259 Department of External Affairs to Officer
Cablegram 66 CANBERRA, 7 June 1949, 2.01 p.m.
Your 164. 
We are not contemplating that you should withdraw from China. It is important that you continue to use your influence with United Kingdom and United States Ambassadors along the lines indicated in our recent telegrams. We are far from satisfied that United Kingdom and United States Governments are giving sufficient thought to positive ways of dealing with the Communists, as distinct from essentially negative and passive policy of sitting tight and awaiting developments. We would not wish local relationships with the Communists to deteriorate through neglect when they might be improved by the use of effort and initiative.
This alone provides one good reason why you should stay and do what you can to guide the foreign community in the direction of realism.
Your 165  just received. We are gratified to note that importance of commercial contacts with the Communists is recognised, though we are still not clear about the distinction drawn in your paragraph 2. If indeed the Communists at this stage are interested in negotiating for recognition, about which we are not convinced, there is surely nothing to be gained by neglecting possible occasions for practical business dealings merely out of fear that the matter of recognition may be raised.