! 893.48/1036a The Department of State to the Chinese Embassy 3 ORAL STATEMENT In reply to the Ambassador's observations in reference to events on and immediately preceding December 31, It does not seem to us that any very useful purpose is to be served by an endeavor to attribute to any one act or to any person or agency involved a special or precise measure of responsibility for the dénouement of December 31. The simple facts are that the Chinese Government asked of the American Government certain favors in the nature of accommodations with regard to adoption of new schedules, involving deferring of payments, in connection with financial obligations in effect. The American Government indicated a willingness to consider this request favorably but at the same time asked of the Chinese Government an indication of a definite disposition to give appropriate consideration to certain matters of outstanding obligations of that Government. Thereafter, although the Chinese Ambassador gave clear evidence of an attitude sympathetically responsive to the American Government's request, such evidence as came to the American Government of the Chinese Government's attitude was indicative of a disinclination if not a flat refusal on the Chinese Government's part to do anything effective by way of response to the American Government's request. In addition, it was indicated to the American Government that the Chinese Government would not be satisfied with the plan of deferred payments which the American Government had tentatively suggested in response to the Chinese Government's request and that the Chinese Government intended to ask for a further revision still more favorable to it. Under these circumstances and with no agreement having been reached, it was logical that the American Government expect full payment by the Chinese Government on the due date of the amount due on that date. The Chinese Government made on the due date the payment due. It is not perceived that the Chinese Government was in any way "penalized". There still remains to be considered the possibility of readjustments in schedules of payments involving an aggregate sum of $17,000,000 plus, as compared with the sum of $3,000,000 plus paid by the Chinese Government on the due date, December 31, 1935. The American Government is prepared to give further consideration to the question of making readjustments in regard to what remains to 'Handed by the Chief of the Division of Far Eastern Affairs to the Chinese Ambassador "for his personal record of conversation." be paid. The American Government feels warranted in expecting that the Chinese Government will give further consideration to the request which was made by the American Government in connection with the Chinese Government's request. The American Government awaits some indication of the Chinese Government's attitude. [WASHINGTON,] January 3, 1936. 893.515/968: Telegram The Consul General at Shanghai (Davis) to the Secretary of State SHANGHAI, January 6, 1936-5 p. m. [Received January 6-6:33 a. m.] 11. Reliably informed Sir Frederick Leith-Ross has advised the Chinese Government to abandon present standard of 880 for silver coinage in favor of alloy used in Great Britain understood to be 500 silver, 400 nickel, 50 copper and 50 zinc. He has telegraphed London inquiring whether blanks for one dollar and 50 cent pieces can be supplied promptly and dies have been or are about to be ordered from Philadelphia. Purpose is to have coins that will not meet melting point unless world price of silver reaches approximately 1.29 United States currency. DAVIS 893.515/972: Telegram The Consul General at Shanghai (Davis) to the Secretary of State SHANGHAI, January 11, 1936-10 a. m. [Received January 11-9:55 a. m.] 24. All foreign banks in Shanghai except Japanese have now made arrangements to surrender silver to Central Bank either in accordance with the terms mentioned in my 751, December 11, 5 p. m.5 or on basis of mutual deposits with Central Bank and foreign bank concerned in place of deposit of securities equal to two-thirds of face value of silver surrendered, the foreign bank's deposit with the Central Bank to bear 6% interest while the Central Bank's deposit with foreign bank will draw 1%. Understand slightly under 26,000,000 silver dollars surrendered while Japanese banks still hold about 14,000,000. Repeated to Peiping. Mail to Nanking. DAVIS 4 Chief Economic Adviser to the British Government, assigned temporarily as financial adviser to the British Embassy in China. "Not printed. 893.515/1001: Telegram The Counselor of Embassy in China (Peck) to the Secretary of State NANKING, February 6, 1936-3 p. m. [Received February 6-9:10 a. m.] 31. McDaniel was informed by Jabin Hsu,' February 6, 11 a. m. that Suma has just told him that when in Shanghai February 5 he had personally told Leith-Ross that in view of the imminent rapprochement between Japan and China it would not be fitting for any other nation to offer advice or otherwise intervene in China's currency or fiscal matters. Suma said he had called to tell Kung about this. However, Suma told Hsu the Japanese Government does not disapprove of the recent bond conversion scheme and believes there was nothing else for the Chinese Government to do. Repeated to the Embassy and the Department. PECK 893.48/1044: Telegram The Consul General at Shanghai (Gauss) to the Secretary of State SHANGHAI, February 17, 1936-4 p. m. [Received February 17-9:25 a. m.] 11 107. [From the Ambassador.] My October 27 [29], 7 p. m. from