Created: 6/11/1967

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CENTRAL INTELLIGENCE AGENCY Directorate of Intelligence7


The Situation in Hong Kong


The border clashuly during which five policemen were killed in an exchange of small arms fire with Communist militia makes it clear that the Chinese authorities intend to keep the Hong Konghot. -Peking's official treatment of thethus far, however, does not indicate that the Chinese Communists are aiminghowdown with the British at this time. There will probably be more trouble during the weeks ahead. Riots anddemonstrations inside the colony appear almost certain and there may be additional border incidents. Given the state of confusion within the Chinese leadership and the pressures generated in the capital, at the provincial level, and within theapparatus in Hong Kong by the latest phase of the "culturalhese could get out of hand and escalateirect confrontation over the status of the Colony. The pattern of events the past several months suggests, however, that Peking is operating ononger range plan calculated to erode the position of the Hong Kong authorities and thus prepare the ground for an effort by theCommunist apparatus to assume de facto control over Hong Kongear or so--on the pattern of the Macao takeover last winter. The resolute stand taken thus far by the British, the demonstratedof control measures adopted by the Hong

Mote: This memorandum was produced solely by CIA. It was prepared by the Office of Current Intelligence and coordinated with the Office of Economic Research.

Kong authorities, and che lack of "revolutionary" enthusiasm shown by the general population in the Colony, seem unlikely to encourage Peking to move more quickly. The Chinese Communists can beto continue--and perhaps tosupport of local opposition in Honq Kong butwill refrain from actions involving the risk of war, or even mows which would disrupt the Colony to such an extent that Peking was denied the vital foreign exchange earnedone third of China's total earnings


The present troubles in Hong Kong can be traced backhift in Communist tactics withto the Colony which apparently was adopted around the beginning of this year. Prior to that time the Communist apparatus in Hong Kong had been relatively circumspect. Instructions issuedenior official who had returnedisit to China the preceding month changed this line. He ordered increased exploitation of industrial disputes in order to indoctrinate the workers with "Maoist thought" and stated specifically that the objective of the new program was to further the "anti-British struggle."

There was an increase in industrial unrest during the late winter and early spring, but the British authorities sought to avoid trouble byclear of the disputes and leaving them to be settled by labor-management bargaining. ay, however, violence broke outactory strike which required police intervention. The Communistin Hong Kong and then on the mainland--reacted with charges that the Hong Kong Government had committed "atrocities" and demanded that those responsible be punished.

The initial propaganda attack was followed by three days of Communist-inspired rioting which began on ay. On IS May Peking took formalof the situation byoreign Ministry statement to the British charge* demanding that workers arrested in Hong Kong be released, that those responsible for the arrests be punished, that apologies and compensation be offered, and uarantee be provided against any similar incident

in the future. ampaign of harassment againstdiplomatic personnel in China began at this time. Massive demonstrations were staged outside theEmbassy. The British Consulate in Shanghai was forced to close and the officers there were roughly handled by Red Guard hoodlums.



the initiative for the disorders

4. it is still not clear whether the strike violenceay and the ensuing riots in the colony were the result of local cowmnist initiative or were specifically ordered by peking. the nine day delay between the incidentay and the foreign ministry statement onay suggests, however, that theoriginated in hong kong, the leadersthe local apparatus almost certainly felt underpressure to demonstrate theirview of the current demands of the "culturalmay have decided that the time was ripe toajor campaign based on what appear to have been very general instructions toarder line in exploiting labor unrest,

is possible that the local leaderstheir own capabilities, underestimatedof the british to resist pressure, andan optimistic picturt to peking whichendorsement and direct involvement ofcommunist regime in support of theirministry officials in the capital hadheavy extremist pressure for months andhave been inclined to put "politicsover their normal caution.

the british reaction and its effects

encouraged by the foreignstatement, tho hong kong apparatus launchedof "fed guard" typo demonstrations andstrikes designed to cripple publicpromote mass disorder. the hong kongoperating on the assumption that peking didtothe colony and that in this it had much to gain and little to lose byto give an inch. london refused to replychinese foreign ministry demands and issuedsupporting the hong kong authorities. kong police stood firm and generally weremaintain order whileinimum of force.

Lj^iifc^broad/controlled piagflp no foreigntv

No .Forei'


Failure of the efforts of local Communists to intimidate the British began to sap their moraleumber of them expressed disappointment over the support they were receiving from Peking. fllHHumber of senior officials in the Kong Kong apparatus revealed growing They attributed the resolute stand taken by the Britishreasonable" judgment that China did not wish to take over Hong Kong at that time. They were reported to believe that Peking did not entirely agree with efforts by the localto "escalate" the confrontation andadmitted that the British werelever policy in suppressing theost of martyrs--in contrast to the mistakes made by the Portuguese in Macao.


By the end of May the Colony had returned to relative calm despite sporadic harassment strikes inspired by the Communists and financed in part by Peking through front organizations. Communistin Hong Kong began at this point to sav that the struggle against the British could take as long as two years. This situation continued throughout most of June. general strike" was calledune

calleneral stride been "wishful thinking" because "the masses were difficult to mobilize."


