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9. There are four possibilities:-

(a) That Britain should not yield on any point to

Chinese claims.

(b) That Britain should agree on certain conditions

to the retrocession of the New Territories to China.

*

(c) That Britain should cede the sovereignty of

Hong Kong to China, retaining a special position. under a lease or other arrangement.

(a) That Britain should agree to the return of all

the territories to China.

10. In support of the contention that Britain should make no concessions in this matter it may be said that the problem of Hong Kong must be considered against the background of China's claims and ambitions in South East Asia, and in particular of her efforts to organise politically the Chinese communities in such countries as Malaya as irredentist elements. It is arguable that concessions in Hong Kong at present would be unlikely to "appease" Chinese imperialism in South East Asia: such concessions might be regarded es evidence of weakness and might be followed in due course by

In renowed agitation for further British concessions elsewhere. any case they might cause much loss of British "face" in an area whore "face" is of great political and economic importance. There is moreover a possibility that new developments in methods of warfare may have increased Hong Kong's strategic importance.

this is

11. On the other hand a hostile Chinese Government could probably make life impossible for us in Hong Kong, even if it was not in possession of the New Territories: indicated by the strike and boycott of 1925/6 which virtually paralysed the trade of the port. It is also arguable that as Hong Kong is geographically, economically and ethnically part of China it would be possible to make limited concessions in this instance without very great loss of "face" and without encouraging further Chinese agitation in other areas such as Malaya.

12. A possible limited concession of this nature would be

This, the retrocession of the New Territories to China. as indicated in paragraph 5 above, is in any case likely to

Such be demanded by the Chinese in the near future. an arrangement would however raise many difficulties. As indicated in paragraph 2 above, the requirements of defence, air communications, and public utilities such as the water supply would make it difficult to disentangle Hong Kong and The far lover standards Kowloon from the New Territories. which the Chinese Government would administer in such matters as security and public health for Chinese territory would make our position in our portion of the city of Kowloon most embarrassing and difficult. For instance, in the absence of Social Services in the Chinese province of Kuang Tung, or indeed elsewhere in South China, it has been the common

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