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4. The Department's instruction under acknowledgment has been repeated to Peiping and will be observed if the flag question arises in Nanking. Repeated to Peiping.

JOHNSON

393.1164 Yenching University/26 : Telegram

The Secretary of State to the Ambassador in China (Johnson)

WASHINGTON, August 7, 1937–4 p. m. 134. Your 329 [379], August 6, 5 p. m. The Department realizes that the question of the advisability of the display of the American flag over Yenching University is a difficult one. There is no statute of the United States which forbids display of the American flag over American-owned property or by American citizens over the residences in which they live. American diplomatic and consular officers therefore can only issue advice designed to discourage the display of the American flag in inappropriate cases, such as where it is displayed to protect a purely Chinese interest, or where the display would, in the opinion of the Embassy, add to rather than lessen the danger to American residents or American property.

The Department's instruction No. 871 of May 23, 1928, related essentially to the operation of educational institutions which, although American owned, have registered with the Chinese Government for administrative purposes. The Department would not look with favor upon the display of the American flag by such institutions for the sole purpose of contesting Chinese governmental educational regulations relating to the general operation of the school, but we of course wish to do what we appropriately can toward having the American property interests in the school respected and toward safeguarding against spoilation of those property interests. Inasmuch as the present desire of Leighton Stuart to display the American flag over Yenching University seems definitely to be for the purpose of protecting American occupants and preventing spoilation of the physical property of the school, which property appears to be wholly or in large part American owned, the Department is of the opinion that display of the flag for that purpose over property which is in fact American owned or occupied by American citizens would be appropriate.

If there are at the present time Chinese students in residence at the University and if the Embassy is of the opinion that there is danger that the Japanese military may, because of the presence of these students, take repressive measures against the institution which would endanger American life or property, the Department suggests that the Embassy explain this danger to Stuart and advise him to ask Chinese students at the University to leave until the present situation becomes quiet.

HULL

PROBLEM OF CHINA'S ECONOMIC RECONSTRUCTION AND THE ATTITUDE OF THE UNITED STATES AND OTHER GOVERNMENTS RESPECTING FINANCIAL ASSISTANCE TO CHINA

893.51/6296 : Telegram The Chargé in the United Kingdom (Atherton) to the Secretary

of State

LONDON, February 10, 1937—5 p. m.

[Received February 10–3:30 p. m.] 57. Cadogan 30 sent for me today and said he wanted to discuss the China Consortium,31 the formation and purpose of which he developed at some length adding that in its present form, instead of promoting the economic progress of China as its authors intended it was an obstacle which stood in the way of such action. He then went on to explain the reasons for which the Chinese have always regarded it with dislike and suspicion and pointed out that ways were now open to the Chinese to obtain money outside the Consortium. He mentioned a number of agreements for financing the import of materials signed with German, French and Belgian groups.

He then pointed out that Sir Charles Addis 32 after consultation with the British Government had addressed to the other members of the Consortium on October 1st last (and again on January 20 [21?] of this year) a letter 33 regarding the rescission of the open tender resolution adopted by the Consortium Council on May 15, 1922; 34 today the principle of open tender conflicted with the existing restrictions on foreign lending in the United Kingdom. He then handed me a lengthy memorandum which covered the same ground as his remarks and which ends as follows: “Therefore it seemed to His Majesty's Government that if the Consortium were to be free to negotiate loans with China, an essential preliminary must be the rescission of the resolution relating to open tender. The other groups have either not yet replied to Addis' proposal or have refused to accept it.

80

31

29 Continued from Foreign Relations, 1936, vol. IV, pp. 459-503.

Sir Alexander Cadogan, British Deputy Under Secretary of State for Foreign Affairs.

For the China Consortium Agreement of October 15, 1920, see Foreign Relations, 1920, vol. I, p. 576.

Representative of the British Group of the China Consortium.
Neither printed.

See report of the Council of the Consortium, paragraph 30, Foreign Relations, 1922, vol. I, pp. 773, 778.

84

While this point yet remained unsettled the Chinese Government put the whole question of the Consortium in issue by making an offer to British interests of a contract for the construction of a railway line from Canton to Meihsien a town near the Fukien border not far from Swatow. On being informed that the British Group would have to offer a share of this contract to its Consortium partners the Chinese authorities expressed strong objection to any dealings whatever with the Consortium and, after hearing from Japanese sources that the Japanese wished to participate, refused to continue discussions on these lines. They have indicated that if the British interests approached are not willing to negotiate a purely British loan to China they will open negotiations with German or French groups.

It would seem therefore that the continued existence of the Consortium in its present form is in fact defeating its own object. It is preventing the members of the Consortium from participating in the economic rehabilitation of China and it is impeding instead of assisting such rehabilitation. In these circumstances His Majesty's Government desire to consult frankly with the United States Government in order to ascertain their views on the whole subject and discover whether there is any method by which, while restoring to its individual members the required liberty of action as regards industrial enterprises, the major object of the Consortium could be attained by keeping in being cooperation between the governments concerned (including the Chinese Government).

