263 Officer to Department of External Affairs

Cablegram 198 NANKING, 4 August 1949, 2.03 p.m.

IMMEDIATE TOP SECRET

Situation Shanghai.

I find the situation of the British community worse than paragraph (2) of my telegram No. 196 [1] would indicate. They are determined to remain if possible, but their situation is deteriorating rapidly owing to-(a) closing of the port [2], and (b) labour demands. (a) Has lasted now for six weeks and has stopped all imports of goods, food, and raw material. Industries and merchants are slowly but surely running out of stocks and wharves and shipping companies, banks and agencies are without any work. Meanwhile labour is demanding and obtaining ever-increasing wages. Most businesses are carrying on by remittances from the United Kingdom which cannot last much longer.

2. The first need is to open the port by, if necessary, protection of British ships through the blockade. There is ground for hope that the Communist authorities in the desire to see the port opened will offer facilities for the Royal Navy to escort vessels the necessary distance inside territorial waters.

3. I understand that the United Kingdom Government is prepared to authorise protection if the United States Government will co- operate. My impression is that the United States of America will not be willing to do so for their policy is to evacuate their community and abandon their interests. Therefore the United Kingdom must be prepared to act alone. I urge most strongly that you press them most firmly to do so as it is in my opinion the only means to maintain Shanghai, and without Shanghai we will have to all intents no footing in China. I have hopes that if the port was opened by British efforts arrangements regarding labour might be secured. Moreover it would provide a first stone in the foundation of future good relations.

1 Dispatched 29 July 1949, paragraph 2 reported: 'Shanghai has suffered severely from effects of typhoon. Future of ANGLO-US citizens is becoming urgent question. Understand US authorities favour evacuation of their nationals. British prefer to remain which probably would require institution of some system of relief ships transporting food and raw materials. There are some indications that Communist policy regarding industrialisation and future of Shanghai is changing to postponement of former and allowing Shanghai to decay.' 2 The port of Shanghai had been closed to all foreign ships since 26 June 1949 when the Chinese Nationalist Government announced that all territorial waters from a point north of the Min River to the mouth of the Liao River would be blockaded.

[AA:A1838, 491/7/18/1, i]