File No. 5315/736.

The Secretary of State to Chargé Phillips.

[Telegram—Paraphrase.]

Mr. Knox informs Mr. Phillips that the United States regrets that, for reasons already stated, it can not accept the proposal of Great Britain to divide the Hankow-Szechuen line into four equal engineering sections, but that it is prepared to yield in favor of France 100 kilometers engineering rights on the Szechuen extension, provided Great Britain will satisfy France’s desire in other respects. Mr. Knox adds that this proposal is, of course, subject to the conditions stated in department’s telegram of December 27.

Mr. Phillips is informed that he may present this proposal formally to the foreign office, provided and when an arrangement has first been reached among the financial groups on this basis.

Mr. Knox directs that this instruction be repeated to Paris and Berlin for like action.