bility of the currency which they are now using and which they have accepted as sound. This background of uncertainty in the minds of some people he considered unfortunate. Local manager of the National City Bank with whom same member of staff discussed question same day expressed similar views. Bankers themselves do not appear perturbed.

It is my own personal belief that above represents not so much opinion as lack thereof due to present almost complete financial separation of this area from Central China.

JOHNSON

893.48/1096: Telegram

The Counselor of Embassy in China (Peck) to the Secretary of State

NANKING, May 25, 1936-9 a. m. [Received May 25-1:21 a. m.]

156. Your 35, May 21, 2 p. m.36 The Embassy has received a formal note dated May 23, 1936, addressed to the American Ambassador by the Chinese Minister for Foreign Affairs over the official seal of the Ministry of Foreign Affairs which states that the Chinese Ambassador at Washington under instructions from the Chinese Government has negotiated with the second Export-Import Bank 37 a draft agreement for the revision of the schedule of payments of the flood relief loan of 1931 and the cotton and wheat loan of 1933, and that the Chinese Ambassador has received authority to sign this agreement on behalf of the Chinese Government. This constitutes adequate evidence of the authority of the Ambassador to sign. Note proceeding in the next pouch.37 By mail to Peiping.

PECK

893.515/1103a: Telegram

The Secretary of State to the Consul General at Shanghai (Gauss)

WASHINGTON, June 5, 1936-7 p. m.

154. At request of Treasury Department, please report not later than morning of June 8 information available at Shanghai in regard to the currency situation in South China and the financial and mone

36 Not printed.

The Counselor of Embassy in China in his telegram No. 160, May 29, 9 a. m., reported that the Chinese Ministry for Foreign Affairs had replaced the abovementioned note with another of the same date using the name "Export Import Bank of Washington." (983.48/1098)

sta Dated May 29, not printed.

tary aspects of the recent conference held at Canton between the Nanking delegation and Southwest leaders.

HULL

893.515/1106: Telegram

The Consul General at Shanghai (Gauss) to the Secretary of State

SHANGHAI, June 8, 1936-11 a. m. [Received June 8-10:15 a. m.]

316. Reference Department's telegram No. 154, June 5,7 p.m. There is little information available here in regard to South China currency situation. Canton business is usually done through Hong Kong. Transactions in Canton exchange are small in Shanghai. Bank of China transactions over the counter only and for accommodation of customers. Rates recently subject to wide fluctuation and no local desire to buy Canton exchange.

Understand that discussions thus far between National Government and Southwest authorities have not produced tangible results. Will report again when further information obtainable. It is rumored in Shanghai that British Government recently started to purchase by Hong Kong and Shanghai Banking Corporation of large amounts of silver from Southwest authorities.

GAUSS

893.515/1107: Telegram

The Consul General at Canton (Spiker) to the Secretary of State

CANTON, June 8, 1936-4 p. m. [Received June 8-11: 10 a. m.]

Referring to Department's telegram June 5, 6 [7] p. m., requesting new developments in matter reported in first two sentences of paragraph 3 of my telegram of June 1, 10 a. m.38 Subsequent fluctuations in local exchange have been reported in my telegrams of June 3, 6 p. m., June 4, 4 p. m., June 5, 5 p. m.,39 and June 6, noon.40

2. All reports received from reliable sources to date indicate that negotiations between Nanking and local authorities for adoption locally of national currency have thus far been productive of no results since the matter is rather hopelessly controlled by politics rather than by the crying needs of the present situation.

3. As evidence of present confused situation, the national Depart

ment of Finance has sought to control situation by fiat, yesterday announcing that speculation in Hong Kong dollars should be curtailed from today and that outstanding accounts should be settled at a rate not exceeding $1.72 to the Hong Kong dollar while future transactions between merchants shall be at rates determined by usual exchange factors. Banks find it increasingly difficult to continue business and are frankly seeking to avoid exchange transactions. Exchange shops today quoted rate 1.80 on Hong Kong dollars. Business is dead. Prominent local banker today informed this office he considers wholesale bankruptcies inevitable unless drastic measures taken within next 3 weeks to relieve situation.

Repeated to Embassy and Shanghai.

SPIKER

893.515/1112: Telegram

The Consul General at Shanghai (Gauss) to the Secretary of State

SHANGHAI, June 9, 1936-11 a. m. [Received 3:55 p. m.]

320. Reference my 316, June 8, 11 a. m., which was mailed Nanking and Peiping, following has been handed me in confidence by reliable

source:

"Reliably informed Canton asked for help in currency reform and Government stated it was prepared to help if they would cease excessive note issue, turn over their silver to branch Currency Reserve Board and agree to adoption of the currency system based on the national dollar in accordance with plan to be approved by the Government. It was understood Canton was to send here for conference but before this could be done came Southwest anti-Japanese action."

