I would refer to my letter of 23rd November, 1948, in which I promised to let you have further views with regard to the survey of political events and trends in South East Asia which you forwarded for my perusal on 6th October 1948. 
2. The Defence Committee have completed a review of the matter and I am attaching a copy of a paper containing its observations on the defence aspects of the survey of the political events and trends in South East Asia prepared by the Department of External Affairs. The general conclusions of the Defence Committee , with which I agree, are as follows:
'(a) In the event of a major war in the foreseeable future, it would be global in character, the chief conflicts taking place in Europe, the Middle East and the Far East, and the fate of South East Asia would be decided by the result of those conflicts.
(b) China is not a major power from a military point of view, and, by herself, offers no threat militarily. The threat will exist, however, of subversive attack in the South East Asia area, not only from local minority groups of Chinese who are Communists, but also from other communist elements.
(c) The USSR is the only major power against which the British Commonwealth might become involved in war in the foreseeable future.
(d) It is most improbable that the USSR would extend her armed forces into South East Asia whilst the Naval and Air strength of the USA in the Far East threatens the flank of such a drive.
(e) Every endeavour should be made by Australia and the Western Powers to assist South East Asian Governments defeat the subversive threat developing as the result of the spread of communism.
(f) The position of India in relation to South East Asia is important and every effort should be made to ensure that she has a military alliance with the British Commonwealth, but, failing this, the minimum requirement is that she should be a benevolent neutral.
(g) The threat of subversive action should not be allowed to tie down considerable Australian armed forces, as this would, in fact, be furthering the Soviet aim; and (h) To meet our strategic requirements, it is necessary that appropriate political and economic measures should be taken to arrest the spread of, and ultimately eliminate, communism throughout South-East Asian countries.'
EXTERNAL AFFAIRS POLITICAL APPRECIATION: EVENTS AND TRENDS IN SOUTH-EAST ASIA 
Defence Aspects and Implications
The introduction to the Appreciation reads as follows:-
'This appreciation deals with the position of Australia, as a South-East Asian country, in the event of a conflict between one or more of the Western powers and one or more of the Eastern European countries.'
2. The military view in regard to the foregoing introduction is that any future major war will be global in character and the survival of Australia win necessitate her participation on the side of the Western powers.
3. The External Affairs Appreciation tends to be confined to events and trends in South-East Asia without adequate relationship to the global issue. The military view is that the fate of South- East Asia will be decided by the result of the major conflict which will probably take place in Europe, the Middle East and the Far East.
POSITION IN CHINA 4. The greater part of the Appreciation is devoted to the menace of Chinese nationalism. However, from the Defence viewpoint, China by herself does not now, nor in the foreseeable future, represent a military threat to South-East Asia nor to Australia. Many years of war have accentuated her economic difficulties; politically she is sharply divided; her army, though large, is poorly organised, trained and equipped; there are no Chinese naval or air forces of any consequence; and she has very limited industrial resources.
The Japanese threat, on the other hand, had great naval, military and air strength with industrial resources to support them.
Unless China is allied to, and assisted by the U.S.S.R., she could not threaten Australia militarily, and even if such a threat were possible no southward movement could take place as long as the naval and air strength of the United States of America in the Far East threatens the flank of such a drive.
The threat will exist of subversive attack, not only from minority groups of Chinese who are communists, but also from other communist elements. It is agreed that the method of meeting this type of attack is not one for military action.
From the foregoing it is concluded that China, by itself, offers only a subversive threat to South-East Asia and Australia.
THE GOVERNMENTS OF SOUTH-EAST ASIA- 5. The conclusion in the Appreciation that the South-East Asian countries should be prevented from turning to the U.S.S.R. for support is concurred in. From the Defence viewpoint, every endeavour should be made by Australia and the Western Powers to assist the South-East Asian Governments to defeat the menace of Communism.
INDIA- 6. The view, expressed in the Appreciation, that the position of India in relation to South-East Asia is one of importance is supported. Every effort should be made to ensure that she has a military alliance with the British Commonwealth, but failing this the minimum requirement is that she should remain a benevolent neutral.
U.S.A. Interest- 7. The Department of External Affairs suggests that paragraph 18 of J.I.C. Appreciation No. 1/47  requires reconsideration. That paragraph, the substance of which was embodied in paragraph 31 of the Appreciation by the Chiefs of Staff of 'The Strategical Position of Australia-September 1947' , which is appended below was considered by the Council of Defence on 20th April 1948.  The reference therein to 'Direct U.S.S.R. intervention in South- East Asia' means activities by the Soviet armed forces in that area.
'31. South-East Asia is important in Soviet strategy, in that it plays a part in the economy as well as in the strategic dispositions of the Western Powers, and unrest there could have a prejudicial effect on their military capacity in Europe, in the Middle East, and in the Far East. The U.S.S.R. by propaganda and disruptive tactics in this area, could curtail the resources of the Western Powers and hold down some of their forces. Direct U.S.S.R. intervention in South-East Asia is most improbable, as she would hardly risk the danger of extending her forces into South-East Asia, while the United States remained unchallenged on her Eastern flank.'
Those views are considered to be still valid.
Defence Implications- 8. The defence implications as stated in the Appreciation from the Department of External Affairs are not fully supported.
It is agreed that neither China as such, nor Communist influence as such, represents a direct military threat to South-East Asia and Australia, but there is a serious subversive threat offered by Chinese and other communist inspired minority groups throughout the area. It is further agreed that against this threat conventional military measures would not be effective, and that appropriate political and economic measures should be enforced where necessary by police action. It is, therefore, not misleading to conclude-vide paragraph 73 of the Chiefs of Staff Appreciation- that U.S.S.R. is the only major power with which the British Commonwealth might become involved in war, more particularly as China is not a major power from the Defence viewpoint, and does not, of itself, constitute a direct threat.
In reference to the degree to which Australian resources can be committed outside South-East Asia, unless Russia as a result of success in the major conflict, embarked on offensive action in South-East Asia, the Chiefs of Staff current estimate is that there is only a limited threat to that area from her armed forces.
Therefore, sound strategy dictates the employment of Australian resources to the fullest possible extent for the successful conclusion of the major conflict, thereby preventing the development of action against South-East Asia. If the threat of subversive action were permitted to tie down considerable Australian resources, particularly armed forces, this would, in fact, be furthering the Soviet aim. It is therefore desirable, in order to meet our long term strategic requirements, that appropriate political and economic action should be taken to arrest the spread of, and ultimately eliminate, Communism throughout the South-East Asian countries.
Political Policy Implications- 9. It is only appropriate for the two following comments to be made on this section of the Appreciation as the other implications have no direct Defence significance:-
(a) in regard to air bases required for Defence purposes (sub- paragraph (i)), the areas in which they are required will be notified to the Department of External Affairs in due course; and (b) in regard to the suggestion that observers with Defence background should be included on Consular Staff (sub paragraph (1)), it is considered that the provision of Service Attaches, Defence Representatives or possibly military intelligence staffs for various countries in South-East Asia would need detailed consideration when the proposed increase in consular staffs had been decided. Factors relating to the importance of military information likely to be gained, the availability of officers with suitable military experience, qualifications and status and the existing sources of information would need to be reviewed in connection with each proposed appointment.