257 Department of External Affairs to Embassy in Nanking

Cablegram 63 CANBERRA, 3 June 1949, 4.30 p.m.

SECRET

Your 163.

You should by now have had our 62 [1] summarising our views on recognition of and trade with the Communists. Please keep us informed promptly of any developments on these matters. We have recognised the general desirability of keeping in step with other countries, but as things develop there may be occasions when we would need to know quickly what course you and your diplomatic colleagues are recommending. Australian interests may not necessarily coincide with those of other countries in respect of China.

2. We agree that if the Government moves from Canton you should not give any undertaking that an Embassy representative would remain with it. What would you propose to do with Lee? [2]

3. You may assure American Ambassador that we are not contemplating any step toward recognition of Communists, and will consult United States and other Governments before doing anything in that direction.

4. We have however already stressed the need for establishing local relationships with the Communists in the meantime. The importance of seeking trade opportunities applies with special force to Hong Kong, about whose future the United Kingdom Government is clearly anxious. We consider that United Kingdom authorities are thinking too much in terms of the defence of Hong Kong and too little in terms of making Hong Kong perform its normal function as a commercial centre. We think that the successful use of Hong Kong as an entrepot to stimulate trade would offer the best hope that the Communists will be content to leave its present status undisturbed. Undue emphasis at this stage on the defence of Hong Kong is likely to be regarded by the Communists as merely provocative.

1 Document 256.

2 Charles Lee, First secretary in Nanking, moved to Canton as Australia's representative when the Nationalist Government moved its headquarters there in January 1949

[AA:A1838/278, 494/2/10, i]