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purely because of the timing. We think the action the Australians
were able to take might have a salutary effect.
2. We do not want to interfere with current trade and we have no
major change of policy on trade with China in mind. But a study now
being undertaken by officials on future policy on Hong Kong is
tackling, among other things, the question of our trade policy towards
China in the event of continued and strong Chinese pressure against the
Colony. We will keep in touch on this subject.
Situation in Hong Kong
3. Disorders have ceased and the present tactics are to organise
token stoppages of work and to continue with the subversivo propaganda
campaign.
4. After an initial defeat the Communist leadership in Hong Kong
is in a state of some disarray and may be awaiting a signal or
instructions from Peking.
5.
Meanwhile the Governor is gradually but firmly taking steps to
counter illegal and subversive activities (o.g. the poster campaign).
He is treading warily so as not to offer undue provocation to Peking.
Chineso Intentions
6. There is no evidence that Peking instigated the present troubles
or that there has been any major change in Chinese policy towards
Hong Kong.
7. There are indications that Poking is undecided about how to
handle the situation; this reflects perhaps the conflicting pressures
un the central authorities and the growing confusion in China at the
present time. A recent article in the Poking People's Daily enjoins
the "compatriots" in Hong Kong to await the call for action.
8. There is a dangor that confusion and indocision in Peking
may lead to local initiativos by extremists.
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Future Prospects
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Future Prospects
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9. If there is no basic change in Chinese policy, we do not think
that local action would be pressed to the point that our position
would be prejudiced. The present firm but restrained action against the
activities of the local Communista should contain the situation.
10. Thero is, however, always the danger that local extremists could
by their own initiative escalate the situation to a point which must
force on Peking a policy of intervention and all-out confrontation.
This would bring about a very grave situation.
Defence
11.
It is our intention to maintain an adequate garrison in Hong Kong
and arrangements to provide sea and air oover from Singapore have been
made.
Background Note
Trade with China
At the height of the disturbances in Hong Kong an Australian dolegation was in the Colony negotiating a new wheat deal with China
1.
(2 million tons). Wo asked the Australian Government to do what they
could to dolay the doal, since some uncertainty on this scoro might bring
homo to the Chinese the possible economic consequences of their actions in Hong Kong. If tho daal had gone through quickly at that juncture
it might well have encouraged the Chinese to believe that it was
"business as usual", despite what they were doing in Hong Kong.
Although reluctant to interfere with the purely commercial
operations of the Australian Wheat Board, the Australian Governmont arranged postponoment of the conclusion of the deal until aftor disturbances had ceased in Hong Kong. In addition, it was arranged that
the delegation should say to the Chinese when the contracts were signed that the Australian Government was concerned about dovelopments in the
arda and, if throats to security and stability persisted, would wish
In our view to review their export policies in relation to China.
2.
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