Repeated to Peiping, paraphrase to Nanking by mail.

GAUSS

893.51/6184: Telegram

The Chargé in the United Kingdom (Atherton) to the Secretary

of State

LONDON, June 12, 1936-5 p. m. [Received June 19-11:55 a. m.]

309. Your 206, June 12 [11], 5 p. m.42 Reuter despatch from Nanking, June 7th, which was generally published in the British press

and doubtless available likewise to the Department, reported: "The Chinese Minister of Railways has announced that a 6% sterling loan for the completion of the Shanghai-Hangchow-Ningpo Railway will be floated very shortly with the aid of a syndicate composed of British and Chinese corporations."

I understand this loan is to be issued in the Shanghai market for 1,130,000 pounds. The object of the loan is as stated and it will be remembered the outstanding bonds amounting to 300,000 pounds of the previous Shanghai-Ningpo Railway loan were repaid at par last June. Two weeks ago a Chinese 6% indemnity loan was placed in Shanghai but that was a private issue whereas the present loan will be publicly floated. Moreover, it is understood here that application may be made to the London Stock Exchange for a quotation of the new loan. The Foreign Office generally confirms the above and hazards the suggestion that a great deal of the loan may have to be taken by the banks. ATHERTON

893.48/1102

Press Release Issued by the Export-Import Bank of Washington, June 20, 1936

Mr. Warren Lee Pierson, President of the Export-Import Bank of Washington, today made the following announcement:

The Export-Import Bank of Washington has recently taken over the credits made available by the Reconstruction Finance Corporation and The Grain Stabilization Corporation to the Chinese Government to finance the purchase of American cotton, wheat and flour. In order to simplify their handling, the two credits have now been consolidated. Of the original sum of $17,105,385 advanced by the Reconstruction Finance Corporation, there remains a balance of $13,537,387. The Grain Stabilization Corporation credit, known as the 1931 Flood Relief Loan, was originally $9,212,826 and has been reduced to $3,070,942. Payments of instalments of principal amounting to $9,709,882 have been duly met.

The consolidated obligation is payable in quarterly instalments over a period of six years. The security for the consolidated obligation is the same as that provided by the original agreements, namely, a first charge against China's consolidated taxes consisting of the rolled tobacco tax, the flour tax, and others, together with a first charge upon the 5% flood relief customs surtax.

893.515/1141

The British Embassy to the Department of State 43

STATEMENT ISSUED BY SIR F. LEITH-ROSS TO THE PRESS ON LEAVING CHINA

His Majesty's Government in the United Kingdom sent me out to examine the financial and economic difficulties of China and the possibilities of our assisting her, in conjunction with the other Powers interested, to overcome these difficulties. I have spent nearly nine months here and have done my best to investigate conditions as I found them, without prejudice or preconceptions. A large part of my time has necessarily been spent in Shanghai, but I have visited Nanking, Tientsin, Peking, Hankow, Chungking, Amoy and Canton, and have met representatives of the Government authorities and local banking and trading communities in all these centres. It had been the hope of my Government that the United States of America, Japan and France would appoint experts to collaborate with me, but this did not prove possible. However, an important Economic Mission from the United States recently visited China and I have found their Report ** of great interest. I have maintained contact with Japanese Government representatives and bankers here and have paid two visits to Tokyo so as to obtain first-hand information on the views of the Japanese Government.

2. The considered report on my mission will have to be presented in due course to my Government, but it may be useful, before I leave China, to give some outline of my impressions.

3. The first question to which my attention was directed was naturally the position of the currency. Silver has for many centuries been the currency of China, and the sudden and sharp rise in the value of silver during 1934 caused a similar rise in the exchange value of Chinese currency. Chinese produce became too dear in relation to world prices, exports fell off and silver had to be exported to meet the adverse balance of trade. This, in turn, caused a contraction of credit and an acute deflationary crisis: prices began to fall, debts could not be met and the banks became more and more "frozen", particularly in Shanghai where the collapse of the real estate boom created a special problem. By October 1934 the situation had become so serious that the Chinese Government imposed a variable export tax on the export of silver, thereby divorcing the Shanghai dollar from the free silver standard. But this measure, while it mitigated the extreme effects of the rise in silver, did nothing to remedy the difficulties which

43

Handed to the Chief of the Division of Far Eastern Affairs, by the British Ambassador, June 25.

44 See Report of the American Economic Mission to the Far East: American Trade Prospects in the Orient (New York, National Foreign Trade Council, 1935).