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Every opening for emphasising that Moscow's designs are incompatible with a strong and independent China should be seized. In general, we wish to avoid as faPaseppss bead-on conflict with the Commugists 78 present, though we have no intention of pursuing a policy of appeasement on major issues.
Economic
5. For the following reasons it is considered that Western commercial and financial interests should endeavour to maintain themselves' in China for as long as possible:-
:
(a) If and when the Communists begin to realise the necessity for trade with the West in overcoming their economic difficulties, it is to be presumed that their first advances will be made not to Governments but to private concerns, and it is therefore important that there should be Western concerns in China which can be approached. If at a later stage the Communists wish to make an approach to Governments, it is considered that their proposals should be considered on their merits. His Majesty's Government have, of course, no intention of making official advances to the Communists, but they equally do not wish to show open hostility by dissuading British commercial interests from entering into normal commercial relations with them.
(b) Although there can be no doubt about the fundamental hostility of Chinese communism to foreign mercantile committees, it nevertheless remains possible that experience may induce a more realistic attitude in the Communist authorities, who are at present themselves to some extent prisoners of their own propaganda. There may be few grounds for optimism as to the future; but we should be unwise to abandon what remains of our position in China until it becomes abundantly clear that it is untenable. It is of course practically certain that long- established and deep-rooted commercial "establishments and connec- tions, once abandoned, could never be restored.
(c) In view of its position in Hong Kong and South-East Asia, the United Kingdom has, of course, every reason for being anxious to avoid mercantile transactions of a kind which might result in increasing the military strength of Communist China. It is not considered, however, that the continuance of normal trade in civilian require- ments need result in any perceptible accretion to the war potential of a Communist administration in China, while any hardships resulting from the cessation of trade would fall, in the major industrial towns at any rate, on the population as a whole. These would, of course, be represented by the Chinese Communists as entirely due to the hostility of the ́ ́ Imperialist
Imperialist" Powers. (d) It is recognised that foreign economic interests in China are likely sooner or later to be faced with the threat of expropriation. Provided that the normal channels of commerce are still open the Communist desire for trade with the West may conceivably be strong enough for some sort of trade and compensation agreement to be secured eventually.
(e) But perhaps more important than the foregoing considerations is the fact that foreign trading communities constitute a major element in Western influence in China. We consider that it is of the first importance to maintain for as long as possible the maximum Western contact and influence behind the Asiatic Iron Curtain, particularly bearing in mind that it may conceivably prove that one of the tasks most beyond the powers of the Communist régime may be that of regimenting and controlling the deep-rooted trading propensities of the individual Chinese. So long as hope remains of exploiting the Chinese instinct to trade to the detriment of the Communist cause complete abandonment of our position in China would appear to be premature, to say the least.
•
(f) Finally, in the long term, the potentialities of China under a strong and efficient Government as a source of raw material and foodstuffs and as an export market should not be forgotten. It would be a Page 48foftone should at some future time Plage potentiates be realised if the Western world were then cut off from what might become avail- able. It must still be our hope that opportunities will eventually arise
7
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for operation by the Western world with amagffective¤¤¤ínèse Government for the economic development of the country for the benefit of the Far East and the world as a whole. The severance of existing commercial links with China would run entirely counter to such an objective, however remote it may seem for the present.
6. For the above reasons, although our merchants in China may eventually have to cut their losses and leave, it is considered that it is neither in our political nor in our economic interests that they should do this if it can be avoided; and we do not share the view, which we gather to be that of the United States authorities, that foreign merchants who have stayed behind have put themselves in the position of hostages in their search for private gain and are therefore deserving of little sympathy. Moreover, it must be remembered that the British firms in China are private traders The decision whether it is worth while for them to continue to try to keep alive their activities must still primarily be theirs. His Majesty's Government would not in existing circumstances feel justified in seeking to prevent those who are willing and able to go on trading and would certainly not wish to be responsible by such prevention for any ensuing losses.
7. This does not, of course, mean that British mercantile communities in China would be advised to continue indefinitely to do business on humiliating and unequal terms. It is intended that British concerns in China should be encouraged to co-operate fully with each other, and with the commercial com- munities of other friendly Powers, so that as trade opportunities offer they will be in a position to take advantage of Communist needs to secure improvements in the conditions under which they are permitted to operate.
Evacuation
8. As indicated above, His Majesty's Government are not in favour of a premature abandonment of British interests in China, and they consider that the longer British merchants and British missionaries (the two main elements of the British. communities in China) are able to maintain a footing in China the more hope there is of maintaining British political and economic interests.