An additional reason for entering upon a full consideration of a frank consultation as regards the policy which the United States Government and His Majesty's Government should now pursue in regard to the Consortium is to be found in the fact that, as His Majesty's Government understand, the American Group, at any rate as at present constituted, could not in fact take any active share in a Consortium operation.

His Majesty's Government for their part would have been willing to cooperate in attempting to revise the existing Consortium agreement to take account of the actual conditions that prevail today if there were any prospect of obtaining the good will of the Chinese Government for such revised arrangement. Having regard, however to the attitude of the Chinese Government it appears to them that no good purpose would be served by attempting to proceed on these lines and in their opinion the agreement should now be dissolved by mutual consent. They understand that in the view of the banking groups the initiative in this matter should come from the governments concerned and His Majesty's Government hope that they may be acceptable to you to obtain the agreement of the Government of the United States.

His Majesty's Government have thought it desirable to submit the whole position to the United States Government before approaching the other governments concerned and they hope to be favored with an early expression of the views of the United States Government."

The full text 35 goes forward in next pouch Steamship Bremen, February 13.

ATHERTON

36 Not printed.

893.51/6296 The Chief of the Division of Far Eastern Affairs (Hornbeck)

to Mr. Thomas W. Lamont 36 of New York

WASHINGTON, February 12, 1937. DEAR MR. LAMONT: There is enclosed for your strictly confidential information a copy of a self-explanatory telegram under date February 10, from the American Embassy at London,36a which relates further to the question of the continued existence of the China Consortium.

It is my thought that, although the Department will in all probability wish to await the receipt of the memorandum of the British Foreign Office before formulating a reply to the suggestion that the Consortium agreement be dissolved, there would be advantage in the Department's making known to the British Government as promptly as may be practicable the views (conclusions) of the American Government in regard to the subject under discussion. We are, therefore, without awaiting the receipt of the full text of the Foreign Office memorandum, giving you the information which the Department now has.

Naturally we look forward with interest to the receipt of an indication of your views in regard to this latest and highly important development in the subject of the China Consortium.

Might I suggest that for the time being, while I am exploring the situation here, you treat this communication as confidential to you. Sincerely yours,

STANLEY K. HORNBECK

893.51/6303

Memorandum of Conversation, by the Chief of the Division of Far

Eastern Affairs (Hornbeck)

[WASHINGTON,] February 16, 1937. Mr. Lamont telephoned from New York and, after referring to the Department's letter of February 12 to which was attached for Mr. Lamont's strictly confidential information a copy of telegram No. 57 of February 10, from our Embassy at London, said that he was “surprised at the extent to which the British Foreign Office had gone" in setting forth its views on the China Consortium. Mr. Lamont also said that it would appear that the Foreign Office had acted prior to the receipt by the British Group of "the American Group's letter in

Representative of the American Group of the China Consortium; member of J. P. Morgan & Co.

Supra.

*

which was set forth the idea of associate membership in a revised consortium.” Mr. Lamont also said that Sir Charles Addis apparently had in mind some sort of a plan for a new consortium. I told Mr. Lamont that this was news to the Department, as hitherto we were not aware that Sir Charles had suggested the creation of a new consortium and that, although we recalled the suggestion of "associate membership”, as orally made known to us by Mr. Simpson 37 we were under the impression that the suggestion had been withheld. Mr. Lamont said that, upon further recollection, that suggestion had not been communicated to the British in writing; that it was, however, mentioned in one of New York's oral discussions of the situation with London (presumably with Morgan Grenfell and Company, Limited) or in a personal letter.

I told Mr. Lamont that under existing conditions it seemed likely that, upon the receipt of the full text of the Foreign Office memorandum, the Department would wish to make reply promptly to the effect that we would, although with regret, give assent to the British proposal that the Consortium be dissolved. I said that thereafter the mechanics of the procedure would be handled by the member Groups. Mr. Lamont indicated his complete agreement with this viewpoint and estimate of the situation and added that, although he was leaving today for Bermuda, Mr. Simpson would be available and that in any event he (Mr. Lamont) could be reached at Bermuda by means of a long distance telephone call.

At this point I repeated the view which I had previously expressed to Mr. Lamont to the effect that it would seem highly desirable that the American Group avoid any step which might afford even a slight basis for attribution to either the American Group or the American Government of any responsibility for causing a dissolution of the China Consortium. Mr. Lamont said that he was in thorough agreement with such a view.

In conclusion I expressed the hope that Mr. Lamont would have a thoroughly pleasant voyage to and from, as well as sojourn in, Bermuda.

S[TANLEY] K. H[ORNBECK]

893.51/6307

The Secretary of State to President Roosevelt

WASHINGTON, March 2, 1937. MY DEAR MR. PRESIDENT: The matter of the China Consortium, dealt with in the proposed telegram hereto attached,38 is important.

* Malcolm D. Simpson, secretary of the American Group of the China Consortium.

Not printed; see President Roosevelt's comment on March 11, p. 576.

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