Your H333. 
CONTROL OF EXPORT TO COMMUNIST CONTROLLED CHINA
1. We are totally opposed to some of the basic suggestions which have been made by United States Government and reported in your H333.
2. We agree that no actual military or defence equipment should be sent to Communist China, and our settled policy is to refrain from exporting actual military equipment. Malaya was an exception because of British Commonwealth fundamental interest.
3. Our general view on the question of control of export of strategic materials was previously set out (see our telegram No.315 of 10th December, 1948). This, however, dealt with the question from the point of view of exports from the European area to Russia.
4. We are strongly opposed to the application of these principles to China. In the statement made in the House of Representatives, the Minister for External Affairs, on 21st June last, pointed out that a realistic view in relation to China was necessary if we were not going to force Communist China completely away from her traditional commercial channels.
5. Australia has an abiding interest in relations between Japan and China. We see from your H333 that the United States Government has already taken steps to control export from China and even South Korea. We all agree that the Japanese economy must be so developed that, without prejudice to future security interests, reasonable living standards can be sustained. If Japan, however, is prevented from normal trading relationships with China, Japan will be forced to seek raw materials and markets in the south-west Pacific and south-east Asia. If we were to pursue the United States policy, it would seem that Japanese commercial aggression will soon take place.
6. The policy for China must have a bearing on the financial position in the sterling area. If Germany and Japan are prevented from developing normal commercial relations with Eastern Europe and Asia respectively, they will be forced to compete more directly in the markets of the world with the United Kingdom and other countries in the sterling area. Moreover, the Western countries can hardly find a long-term solution to their financial position if they are parties to an economic blockade, contrary to past practices of trading in Eastern and Eastern European markets.
7. Therefore we trust that no encouragement whatever will be given to any Government which believes in applying the policy of economic blockade. On the contrary, wise policy would be to so develop commercial trading relations that countries under Soviet influence will gradually regain their freedom from complete integration with any Soviet bloc.