9. Broadly speaking the British communities in China are still determined to maintain themselves if they can, though of recent weeks there has been some feeling in favour of evacuation. If British nationals want to leave His Majesty's Government will certainly furnish such assistance as they can to enable them to do so, but it is not proposed, at present at least, to advise them to do so wholesale.
Recognition
10. The Charter of the United Nations (Articles 23 and 27 (3)) appears to be so framed that unless there is a Chinese representative the Security Council can take decisions only on procedural matters. It therefore seems essential that de jure recognition should not be withdrawn from one Chinese Government until de jure recognition can be accorded to its successor. The question of continuing to recognise the Nationalist Government and of according recognition to the Communists thus appear to be two facets of the same problem.
11. No question of according de jure or de facto recognition to the Com- munists can arise until the Communists form a Government claiming to be of national character. However, there are various indications that the Communists hope by their present offensive southwards to acquire so much territory as to be clearly the effective rulers of China. They will then probably set up a Government, to which Soviet recognition will doubtless promptly be accorded. The Communists apparently hope that this stage will be reached by mid-autumn 1949.
12. It is thus likely that the recognition question will become acute in the next few months. There are, however, still too many undetermined factors for detailed consideration of the action to be taken in all possible contingencies to be profitable at this stage. The issues therefore can be usefully discussed only in general terms.
13. At the worst, the relations of the British Commonwealth and North Atlantic PoPagewith a Communist Chinese Government aPtagerecognofi66 may follow the pattern of their relations with Soviet satellite States in Eastern Europe. There is, however, the possibility that the pattern will eventually develop along
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the lines of our present relationship with Yugoslavia, and it is therefore consagered that the Western Powers should be dangut not to prejudice future possibilities by developing an openly hostile attitude towards a Communist régime from the outset.
.
14. The political objections to precipitate recognition of a Communist régime are obvious. On the other hand, to withhold recognition from a Government in effective control of a large part of China is legally objectionable and leads to grave practical difficulties regarding the protection of Western interests in China. It is most unlikely that the fulfilment of any special conditions can be exacted in return for recognition of the Communist régime, and it is therefore probable that after a certain stage delay in proceeding with recognition might seriously prejudice Western interests in China without any compensating advantages being obtained. The Chinese Communists themselves are unlikely to be seriously incon- venienced by the withholding of recognition. For their part they will probably decline to enter into diplomatic relations with any Power which continues to recognise the Nationalist Government.
15. Since the Nationalist Government is not considered to be any longer capable of maintaining effective resistance, the question of its continued recognition by the Powers should be considered on a basis of practical convenience rather than of sentiment. If there is Nationalist control in Formosa and/or in Western China, it may be considered sufficient to regard the authority there as the de facto authority in control. The most important factor governing continued recognition of the Nationalist Government will, however, be the question of United Nations representation.
16. As regards Chinese representation in the United Nations Organisation, it seems probable that, according to the Communist timetable as far as it can be estimated, the National Government will continue to represent China during the forthcoming session of the Assembly. But the possibility cannot be excluded that a change of China's representation will become a live and controversial issue even while the Assembly is in session. It is impossible to determine in advance what the attitude of the Commonwealth and North Atlantic Powers should be in such an event, but clearly it will be desirable that there should be close and continuing consultation between them.
Foreign Office, 15th August, 1949.
ANNEX B
(Secret) (No. 694)
TELEGRAM FROM SHANGHAI TO FOREIGN OFFICE
18th August, 1949. The British Emergency Planners' Policy Committee has taken note of message conveyed in your telegram No. 472 to me. They made two comments: that it makes no reference to ships which are essential both for those who remain and for those who must leave, and that there is no mention of wider considerations of British policy in the Far East.
2. I have accordingly given the committee as much information as is necessary to enable them to realise what is being done to get ships here, and I have assured them that His Majesty's Government has so far approved the policy of keeping a foot in the door here in China. They remain, however, deeply concerned not only about the future of the British community in Shanghai, but also about the whole of this country with which they are associated in the Far East. They are particularly worried about the effect of the two external factors over which they have no control, namely, American policy, particularly its support of the blockade, and recent trends in Hong Kong.
3. As regards American policy, while British business men agree that new Chinese authorities are Communist in ideology, they are not prepared to agree with the Americans that refugee Communists are the tools of Moscow, that no compromise is possible with them and that there is no future for foreign business. On the contrary, they still believe the Chinese will maintain their independence and aget480eoftone they will realise their need ofPhee from Herats and turn increasingly towards them.4. So far as the blockade is concerned British business merg deplore as entirely fallacious the American view that the blockade can have an early and decisive effect on the political situation. Chinese economy was already in desperate straits without the blockade. They see no reason to doubt that the Communist military machine will remain in military control for years.
