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. [1] 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. [2] 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 [3] 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.