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.