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8. It is quite obvious that foreign trade is the source of this wealth but it must be clearly seen that it is a two-way foreign trade which while providing foreign articles which China needs also takes from China those of her products which are needed by the rest of the world. A very great amount of this business is per- formed by Chinese, and one means of relieving depression in this major portion of the community would be the partial removal of the Chinese Customs barrier in favour of the products manufactured in Hong Kong by the Chinese.
9. The method by which some such alleviation might be afforded is a matter for (Government consideration and diplomatic negotiation? We have pointed out the economic value to China of the preponderant Chinese population of the Colony. This does not constitute a concession which can be offered by the Colony, but it does constitute a very cogent reason for a friendly and sympathetic gesture by the Chinese Government to the Colony. That the Colony is prepared to do all it can to assist the country of China is manifest in very many ways and we wish to go on record as being desirous more than anything of the establishment between Hong Kong and China of a concrete friendly co-operation, with China as willing as we are to show practical proof. Whether or not this may be effected by a tariff concession in respect of Chinese labour, Chinese capital and Chinese raw materials comprising the maufactured goods of the Colony; or whether a silver dollar duty analogous to the duties levied on inter-provincial trade could be applied to Hong Kong products instead of treating them as goods in which there is no Chinese interest, are matters for very friendly discussion and finally for diplomatic negotiation. Suggestions have been made for the establishment of a manufacturing zone within the Chinese tariff to be set up in the New Territory.
10. Until there is some liaison and discussion with the Chinese it will not be possible to specify what concrete benefits Hong Kong can offer China, but it is difficult to believe that she can do nothing. For example, for many years now both Hong Kong and China have been anxious to curb smuggling, and it is conceivable that with closer co-operation in anti-smuggling measures much might be achieved.
11. The Commission is in no sense under the illusion that such negotiations can be easily and readily brought to a successful issue, if for no other reason than the dualism of authority between the Central Government and provincial adminis- trations. They do, however, stress the desirability of exploring every avenue that holds out possibilities of compensation for the loss of trade which seems inevitable if (the policy of self-sufficiency adopted by almost every nation in the world) has come to stay. It is a policy particularly unsuited to the economic welfare of the Colony, further restricting, as it probably will, the world's overseas trade, which is Hong Kong's lifeblood. It is difficult to believe that this policy will not ultimately give way to one of International reciprocity, but there is sufficient likelihood of its persisting long enough to become an increasing menace to the Colony's entrepot trade.
12. As part of the Empire it is reasonable) to suppose that Hong Kong would receive some compensating benefits under the Ottawa Agreements. The somewhat complicated framework of these Agreements, however, (does not/in every case permit Hong Kong in practice to share in Empire benefits that its political status merits. Curiously enough in the matter of Imperial Preference Hong Kong's close connection with China is the obstacle, Certain Dominions regard Hong Kong as more Chinese than British in the factors of labour and capital. (The local Government) have, however, upheld the point of view that Hong Kong is entitled to be regarded as an integral portion of the British Empire. Her facilities for distribution have for several decades of free trade rendered inestimable service to British trade, and now that the Empire has seen fit to change that policy, mere justice demands that the Colony should not be denied the advantages accruing from that change.
13. It is perhaps questionable whether, in the event of a satisfactory conclu- sion being reached upon this issue, this very success might not hamper negotiations with China along the lines already suggested, but success in even one direction should go some considerable way towards arresting the present trade decline. On the other hand should overtures in both directions fail, it may well be that the Colony's natural assets, wisely employed, will eventually enable her to overcome difficulties,
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