10. In the field of international relations I think it must be assumed that a Communist or Communist dominated government in China would have very close relations with the Soviet and be inclined to cold shoulder both the British Commonwealth and the United States. The Chinese vote in the Security Council and the General Assembly would go with the Soviet bloc. But I do not think that there would be any lowering of an 'iron curtain' so far as relations, and especially trade relations were concerned. If a Chinese Communist government is to be able to raise materially the standards of living-on which their appeal depends-then mere redistribution of land will not provide the final solution. New capital and new technology will be needed, both in industry and farming. It seems unlikely that Russia could or would be able to supply this-indeed Russia's stripping of Manchuria must now be deeply regretted by the Chinese Communists. China could, of course, attempt to emulate Russia by accumulating capital out of domestic resources, but success in such an attempt, considering China's present condition, would seem to be virtually impossible.
The only other alternative would be to seek foreign assistance, accepting the various conditions which such a step would involve.
As reported in despatches Nos. 180 and 188, foreigners in North China and Shanghai have already been invited to remain after Communist occupation, with the promise of the protection of their persons and property. Early reports from Mukden and Tsinan suggest that these promises have been fulfilled. This may be mere expediency, of a temporary nature only, but many of the foreigners here consider that the needs of the Communists will be such as to make 'business as usual' possible for a very long time to come.
11. In any case, it is difficult to see how any iron curtain can effectively be placed over China. Not only is there the fact of China's long coast line, and her dependence on trade for the import of finished products of all kinds, but also the number of Chinese nationals abroad and the importance of their remittances to the national budget, would make the exclusion of foreign influences almost impossible.
12. At first Communist victories were followed by attacks on foreigners and especially foreign missionaries, but of late the policy has completely changed and recent reports are that foreigners, missionary and otherwise, are encouraged to remain and continue their work. (See Annexure 'C', an article from the North China Daily News, dated 20th May, 1948). Recent reports from very reliable sources emphasize the very careful and efficient organisation of the Communist occupation of new territories. Law and order is enforced at once, industry and business is encouraged to keep working and managers and staff are urged to stay at work.
In return they are assured of their ration of rice. They are closely watched, however, and measures are taken by lectures and other means to indoctrinate them with the Communist truth. They are permitted and even encouraged to go away to non-liberated areas to bring to relatives and friends news of life in the 'liberated regions'.
13. Reports have been so encouraging, that most of the British business community, and, led by their example, a great part of the U.S. community, have made up their minds to remain when the Communists take over and endeavour to do business with them. Their attitude is, I think, to be welcomed and encouraged for, in my opinion, we must do all we can to establish and maintain close relations, business and official, with a Communist regime, and endeavour to influence it; any request for advisers should be quickly and readily met; and E.C.A.  aid should be continued (on proper conditions). Nothing would be more unfortunate than any step which drove China into exclusive relations with the Soviet bloc.
14. For our relations and influence will have an important bearing on the external policy of a Communist Chinese regime. In a recent interview Chiao Mu (Head of the Communist New China News Agency in Hong Kong) disclaimed any link between the Singapore Communists and the Chinese Communist Party, but such links could quickly and easily be forged. If Communist China felt we were unfriendly it could quickly and easily set about stirring up trouble wherever Chinese Communists exist.
15. In short, in my opinion, a more or less Communist regime in a large part of China is an almost certainty. We should do our best to work with it, aid it, and lead it in the road of co-operation and not that of exclusion. It will at first be closely linked with the Soviet, but we might gradually overcome this first tendency.
Internally it will at first at least retain much private enterprise, and the foreign business community should be able to continue business. The policy will be to become increasingly, first socialistic and then communistic, but the Chinese temperament may prevent the process going very far, and present in time a new form of 'Chinese Communism'. Finally it will be strongly nationalistic as regards South East Asia and liable to encourage all elements of trouble there. The best remedy to this will be to show that good relations with us are so important that it would be unwise to do anything to impair them, and to work hard throughout South East Asia to set our own house in order.
Communism breeds on urban squalor and rural landlessness-if agrarian reform had been carried out over three years ago the Communist armies would not be to-day advancing south almost as they wish. If conditions of livelihood in Malaya and elsewhere are given wise attention, Communism will shrivel in that area. My one criticism of the recent paper by the J.I.C.  Singapore (48-12) is that beyond a reference to 'disruption of economy' as a factor in the growth of Communism, it ignores the question of prevention and cure. The chief breeding ground for Communism is urban squalor, uncertainty of employment, low wages, an ever present fear of starvation and rural overpopulation, and excessive rents, as is especially the case in China. Where big towns and rural problems do not exist, for example in British North Borneo, Sarawak and Siam, there is little Communism. Among the students too, especially in China, their poor, ill-fed condition encourages it. So I think that studies such as the J.I.C. paper and all such studies should emphasize the need for counter measures-in the cities better housing, better wage conditions, better food supplies, and in the country, where necessary as in China, land reform. Otherwise we may contain Communism for a time, but it soon will overtake our efforts as it is doing today in China.
16. To return to China, here today Communism has all the outward trappings associated with Russian Communism. The broadcast propaganda is the same; there is the same lauding of 'labour heroes' and the same emphasis on the 'increase of production';
portraits of Mao Tse-tung and Stalin  decorate each newly captured city or village; there is the bitter denunciation of American imperialism; and overall, the asserted association with the international communist movement. But the greatest tasks of the Chinese Communist are just beginning. Till the present they have been united in their fight against attempted suppression-from now on the party will be forced to accept and direct a situation far more complex than they have yet encountered. They will be faced with great difficulties; some they must solve themselves or they will fail and within a short space of time China will be ripe for another revolution. (This is what, in my opinion, Chiang Kai- shek expects, and will endeavour to prepare for). On the other hand, they may be wise enough to adapt their policy to local circumstances and establish themselves firmly. We will have to watch the situation very carefully and do nothing that will drive a Communist China completely into the Soviet fold, or encourage it to be the leader and breeder of unrest in all South East Asia.