893.51/7186
The British Foreign Office to the British Embasssy15
[London,] November 21, 1940.
In a recent series of telegrams repeated to you Sir A. Clark Kerr16 has transmitted an appeal by Chiang Kai-shek for closer Anglo-Chinese-American co-operation and help in his country’s resistance to Japanese aggression. In a preliminary reply he has been told that [Page 701] his request is being sympathetically considered, and that we are ready to discuss with him and with United States Government the whole problem of our mutual interests.
- 2.
- We understand a similar appeal has now been addressed to United States Ambassador in China. When United States Government has had time to consider the proposals made by Chiang Kai-shek, we shall wish to discuss them with them. Particulars of our provisional reactions are as follows.
- 3.
- We assume that we cannot expect that United States will take a definite commitment at this stage and that a full-blown alliance is ruled out. An Anglo-Chinese alliance would not serve the same purpose and its effect on Japan would be out of proportion to its utility. It may be possible to make some declaration on the lines suggested by Chiang Kai-shek either by parallel or joint action, but as the declaration proposed, except in regard to giving utmost help to China, covers ground already covered by various statements made by United States Government and ourselves, we think it better to work out in the first place such concrete help to China as may be feasible.
- 4.
- So far as we are concerned we have to consider the matter in the light of our own war effort and risk of provocating of Japan unnecessarily or prematurely into war. We think that our help should be as extensive as may be compatible with these two considerations, which however make it necessary to proceed carefully and by stages.
- 5.
- Loans as large as those mentioned by Chiang Kai-shek are out of the question. The Treasury’s view is that since China is long of sterling at present, to give her more sterling unconditionally would result in increased sales of sterling on Shanghai market and a fall in sterling-U. S. dollar rate there, which would result in increased evasion of our control in case of Shanghai to the detriment of our exchange position. This would also react on Chinese dollar.
- 6.
- The Treasury therefore contemplates making in agreement with the Chinese government, arrangements under which sterling held by Chinese residents will be available only for expenditure in sterling area. If this can be done, financial assistance could be given to China without weakening our exchange position. Subject to this condition, the idea we have in mind is to make a further advance to stabilise the fund, not exceeding £5,000,000 and to agree to export credits for Chinese requirements in sterling area within a maximum (according to the extent to which they can be met) of £5,000,000.
- 7.
- It had been suggested by Chinese Ambassador that T. V. Soong should visit London to discuss the consequences of currency stabilisation semi-officially and also (as Chairman of the Chinese National Resources Commission) the needs of China for commodities available [Page 702] in sterling area. We are now informed by Chinese Ambassador that Chinese Government wish T. V. Soong to remain in United States for the moment. But a visit by T. V. Soong would, we think, be very valuable and we propose discussion of this point further with Chinese if Sir A. Clark Kerr concurs.
- 8.
- If financial assistance is granted to China, we may be prepared to consider sending an economic mission or appointment of individual technical experts but do not think this should precede concrete help.
- 9.
- We are [?“not” omitted]17 likely to be able to furnish any Chinese requirements in armaments but we are examining this point, and we do not consider it desirable to despatch a full military mission at this time. We are however preparing plans for one in the event of hostilities and are proposing as an immediate step to replace our present military attaché in China by a more senior officer and to expand his staff.
- 10.
- With a view to detailed discussion with United States Government as soon as they are ready, you should inform State Department of our general views as outlined above. Dominions are being consulted and until their views are known the above represents only our tentative opinion and you should make this clear. Financial Adviser should take an opportunity to explain the position to the Secretary of the Treasury as regards financial assistance and particularly the condition which we attach.