FO371-46259 — Page 30

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2.

8.

(7) Advance of $1,000,000 as a loan to be handled by the Chinese Chamber

of Commerce or other approved body to enable subsidiary importers and distributors of food temporarily stalled for lack of cash to resume business.

The C.-in-C. approved this frankly palliative programme and all except (7) which failed to secure endorsement in London (and the need for which lessoned more quickly than at one time seemed probable) have been put into offect. The problem was to find a balance between what was immediately necessary to prevent a complete breakdown and what would push inflation beyond control. Ad hoc devices to force the circulation of the re- established currency tended inevitably to increase prices and none except (6) touched the real basis of the problem which was scarcity of supply.

9.

The price of rice was fixed at 20 cents a catty by means of a subsidy estimated to cost the Administration in the neighbourhood of $150,000 per day. Maximum prices for half a dozen other basic commodities were also fixed by order, and the export of foodstuffs from the colony forbidden.

10. Except in the case of rice where the bulk of the stock was under official control, the price fixing orders were largely bluff, since the Administration laoked the staff to enforce them. The calculation, however, was that the orders would tend to steady prices. And this, after a few days, in fact

proved to be the case.

11. The measures referred to above can, on the whole, be regarded as successful. The threatened crisis over circulation of money may now be said to have passed and prices, though still dangerously high, are perceptibly on the down grade.

12. Credit for overcoming the problems of these first five nervous weeks belongs probably less to the resource of the Administration than to the resilience of the Chinese,

13. On October 6th the banks were authorised to make a further advance of $200 to each customer and were permitted to receive deposits of cash. On October 17th the banks were reopened for local current account business.

14. From the moment of arrival C.A.S. have engaged in a desperate search for supplies. Rice, peanut oil and vegetables have had to be purchased piecemeal in the Delta at ruinous prices. Lt. Col. Bass, designated S.0.1. (Immigration), had to be detached from a police force already 85% under strength and sent to Borneo to look for firewood. Major Holmes had to leave the hard-pressed Secretariat to go to Shanghai in the hope of closing a possible deal in coal. A small Hong Kong ship proceeded to Kwong Chow Wan at the risk of seizure to try to load ooal with a C.A.S. representative on board. The results of these forays are not yet known, though coal from the north (at a price yet unnamed) looks a fair possibility. Firewood from Borneo depends on the availability of small boats for inland water transport to take the wood from the outting area to a point where it can be lifted by ocean going shipping.

15. To date, nearly two months after the British flag was again raised in the colony, total relief supplies received consist of one shipment of 6,000 tons of rice (about ten days' consumption) and one shipload of 4,000 tons of coal diverted from naval stocks, For the rest the Administration has had to depend on its own efforts to beg, borrow or steal stocks of essential foodstuffs wherever they could be found in what appears to be a hostile and unfriendly world. This situation has exactly suited the political temper of the neighbouring areas of China, who have found Hong Kong at their meroy in the matter of several essential supplies.

16. In general, thus far however, the colony has been kept one jump ahead of a breakdown by one means or another. For firewood she burns the wood of floors and doors: when there is no coal, a skeleton supply of power is

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