793.94/6887: Telegram
The Minister in China (Johnson) to the Secretary of State
[Received February 27—2 p.m.]
42. 1. Tang Yu-jen, Administrative Vice Minister for Foreign Affairs, called on me February 23 and stated he desired to outline present situation between China and Japan. He said both those countries were in agreement that question of Manchuria could not be discussed because settlement at present was impossible. Only in economic field were discussions possible and the Japanese military were anxious to bring about understanding in this field, showing evidence of change of attitude from despair, to one of finding solutions by negotiation. The change was due to threatened increased expenditures of civil side of Government in Japan and resulting eagerness of Japanese Army to effect friendly settlement with China in order to maintain its dominant position in home politics.
2. He stated two economic problems were pressing: one was Chinese remittances of profits and wages from Manchuria to China amounting [Page 63] to some $150,000,000 and flowing from Japanese investment of over 200,000,000 yen, [the] other was China’s balance of trade with Japan. Loss of Manchuria by China and of Manchurian bean trade and loss of Manchurian market for Shanghai, Tientsin and Tsingtau piece goods accounted to large extent for unbalanced situation.
3. Mr. Tang said some way must be found whereby trade between China and Japan could be increased but China would have to put certain restrictions on Japanese imports into China because problem could not be solved if Japan’s exports to China were same as goods already manufactured in China. Any arrangement with Japan, particularly in reference to increased use of Chinese cotton, must reflect adversely upon trade between United States and Japan; it was hope of Chinese Government that whatever arrangement might be reached with Japan as little damage as possible would result to American trade. He offered to keep me informed of any progress in such discussions and hoped that in view of known interest in United States in reciprocal trade understandings some common basis for exchange of information in this respect might be reached.