Your telegram 339 of 1st July regarding the proposed establishment
of an Australian Legation in China. [1] We agree with the
appreciation of the Commonwealth Government of the difficulties
inherent in this question, and it is difficult to offer definite
advice. Not only are the Japanese Government engaged in
hostilities with the Chungking Government but, having now
established under Wang Clung Wei a Government purported to be a
Central Government of China, they regard the Chungking Government
as merely a provincial regime. Consequently the appointment of an
Australian Minister accredited to the latter would, as you
suggest, tend to diminish the gratification which the Japanese
have expressed at the decision to create an Australian Legation in
Tokyo. On the other hand, an appointment to Chungking might avoid
the impression that the Commonwealth Government were siding with
the Japanese Government as against the legitimate Government of
China.

(2) Apart from its political effect in Japan and elsewhere, the
establishment of a Legation in China would raise certain
difficulties in connexion with extra-territorial rights hitherto
enjoyed by Australians in that country. The nature of those
difficulties is summarized below.

(3) In virtue of treaties with the United Kingdom, British
subjects, including those from the Dominions, enjoy
extraterritorial status and are subject to the jurisdiction of the
British Courts Administrator in General in accordance with the law
of England as amplified by Regulations issued by His Majesty's
Ambassador for local purposes. If an Australian Legation were
established in China it would assume charge of Australian
interests and it would be logical that Australian Courts should be
set up whose jurisdiction of Australians would be natural. This
would mean the enactment of special legislation by Australia and
means would have to be devised of establishment [sic] whether
individuals were Australian British subjects or not.

(4) The administrative and legislative difficulties which this
process would involve could no doubt be solved as between His
Majesty's Government in the United Kingdom and His Majesty's
Government in the Commonwealth of Australia but there is no
certainty that the Chinese would not hold that Australians being
separately represented in China were not entitled to
extraterritorial privileges. It is probable that any Chinese
Government which emerges from Japanese hostilities will be
uncompromising on recovery of China's sovereign rights and
abolition of extraterritoriality.