*
5. As regards Hong Kong the committee fears the point made by Mr. Alexander has been forgotten, namely, that the future of the colonies is linked by friendly relations with the Government of China. Seen from here the emphasis seems to be increasingly on the military aspect and the impression derived is that His Majesty's Government is resigned to a clash over Hong Kong. circumstances the committee wish me to say-
In these.
(a) The British business community is by and large willing to remain here and to continue its efforts to reach a modus vivendi with the new régime, but they need.a definite reassurance that His Majesty's Govern- ment still desire and consider it safe for them to do so.
(b) The establishment of communications with Hong Kong is vitally urgent and that in the committee's view the Nationalists will not agree to any arrangement which would be a real help to the British. They ask whether His Majesty's Government is prepared to re-establish communications without Kuomintang approval.
(c) They hope it may be possible for His Majesty's Government to develop and promulgate a policy which will maintain the British position here without offence to the Americans, committed as they are to evacuation.
6. The Committee ask me to emphasise that a number of managers of trading and industrial concerns in Shanghai have discretion to close down, if necessary, giving first consideration to the safety of their staffs, who, of course, constitute a large part of the community. They want to hang on but have now reached a point where they must decide not to do so unless they can be assured of support from His Majesty's Government.
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ANNEX C
TELEGRAM FROM NANKING TO FOREIGN OFFICE
(No. 1234) (Confidential)
Shanghai situation.
13th August, 1949.
My three Commonwealth colleagues have just returned from Shanghai where they had opportunities for examination of the situation and for full discussions with representatives of all Commonwealth interests.
2. Their general conclusion, with which I am in agreement, is that with no alleviation of the "blockade and an intensification of the difficulties due to the artificial exchange rate, foreign commercial and industrial interests are dangerously near the end of their tether. In our opinion the position has now deteriorated from that described in my telegrams under reference to a point where some remedial action is urgently necessary.
3. Much disappointment is apparent at the lack of progress in arranging for measures to alleviate the blockade (e.g., relief ships and Air Venture Com- pany ") and there is a tendency to become discouraged despite the fact that the fears of continued victimisation of foreigners (paragraph 2 (d) of my telegram No. 1031) have not been fulfilled. Community interests such as the hospitals, the schools, the churches, the clubs, &c., as well as important businesses, are facing cumulative troubles which if not soon alleviated, will lead to their drastic curtailment or extinction. It is no longer a question of individual losses (see Shanghai telegram No. 666).
""
4. I am of the opinion that having rightly taken the decision to "keep a foot in the door in China we should have the courage of our convictions and should now do all we can to help our people to hold on. On the one hand we should not be age fearful of 2our honest difference of opinionswits the ted States Government and on the other hand we should not let too meticulous regard
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for the feelings of moribund Nationalism (which it should be remembered has shown itself consistently unfriendly to us in the page 482 of 662
past) prevent us from protecting our bageidsrests 662
5. There is apparently no useful action which can at present be taken in regard to artificial exchange rates. But something can and should be done to alleviate the blockade which is merely injuring foreign interests and not to any appreciable extent the interests of the Communists. It can have no conceivable effect on the outcome or even on the progress of the war.
6. In this connexion the attitude of the United States Government regarding both the scheme for relief ships and the proposal for an " Air Venture Company is the first obstacle to be surmounted. I suggest that representatives in Washing- ton of the United Kingdom, Australia, Canada and India should make a combined approach to the United States Government (supplementing the message contained in your telegram No. 7581 to Washington) pointing out that the fundamental difference between the nature of the Commonwealth interests in China and that of American interests makes it inevitable that we should pursue different methods to attain our common goal of keeping China open to democratic influences and urging the United States Government to support as strongly as possible our request to the Nationalist Government to agree to the despatch of relief ships (see my telegram No. 1187, paragraph 4). Our representatives in Washington should at the same time, try to prevail upon the United States Government to withdraw their objections to the proposed "Air Venture Company.'
7. Apart from the question of Shanghai I consider that there is much to be said from a political point of view for an increase in contacts by sea and air between Hong Kong and the Communist occupied territory before the fall of Canton and the arrival of Communist troops on the frontier of new territories.
