressure to boar on the
Colony with a viow to influencing our policies or actions clscwhoro than in the Colony.
This might be used in the promotion of China's interests
and to the dotrimont of our intorosts.
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anmar Bara
9. Hong Kong in our hands is of considerable economic value to China but its contribution to China's economy is clearly not indispensable and as the economy develops its importance as an earner of foreign exchange will diminish. Such evidence as we have indicates that there are differences within the Chinese leadership between the extremist group inspired by Mao who are unreservedly in favour of pushing the Cultural Revolution to the limit and encouraging "making revolution" inside China and outside it, and a second group of a more moderate and realist attitude including the Prime Minister, Chou En-lai. It is possible that the first group might be willing to sacrifice the economic benefits derived from Hong Kong in the interests of intensifying the confrontation with the Hong Kong Government, while the second group would be disposed to control the level of confrontation in order to avoid disrupting the Colony to an extent which would damage China's economic interests. In the present state of confusion in China it is by no means certain that the second group would prevail. Soviet jibes about China's tolerance of foreign colonial possessions on its territory will not be helpful to them.
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