Foreign Relations of the United States Diplomatic Papers, 1939, The Far East, Volume III

893.51/6759: Telegram

The Chargé in the United Kingdom (Johnson) to the Secretary of State

London, January 4, 1939—6 p.m.
[Received January 4—6 p.m.]

14. Embassy’s 1389, December 3, 2 p.m.⁶³ Leith-Ross⁶⁴ asked Butter-worth⁶⁵ to lunch with him and Hall-Patch⁶⁶ to discuss the Chinese currency loan project and the following is his account of the conversation of which the Department may care to apprise the Treasury.

Leith-Ross began by referring to Bewley’s⁶⁷ conversation with Assistant Secretary Taylor⁶⁸ just before Christmas and indicated that the Prime Minister⁶⁹ had just given his agreement in principle to a note being sent to the United States which he hoped would clarify the British position somewhat but would again point out the importance of some parallel action being taken on the part of the United States.

In reply to a query I said that I did not feel competent to express any opinion on the question of policy involved in any parallel action by the two countries but I did point out the disparity between the amounts of financial assistance rendered to the Chinese by the British and the American Governments to date. Leith-Ross then said he hoped there could be embodied in the note the intimation that the two contributions need not be on a pound for pound basis; that the British Government was willing to go ahead with the project if both countries took a hand in it and in that case both he and Hall-Patch thought that the reaction in Japan would be restrained and the effect salutary. They then emphasized how the British had borne the main brunt of Japanese antagonism, how they had kept Hong Kong open despite French suggestions to the contrary, how likely was Japanese retaliation against their interests if they undertook this matter alone, and how strategically the Japanese were placed to retaliate. Leith-Ross further stated that the Chamberlain government feared that if the Japanese became aggressive against them, for example, in the International Settlement⁷⁰ there might be a further diminution of British prestige with consequent political repercussions at home. Both Hall-Patch and Leith-Ross felt that if the Chinese acquired 6 million pounds or more which would be skillfully administered, it would hold the currency position for some time without necessarily any losses occurring and that it would “buck up” the Chinese enormously.

The tentative plan on the part of the British seems to be as follows: the Hong Kong-Shanghai Banking Corporation is willing to put up £500,000 provided the British Government guarantees £2,500,000 the Chinese banks to arrange for their £3,000,000 contribution. The Hong Kong-Shanghai Banking Corporation, which is already operating as a fiscal agent for the Chinese monetary authorities, will continue to do so or at least have a “supervisory say” in the use of the ensuing fund so as to prevent Chinese private manipulation. They asked if in the event we agreed to come in, we could follow a similar procedure with the American banks or, if that were politically inexpedient, we would make an advance to the Chinese Government or Bank of China and perhaps have Young⁷¹ or some one else designated to supervise the operations for our protection. This thinking out loud was followed by a “chance” suggestion by Leith-Ross as to whether, to obtain funds, we could make an advance against some of the silver held in the French and British Concessions in Tientsin.⁷²

I did not enter into any discussion on the political aspect of the United States acquiring an interest in the British and French Concessions which was already a source of friction with the Japanese but merely pointed out the difficulty of the stabilization fund justifying at some future date to Congress purchases of silver the possession of which it could not acquire.

I asked about what other measures of assistance to China the British Government was prepared to undertake and Leith-Ross indicated that about a quarter of the new £10,000,000 export credit which would shortly be passed by Parliament was being earmarked for China but that to date the Chinese continued to be slow and inefficient about putting forward workable projects. In fact they were still talking about long-term railway projects which seemed to him not really productive enough in the given circumstances. For example they needed oil badly. He had proposed to them that they fly oil from Burma, a matter of only 600 miles and by far the cheapest available method of transportation, but so far nothing had come of it. Incidentally Hall-Patch who has recently returned from Paris felt that the French might be induced to let more stuff through French Indo-China.⁷³

Leith-Ross said that the method of assisting China by penalizing Japanese trade had also been carefully considered. The Dominions would have to be brought into it and they would be the hardest hit by any trade war. The abrogation of existing commercial treaties and the imposing of certain punitive duties had not been entirely ruled out as a possible method but they were disposed to move cautiously in this matter and first see what could be done to help China to help herself.

I asked Leith-Ross about the attitude of the British interests in China towards measures which might provoke Japanese retaliation and he maintained that the more important British interests in China were coming rapidly to the view that it was better “to chance a harder kick in the pants now” than to endure the slow progress of attrition. He added that he had recently received a private letter from Keswick of Jardine, Matheson⁷⁴ in this sense. Hall-Patch indicated that while this was true of the large corporations, the smaller British interests, which might not be able to withstand an immediate onslaught, preferred the ills they knew to those they knew not of; however, their voices were not loud in Whitehall or Westminster.

Incidentally Leith-Ross mentioned he had had a recent telegram from Tokyo to the effect that the Japanese foreign exchange problem was growing more acute and expressing the view that within 6 months they would be in real difficulties. I did not gather that Hall-Patch had necessarily modified the opinions he had expressed in Washington.⁷⁵

Johnson

63. Foreign Relations, 1938, Vol. iii, p. 576.
64. Sir Frederick Leith-Ross, Chief Economic Adviser to the British Government.
65. William W. Butterworth, Jr., Second Secretary of Embassy in the United Kingdom.
66. E. L. Hall-Patch, Financial Adviser to the British Embassy in China.
67. T. K. Bewley, Financial Counselor to the British Embassy in the United States.
68. Wayne C. Taylor, Fiscal Assistant Secretary of the Treasury.
69. Neville Chamberlain.
70. See also Vol. iv, pp. 1 ff.
71. Arthur N. Young, American adviser to the Chinese Ministry of Finance.
72. See also Vol. iv, pp. 163 ff.
73. See also pp. 736 ff.
74. British shipping company in China.
75. See memorandum prepared in the Department of State, December 5, 1938, Foreign Relations, 1938, Vol. iii, p. 577.