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exchange value of the military yen, which has varied from

Canton $1.50 to $1.20 at different times.

(When there is

a scarcity of Japanese goods on the market the value of

the military yen is low, when fresh consignments arrive,

its value appreciates. Such sales to date however appear

to have been limited; 700 units, 1000 (?) units and 1700

units in three separate consignments. Besides this

Japanese imported oil, kerosene is being smuggled in by

junks from Hongkong: this is purchased from the oil com-

panies at Hongkong at the usual Hongkong prices, and can

be sold here at a price which will compete with the

Japanese brands. The extent of such imports is impossible

to ascertain. One consignment of 550 units, another of

700 units have been noticed. As the oil companies in

Hongkong naturally encourage these sales, and I learn that

their total sales of kerosene in Hongkong in January were

168,000 units (four times the average!) it is probable that

these imports are not inconsiderable. On the other hand,

the total monthly market requirements of kerosene of Canton

and the surrounding Japanese controlled area are limited to

abou

about 15,000 units.

5.

As regards whiskey, Messrs. Caldbeck MacGregor's

agent informs me that the smuggling is done on a small

scale by Japanese passengers from Macao in the "Nikkai

Maru", the ship which regularly carries mail and passengers

between here and Macao. The passengers buy one or two

cases of Johnny Walker "Red Label" whiskey in Macao at HK$5.00

per bottle and on arrival here they can easily sell them

at HK$7.00 a bottle. This type of petty smuggling can,

however, hardly be regarded as constituting a serious menace

to legitimate trade, unless it is done on a much larger

scale than at present. It might be added that several

recent complaints have reached me where foreigners have

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