893.51/6923
The Ambassador in the United Kingdom (Kennedy) to the Secretary of State
[Received June 23.]
Sir: I have the honor to refer to instruction No. 753 of May 27, 1939,41 enclosing for comment a copy of a Departmental memorandum entitled “British Financial Assistance to China”.42
As reported in paragraph 6 of the Embassy’s 14 of January 4, 6 p.m., it was the intention of the British Government, according to Sir Frederick Leith-Ross, to earmark a quarter of the £10,000,000 “political” export credit for China and, according to the British Treasury, this still remains the intention of the British Government.
On December 19, 1938 an inspired article by its diplomatic correspondent appeared in The Times stating that “the Government hope soon to put about £500,000 to the credit of the Chinese Government, with the prospect of other sums to follow.” To date only £140,000 of this export credit has been drawn on by the Chinese Government in connection with an order for motor trucks amounting in all to £220,000. According to the British Treasury, the Chinese Government has shown no disposition to make use of the remainder.
This export credit for trucks, as mentioned in the Embassy’s 1310, November 12, 3 p.m.,41 was designed originally to fall within the provisions of the non-political Export Credit Guarantees scheme but the announcement of its conclusion was hastened by the publication of the $25,000,000 American credit. The British Government had been under fire from a number of quarters which held the view that it had not been sufficiently prompt and generous in rendering aid to China. The announcement of the £500,000 credit was no doubt designed to prevent further criticism when Parliament reconvened after its Christmas recess. However, the haste with which this matter was dealt with hindered the arranging of satisfactory security, necessary in the case of ordinary export credits. Although the “political” Export Guarantees Bill did not become law until February 28, 1939, the truck credit is, I understand, now being retroactively allocated to that account.
[Page 673]As indicated in previous reports, the British Treasury has often complained of the indefiniteness and the inefficiency of the Chinese in formulating propositions. It now states that a draft scheme which would necessitate “political” export credits totalling about £1,200,000 was handed to the Chinese over a month ago and to date no reply has been received. The material concerned is mainly industrial machinery having to do with the production of instruments of war. The British Treasury is inclined to attribute a share in this delay to Mr. P. W. Kuo who, although he enjoys no official status in London, is Dr. Kung’s representative here. As indicated in the Embassy’s 840, August 30, 7 p.m. (1938),43 he has actively participated in discussions with the Export Credit Guarantees Department.…
In supplying the above information, the British Treasury asked in turn for information as to how far the Chinese have drawn upon the $25,000,000 American credit.
Beside Chinese propensities in conducting business negotiations, there are also British inhibitions.
One arises out of the character and training of the Treasury and Export Credit Guarantees Department officials who are for the most part technicians not accustomed to taking a large political view of affairs. Furthermore, they have been assiduously trained in a tight-fisted school. Therefore, in arranging any new credits for China these officials wish to obtain from the Chinese similar security to that given by the Chinese to the United States in the matter of the $25,000,000 credit. It is even believed here that the Bank of China guarantee given to the United States was obtained without the free concurrence of the Bank of China, and my impression is that Mr. Rogers, for one, would not like to see the Bank of China extend such guarantees ad libitum. Accordingly there has been some talk of using the Yünnan tin production as a substitute security, the foreign exchange for which now remains in the hands of the Provincial Government. No doubt the Central Government has been urged to attempt to obtain control of this source of foreign exchange, which is said to produce some £2,000,000 per year.
Secondly, those in charge of the management of the financial resources of this country, as a result of the drastic change of British policy which occurred after March 15th,44 are now beset with appeals for financial assistance. All of Great Britain’s new-found allies—Poland, Turkey, Rumania and Greece—as well as such other countries as Yugoslavia and Bulgaria are asking for money, and yet more money. At the same time the British Government has undertaken an armament programme for the current financial year which will entail [Page 674] borrowing on its own behalf to the extent of £380,000,000. The British Treasury is, therefore, facing a serious problem of apportioning available resources.
Furthermore there is, as the Department is aware, a general disposition in high official quarters in Great Britain to look to the United States as the appropriate Power to bear the main burden in the Far East. With extensive and precarious European and Mediterranean commitments, the British Government is acutely aware of its vulnerability in the Far East.
Incidentally, current developments in Tientsin may well precipitate a re-inspection of the position analyzed in the British Embassy’s aide-mémoire of January 25, 1939.46 Asked in the House of Commons to-day whether “the Prime Minister will immediately inform the Japanese Government that, unless the threatened Japanese blockade of the British Concession at Tientsin47 is discontinued, Japan will at once be denied all use of the ports of Hong Kong, Singapore and Penang”, the Parliamentary Under Secretary for Foreign Affairs replied: “The question of what measures will be appropriate in regard to the Japanese blockade of the British Concession at Tientsin is at present under examination, and must depend in some degree upon the nature of the action taken by the Japanese.” Asked, further, “Are His Majesty’s Government working in close touch with the French and American Governments in connection with this matter?” he replied: “The honorable member may rest assured there is close contact with both these Governments.”
Respectfully yours,
Counselor of Embassy