Exchange of Ministers with China- Although matter has not yet been formally discussed in Cabinet, we have given some consideration this week to question of exchange of Ministers between Australia and China.
Minister External Affairs  received on 17th February letter from Chinese Consul-General  urging that 'first suitable opportunity' for consideration of question by Commonwealth Government referred to in your letter to Dr. Pao of 27th August 1940  had now arrived.
This approach was not made on the specific instructions of Chinese Government but Consul-General repeated previous assurances that Chinese Government would welcome and reciprocate any such move from Australia at the present time. Further, there is substantial development of opinion in country at present in favour of closer relations with China. In discussion in War Advisory Council yesterday non-Government members urged that Government should proceed to establishment of diplomatic relations with China. 
Before pursuing matter further I would be glad if you could find an opportunity of consulting United Kingdom authorities and informing me of your own observations. As we see it, position has undoubtedly changed since Commonwealth Government decided in July last year to postpone appointment of Minister to China.
It is clear that any policy of conciliation towards Japan is now out of the question. Any concession to Japanese wishes would be regarded as weakness, encourage extremists and tend to precipitate aggression. Moreover, establishment of Australian Legation in China would be in direct line with United States policy towards China and would probably be interpreted in Japan as result of close collaboration with United States, with resultant deterrent effects.
On the other hand, risk of deterioration in relations between Japan and Australia must be borne in mind. Japanese Consul-General  expressly raised this question at interview in Canberra on February 18th when he said that if Commonwealth Government appointed a Minister to China it could not be regarded by his Government as marking a desire on the part of Australia to promote friendly relations with Japan. The Consul-General was told in reply that this comment savoured of dictation and that promotion and maintenance of our international friendships was purely a matter of imperial and domestic policy.
It has to be admitted that practical objections attach at present time to establishment of Legation at Chungking by reason of isolation of Chinese national government and absence of most of facilities for ordinary diplomatic intercourse. At the same time, the establishment of Legation in present unfavourable conditions and when few reciprocal material benefits can result would probably create profound impression on Chinese and have incalculable consequences on our future relations. It would certainly have a great moral effect and stimulate determination of China to continue resistance to Japan, an object which is now accepted as of vital importance to us in light of possible development of war.