9. Communist Chinaumber of gestures in support of the Hong Kong Communists at this time, but they were little more than token encouragement. Onune, the day following the abortive general strike, Peking halted deliveries of water to Hong Kong. This waa clearly intended to harass theand to remind then of their dependence onwater supplies. The Chinese took this step only after they had delivered all the water they had contracted to supply under the existing agreement, however, andime of year when the water situation

in the Colony is normally not critical. Peking is not obligated to sell norc water to Hong Kong until October and hasritishdesigned to probe Chinesesupplies at this time.

une the British charge wasthe Foreign Ministry andoteoverflights of Chinese territory andthe British with "bloody persecution" inthe Hong Kong general strike. Tho Chineseagain called for immediate fulfillment ofmade onay but contained no time limit

for compliance. The charge reported that hiswith the Foreign Ministry official was conducted in "very lownd commented that tho notemainly designed to divert attention from the failure of the general strike.

Hong Kong Communistsood strike" onune and Poking cooperated

by banning shipment of meat and produce to the Colony from the mainland. The itrike proved to bepercent of the vendors were back inby the fourth day--and the ban or. food shipments was ended when the strike collapseduly. of the banong period would haveardship on the predominately Chineseof the Colony and Peking was apparentlyto doto lose the foreign exchange earningsthe ineffectiveness of the effort by the local organization had been demonstrated.

Current Chinese Attitude

Chinese Communists probablythey have committed themselves too far toa complete disengagement from the Hong Kongand Peking probably believes it necesoarysufficient political and financialmaintain pressure and agitation at roughlylevel. It seems likely, however, thatactions will in the main be determinedeffectiveness of the Hong Kong apparatus insupport from the local population. An editorial


the local"nist organization in continuing the struggle. The editorial asserted that the "worker's strike" is the principal weapon in the battle against the British at present and declared that the Hong Kong workers, the "mainustood job in uniting the population behind them.

Recent Incidents

If the clashuly at the borderof Sha Tau Kok in the Hong Kong New Territories was ordered by Peking, it should probably bein thisa move to keep theon and to encourage the local Communist The village straddles thewhich runs along its mainprovides an excellent arena for hit-and-run raidsar of nerves. ob of demonstrators, some of then armed, came over from Communist territory. Police attempting to eject them were fired upon. Five officers were killed and mare than eleven were wounded in the unequal exchange whichrevolvers end carbines against infantry weapons in the hands of Communist milita,

The incident was almost certainlyand the fact that five Chinese army officers were observed inspecting the areamaller demonstration which took place two days earlierthat the Communists plannedire-fight. During the five hours while the clash was inhinese army battalion was moved up piecemeal to

quently become available raises the possibility that the Sha Tau Kok fire-fight was planned and executed by local hot-heads or perhapsrovincial faction with an ax to grind. Peking may have learned of the clash only after the fact. Senior Communist officials


in Hong Kong were apparently taken by surprise, and it seems likely that they would have been forewarned if the fighting had beer, partentrally controlled campaign.

The British charge*rotest to the Foreign Ministryuly and got the impression during his meeting with Vice Minister Lo Keui-po that the Chinese had been caught off base by the incident. Lo appeared embarrassed when the charge quoted accounts from the Communist press in Hong Kong admitting that Chinese militia had crossed the border and fired on Hong Kong police. The charge' reports that Lo was ill at ease throughout the interview and he believes the Chinese fully realized the seriousness of the incident and were on the defensive.

In any event Peking's official treatment of the clash does not indicate an intention to build on the incident. The Foreign Ministry note delivered to the British chargeuly blamed the Hong Kong authorities and called on the British to apologize, to punish those responsible, to pay compensation, and to guarantee that no similar incidents would occur

in the future. The note was not so strongly worded as some earlier Chinese statements on Hong Kong,no threat of reprisal, and did not set afor compliance with Peking's demands.

9 July Communist zealots in Honga riot in which one policemanumberwere killed. More of the same isin prospect. Communist-controlled schools inare reported to be planning to keep studentsduring the summer vacation to take part inactivity. It seems unlikely, however,intends at this time to go much beyondthis kind of activity, possibly accompaniedharassment along the frontier. Chinese military threats to Hong Kong wouldrisk of war, which could develop into athe US. Use of economic sanctions atoff water supplies and stoppinginflict further damage on theposition with the Hong Kong population andin the loss of vital foreign exchangetrace with the Colony.

China's Financial Interests

18. Hong Kong is Communist China's largest single export market. It is also China's most single source of foreign exchange. Last year the Chinese Communists earned0 million In Hong Kong trade, approximately one third of their total earnings of foreign exchange. Chinese exchange earnings from Hong Kong have increased rapidly, doubling in the last five years and are still growing. Almost all of this would be lost if Peking took over the Colony,ignificant proportion would go by the board if the Chinese Communists took action short of seizure, which in effect would put Hong Kong out of business. Some direct sales to the Colony would continue but there wouldarked decline in foreign exchange earnings which woulderious blow to Peking. The Chinese are obliged to buy some kinds of specialized scientific and abroad as well as ordinaryand chemical fertilizer. ajor item of expenditure for the last six years has been for the purchase of grain to meet the requirements of China's expanding population. Peking5 million an foreign exchange6 to buy grain.


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