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REPORT.

1. Since 1865 Hong Kong has paid a military contribution of 20,0001. a-year in aid of the cost of its garrison. That contribution, which was decided upon in 1863, met with strenuous opposition on the part of the colony; an opposition based upon two grounds :—

(1.) That the garrison of Hong Kong was maintained for Imperial purposes, and was not required for the protection of local interests.

(2.) That the finances of the colony were not in a position to bear

the charge.

2. The correspondence which took place at that time will be found in Appendix B. It is not recapitulated here, as the objections then urged, and overruled, have not been renewed of late years, and the colony has since recognized the local value of its defences by contributing largely to the capital expenditure which they have involved.

3. The contribution was intended to remain in force for five

years from January 1865, and to be then subject "to any revision which the altered Appendix circumstances of the colony may require.”

B., No. 1, para. 14.

4. It was evidently contemplated by the Colonial Office that the contribution should be increased at the expiration of five years. In the despatches from the Colonial Office, announcing the arrangement, it was stated: Ibid, No. 1, "I am to add that, in fixing the amount at 20,000l. per annum, His Grace" para. 15; (the Duke of Newcastle) "has been actuated by the desire not to press too

and No. 3, heavily at first on the colonial revenues, and thus probably to retard works of public utility." And the Governor of Hong Kong interprets this in his reply, Ibid, No. 2. dated London, 21st May 1863, to mean that the contribution was to be raised para. 21. to a higher rate at a future occasion."

5. No steps appear to have been taken to revise the contribution when the five years expired, and the first intimation that can be traced of an intention to carry out this part of the understanding of 1863 is contained in a letter from the Secretary of State for War to the Colonial Office on the subject of the cost of defensive works, dated 9th September 1884, in which it is stated: "Lord Hartington considers that it should also be intimated to the Governor that the present arrangement as to the incidence of charge only applies to the works now to be constructed and armed, and that the military contribution paid by the colony will have to be reconsidered with reference to the increased garrison which may become necessary in consequence of these works and to the general defence of the colony."

6. No other correspondence on the subject can be traced, and the omission to revise the contribution after January 1870 has apparently not been due to any deliberate intention to abandon the original understanding of 1863.

para. 12.

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