Your 163.

You should by now have had our 62 [1] summarising our views on
recognition of and trade with the Communists. Please keep us
informed promptly of any developments on these matters. We have
recognised the general desirability of keeping in step with other
countries, but as things develop there may be occasions when we
would need to know quickly what course you and your diplomatic
colleagues are recommending. Australian interests may not
necessarily coincide with those of other countries in respect of
China.

2. We agree that if the Government moves from Canton you should
not give any undertaking that an Embassy representative would
remain with it. What would you propose to do with Lee? [2]

3. You may assure American Ambassador that we are not
contemplating any step toward recognition of Communists, and will
consult United States and other Governments before doing anything
in that direction.

4. We have however already stressed the need for establishing
local relationships with the Communists in the meantime. The
importance of seeking trade opportunities applies with special
force to Hong Kong, about whose future the United Kingdom
Government is clearly anxious. We consider that United Kingdom
authorities are thinking too much in terms of the defence of Hong
Kong and too little in terms of making Hong Kong perform its
normal function as a commercial centre. We think that the
successful use of Hong Kong as an entrepot to stimulate trade
would offer the best hope that the Communists will be content to
leave its present status undisturbed. Undue emphasis at this stage
on the defence of Hong Kong is likely to be regarded by the
Communists as merely provocative.