8. Should support of the United States Government not be forthcoming within a reasonable time I consider that the Commonwealth Governments should themselves approach Nationalist Government making it clear that the latter's closure of Chinese ports, which we do not recognise as valid, is destroying our interests (without incidentally advancing their cause) and that we are therefore compelled to relieve the discomfitures of our communities so far as we can by sending supplies to them by sea and removing those of our nationals who wish to go.
9. I would be in favour of our presuming (not asking for) the concurrence of the Nationalist Government and of making immediate arrangements for the despatch of periodical relief ships to Shanghai and, if that should later prove necessary, to Tientsin. The worst that could happen to a relief ship (apart from possible Air Venture bombardment) would be to be turned back by Nationalist naval patrol in the Yangtse estuary and I think there is a fair chance of its getting through without serious challenge.
10. Foregoing has been drafted in consultation with my Commonwealth colleagues who are in full agreement with it and would be grateful if its contents could be communicated to their respective Governments.
(Secret)
ANNEX D
CONTROL OF TRADE WITH CHINA
Aide-Mémoire from American Embassy
1. Although it is recognised that the final form of the United Kingdom's reply to the United States proposals regarding the control of trade with China is still subject to confirmation of other interested British Departments, the Department of State has read with disappointment the tentative British response, which the Foreign Office recently communicated to the Embassy.
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2. During the meetings held in the Foreign Office beginning 21st July, 1949, the United States representatives stressed on several occasions their belief that it wap ahighl82important that the Western PowerPagmonstrateбtheir bargaining strength vis-à-vis the Chinese Communist régime for protection, if necessary,
11
western interestgeinhofaad that those Powers be in a fugiti483possody to influence the orientation of that régime through the concerted control of selected exports of key importance to the Chinese economy. The Department of State, consequently, is seriously concerned that the proposed United Kingdom response represents far less than the absolute minimum requirements for joint protective measures in view of the present Chinese situation.
3. Any failure to demonstrate effective western control over selected key imports would represent the abandonment of the most important single instrument available for the defence of mutual vital western interests in China and the Far East generally. Yet the proposed United Kingdom response would appear to imply the desirability of a completely passive rôle by the Western nations in their economic relations with China. Such a rôle would extend not only to all strategic aspects of the China problem, but would cast serious doubt on the possibility of arriving at an effective joint approach towards the mutually agreed objective of combating the spread of communism throughout Asia.
4. In regard to the specific implementation of a positive approach, the Department of State has the following comments :-
5. The Department understands that the United Kingdom is prepared to keep the flow of 1A strategic goods and materials to Communist China and Northern Korea under control, since it is, of course, necessary to prevent possible transhipments via China to the Soviet orbit. It also appreciates the importance which the United Kingdom attaches to securing, before the United Kingdom can extend its export controls over 1A items to cover transhipment in Hong Kong and Singapore, prior assurance from the Belgian, French and Dutch Governments that these Governments are prepared to take similar action covering both their metropolitan and Far East colonial territories. The Department is pleased, in this connection, to assure the United Kingdom Government that S.C.A.P. is now controlling strategic exports to China in accordance with the proposed United States United Kingdom policy, and that, furthermore, the United States Govern- ment is prepared to obtain Philippine co-operation.
6. The Department agrees that joint control of petroleum shipments is important, but regards it as only one aspect of a common general control pattern.
7. Although the Department of State and the Foreign Office thus appear to be largely in accord regarding the above two types of controls, and although the Department hopes that the United Kingdom Government may be able to extend control over the transhipment of 1A items through its Far Eastern colonies, 1A and petroleum export controls alone would not be adequate to permit the Western Powers to demonstrate their bargaining strength vis-à-vis the Chinese Communist régime, to influence the orientation of that régime, and therefore to combat the spread of communism throughout Asia. The reasons for this are that (a) China depends relatively little upon imports of 1A items, and (b) petroleum controls not only would be effected largely through informal arrangements with private companies rather than through governmental export licensing, but in addition China's petroleum purchases over the foreseeable future are likely to be far below normal civilian requirements.
8. The Department therefore believes that it is principally through the inclusion of selected 1B items in the present pattern of the United Kingdom's 1.A licensing system that the Western Powers can secure leverage in dealing with the Chinese Communists. More exchange of information would not be sufficient for this purpose.
9. The selective character of the 1B items which might be included under 1A controls was evident in the discussions between United Kingdom and United States representatives acting as a subcommittee of the United Kingdom-United States group. It will be recalled that this subcommittee selected five categories of goods in the 1B category which might be suitable for control in respect of China :-
All essential types of mining equipment.
Essential power generating equipment.
Really essential transport equipment. Steel mill equipment.
Petroleum prodficG2
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