Your 164. [1]

We are not contemplating that you should withdraw from China. It
is important that you continue to use your influence with United
Kingdom and United States Ambassadors along the lines indicated in
our recent telegrams. We are far from satisfied that United
Kingdom and United States Governments are giving sufficient
thought to positive ways of dealing with the Communists, as
distinct from essentially negative and passive policy of sitting
tight and awaiting developments. We would not wish local
relationships with the Communists to deteriorate through neglect
when they might be improved by the use of effort and initiative.

This alone provides one good reason why you should stay and do
what you can to guide the foreign community in the direction of
realism.

Your 165 [2] just received. We are gratified to note that
importance of commercial contacts with the Communists is
recognised, though we are still not clear about the distinction
drawn in your paragraph 2. If indeed the Communists at this stage
are interested in negotiating for recognition, about which we are
not convinced, there is surely nothing to be gained by neglecting
possible occasions for practical business dealings merely out of
fear that the matter of recognition may be raised.