The news from Indo-China has grown steadily worse since the Minister forwarded his despatch No. 81 of the 23rd December, 1946 , and the attitude of both the Viet-Namese and the French has naturally hardened in proportion as the fighting has grown in scale. What is most significant, and what is of particular importance to ourselves, the Indo-Chinese affair is beginning to have considerable repercussions internationally, particularly in other Asiatic countries.
13. An official spokesman in Paris has expressed the opinion to the British press here that if the trouble in Indo-China continues it will have a disastrous effect on the British position in the Far East as well as the French. In showing this anxiety to generalise the conflict, the French have demonstrated their real perplexity. No-one, except the unregenerate Right wing and the young fire-eaters of the expeditionary force believes that a second military conquest is a satisfactory solution. It is not only charitable, but commonsense, to credit the present French Government with the desire to reach a lasting settlement as soon as possible. But they cannot now turn back from the course set by events, and a purely French restoration of order must precede a new political settlement. The sort of settlement that will then be possible, however, is uncertain, and one feels that the French Government is much less eager than in 1945 to shoulder the responsibility for it by itself.
14. It would be interesting to know what part, if any, is being played in this affair by the Kuomintang government in China. There is reported to be a Viet-Nam group in Nanking which might serve as a 'provisional government', although it is not likely that this group could amount to very much unless the French suffered military defeat. The Chinese government has all along sponsored dissident Annamite groups in its territory, with a view to having a strong card up its sleeve, rather than to playing it. The original Viet-Minh front for instance was formed as a result of Chinese pressure on exiled Annamite factions; but the front early proved a disappointment to its sponsors by intriguing with the Japanese and by throwing off Chinese leading-strings once it had achieved power. The Nanking group is worrying the French, but with its present internal troubles the Chinese government is not very likely to enter the Indo-Chinese lists at this stage.
15. Other international repercussions, however, are already evident.
16. The reaction of the Indian leaders to the question shows how undesirable is the continuation of the present situation. Both Pandit Nehru and Mr. Bose  have attacked French policy and made very clear their opinion that the present conflict is part of the Asiatic struggle for freedom from Western domination, and one demanding racial solidarity on the part of all Asiatics.
17. This shows how easy it will be for the Indo-Chinese affair, like the Indonesian, to have a permanent ill-effect on relations generally between Asia and the Western world. It must be expected that the approach to the question shown by Pandit Nehru will be shared by all Asiatic leaders, and their attitude towards other Western countries may easily become as bitter and impassioned as that now displayed towards the European colonial powers.
18. This is the significant aspect of the problem to Australia.
The ultimate danger needs no emphasis, and it is of cardinal importance, from our point of view, that the conflict in Viet-Nam should be followed by a settlement which will avoid a heritage of bitterness that might in time affect the only Western power which cannot withdraw from the Eastern hemisphere, i.e. Australia itself.