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When Defence Committee invited the
Chancellor of the Exchequer to consider whether some offer might be made to the Hong Kong Government in respect of War Department land, the proposal which they had before them was that made by Sir Alexander Grantham, namely that if the War Office was prepared to relinquish its claims to the dockyard lands Hong Kong would pay its Defence contribution for the next 5 years (£1 million) and in addition would pay half the additional cost of maintaining the two extra Units for the same period. Since then the Hong Kong Government has improved on two occasions on these terms: the first is summarised in paragraph 4 of my minute of the 26th March, when they offered to pay the whole of the cost of the additional Units, not half, and also proposed that H.M.G. should not waive their claim to compensation for the lands, but proposed that Hong Kong should abate the amount it had to pay the cost of the Units. The second is contained in the telegram at (226) and qualifies further the occasions on which Hong Kong would wish to offset compensation against the cost of the Units.
In fact all of the concessions here have come from Hong Kong's side, and none so far from H.M.G. In view of this it seems to me that the Secretary of State should have something to show to Defence Committee, whilst all that the Chancellor would have to show would be a continued stand on the same position as he adopted at Defence Committee. I think that we should be in the slightly stronger position. If therefore we are unable to get officials to agree on a recommendation to Defence Committee I would not be dismayed, but would be quite content if the issues as they have emerged were stated to Defence Committee and the question of the basis of/compensation, which is the real point at issue now, should be left for Ministers to decide. At the worst I think that we should get a statement out of them somewhat on the lines of the point that I have marked 'A' in Mr. Wallace's minute above, and at best we might get them to agree to meet the Governor on the terms which he has set out on the basis of compensation. Do you agree that we should go for this?
There are one or two further points which necessitate a telegram to the Governor now: firstly time is fast running out within which the move of one of these artillery regiments to Hong
Kong can be arranged. Further you will see from (33) on DEF.75/09 that it is planned to carry out the battalion exercise from Singapore to Hong Kong in September-October to cover the riot season. If this is so it will considerably relieve the Governor, for although he has a long term requirement for one or two of these extra Units, the immediate need is likely to arise in the autumn. We should tell the Governor this. Secondly there is the Admiralty letter at (227) which I think that we should put to the Governor
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