Shanghai 10 and subsequent telegrams regarding suggested reinstatement of cotton and wheat loan. While making social call on Kung today accompanied by Gauss, Kung asked C. T. Wang " to be present and asked Wang to communicate to me the following. Wang stated that while on the ship with the congressional party between Shanghai and Yokohama he discussed with Leslie L. Biffle 12 and possibly others the question of reinstatement of uncompleted part of wheat and cotton loan. He stated that there had since been an exchange of communications on this subject and that he had been referred to Hunt 13 in the matter. He described the proposal very generally without going into detail and said that he had referred the matter to Dr. Kung. Kung stated that he was interested and that he had instructed the Chinese Ambassador to make inquiry as to whether the proposal C. Yates McDaniel, Associated Press correspondent at Nanking. 'Director of General Affairs, Chinese Ministry of Finance. 8 Yakichiro Suma, First Secretary of the Japanese Embassy in China. H. H. Kung, Chinese Minister of Finance. 10 Not printed. 1 Former Chinese Minister for Foreign Affairs. 12 Secretary to the Democratic majority in the Senate. 13 William P. Hunt, American businessman. would be received favorably by the American Government if application were made by the Chinese Government for reinstatement of loan. He stated that the Chinese Ambassador's reply was vague as he had been unable to see Jones.14 He said that they did not wish to apply unless assured that the application would be favorably received and asked me to telegraph you and inquire as to this point stating that this information was urgently needed here. Without other comment I promised to make the inquiry. 2. From the very broad and general statements made by Kung and Wang I infer that the proposal is along lines described in my November 24, 2 p. m. from Shanghai, China proposing to sell cotton to Germany obtaining 25 percent in cash and credits for the balance payable within a year, the Chinese obligation to the American Government to be liquidated in installments over a period of from 2 to 5 years. Kung remarked that credits would aid in plans for stabilizing currency but made no other statement regarding use of funds. I still hold the opinion expressed in the last paragraph of my November 24, 2 p. m.16 Can Department give me a reply to Kung's question which either I or Gauss can communicate to Kung. [Johnson.] 893.48/1044: Telegram GAUSS The Secretary of State to the Counselor of Embassy in China (Peck) WASHINGTON, February 21, 1936-5 p. m. 15. For the Ambassador. Shanghai's 107, February 17, 4 p. m. You or Gauss may inform Kung orally, with appropriate reference to his conversation with you on February 17, as follows: The American Government, after careful consideration of the many factors involved, would not be prepared, if requested as indicated, to reinstate the canceled portion of the cotton and wheat credit of 1933 under reference. HULL 893.51/6082: Telegram The Consul General at Shanghai (Gauss) to the Secretary of State SHANGHAI, February 24, 1936-5 p. m. [Received February 24-10:30 a. m.] 113. 1. Press today reports that last week Central Political Council approved Minister of Finance Kung's economic policy for China and 14 Jesse H. Jones, Chairman of the Reconstruction Finance Corporation. 15 Not printed. 16 In this telegram the Ambassador concluded: "I think the consummation of such a transaction at this time would have grave repercussions in Japan and I am doubtful whether China can ever repay." (893.48/1018) enjoined Executive Yuan to take effective steps within 1 month looking toward the execution of the plan. 2. Kung's plan refers to success of Italy, Russia and Japan and calls for China to "pledge ourselves to enforce the policy of economic self-sufficiency" "according to a designed program". 3. Plan provides practical primary education, thrift, utilization wasteland, Government subsidies to banks to enable agricultural and industrial loans at low interest, promotion and nationalization domestic industries, 3 days annual conscripted labor or head tax in lieu thereof, establishment quality standards exports and balancing of imports and exports with import trade under "direct as well as indirect control of Government" "measures should be adopted to arrange for the enforcement of exchange by barter or by a quota system with the various foreign powers". 4. Editorial comment thus far limited to brief laudatory remarks of the China press. Repeated to Embassy, Peiping and mail to Nanking. GAUSS 893.48/1049 Memorandum by the Chief of the Division of Far Eastern Affairs (Hornbeck) [WASHINGTON,] February 25, 1936. Conversation: Mr. Sao-Ke Alfred Sze, Chinese Ambassador; Mr. Hornbeck; Mr. Mackay. The Ambassador called and said that he had a telegram from H. H. Kung in which Kung instructed him to inquire whether it would be agreeable to the American Government, pending negotiation, as the Chinese Government was sending someone to this country to negotiate on the subject, to let stand in abeyance the payment of $420,000 which will be due from the Chinese Government on March 1 on the RFC credit. Mr. Hornbeck called Mr. Mackay in. Mr. Hornbeck inquired on what ground the Chinese Government wished that the payment be held in abeyance. The Ambassador replied that Kung had not informed him but that he supposed that they were "hard up". Mr. Hornbeck said that we would have to submit the question to the RFC. S[TANLEY] K. H[ORNBECK] |