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goes on, however, they may be expected to improve their own facilities and rely less on those of Hong Kong,
33. Hong Kong is in addition a useful trading outpost for China, especially as regards commercial dealings with countries with whom it does not have diplomatic relations. Preliminary negotiations for grain deals with Australia and Canada have often taken place in Hong Kong. Western firms, too, can readily make contact with Chinese commercial organisations in the Colony.
Hong Kong as hostage for our good behaviour
34.
China could at any time bring pressure to bear on the Colony with a view to influencing our policies or actions elsewhere than in the Colony. This might be used in the promotion of China's
interests and to the detriment of our interests.
Significance of Hong Kong's Economic Value to China
35. 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 that economy develops the Colony's 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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