500.A4e/614: Telegram
The American Delegation to the Secretary of State
[Received June 30—6:46 a.m.]
Conference 45. 1. All other sources of revenue except anticipated Washington surtaxes being exhausted, indications are that Chang Tso-lin and Wu Pei-fu80 will shortly agree to Cabinet in expectation [Page 764] that the powers will then negotiate the protocol implementing Washington Treaty, thus enabling Chang [and] Wu to borrow money to carry on their war against Kuominchun. The latter have a large army, well organized, supplied with food and ammunition and technical assistance primarily by Russia and fortified in strong positions so that their defeat by the allied forces of Chang [and] Wu is by no means certain. Indeed there is at least possibility of Kuominchun prevailing, which might result in their resumption of control of Peking Government.
2. If by implementing Washington Treaty we enable Chang [and] Wu to continue the war, the powers will undoubtedly be criticized by Kuominchun and Canton party and their followers, and Canton area and some other provinces will probably refuse either to collect surtaxes or decline to remit them to the Central Government. They will take the position that Washington Conference did not contemplate increased surtaxes to be used to carry on factional wars.
3. On the other hand if we refuse to implement Washington treaties, Chang, Wu and followers will charge powers with bad faith.
4. Indications are that we shall shortly have to decide which of three courses we shall follow: (a) refuse to negotiate protocol with Chang-Wu cabinet because we do not recognize it as the central government of China; (b) recognize their cabinet at least for the purpose of implementing Washington surtax treaty and give them unconditionally $750,000 per month for administrative purposes, impounding remainder of Washington surtax revenue to await disposition by the Conference—this would mean that Chang-Wu government would immediately borrow money which would be used to carry on war and not for administrative purposes; or (c) accompany protocol implementing Washington surtaxes with note to the effect that foreign powers expect the Chinese Government to remove all opposition among the provinces to the agreement and, in the event of failure of Chinese Government to remove such opposition before the date when rates are to become effective (90 days after the date of protocol), then effective date of rates shall be postponed until opposition is removed.
Following arguments may be made in favor of this note: (1) Preservation of Maritime Customs Administration and prevention of its disintegration; (2) test of strength of Central Government—obviously, if it is unable to carry into effect Washington surtax treaty, it cannot hope to make effective proposed interim surtax treaty; (3) prevention of opposition of Kuominchun, Canton and other factions which, if Washington treaty were tendered to the present Chinese Government unconditionally, might insist that the powers were aiding Chang and Wu by enabling them to borrow money as [Page 765] above indicated; (4) note would allay fear of importers that tariff would become effective in some parts of China and not in others; (5) note would serve as notice to the bankers that tariff would not become effective unless provisions of note were complied with and present Government officials could probably not borrow money on the strength of anticipated revenues.
Arguments against sending note: (1) Chinese Government will probably not accept the proposition contained in the note because of conscious inability to deliver all provinces; (2) note invites opposition of the provinces; (3) note would by inference recognize obstructive powers of provinces to any action taken by Central Government; (4) if conditions were attached to implementing of the treaty the Powers might be charged with bad faith in that they did not fulfill unconditionally obligations of Washington Treaty; (5) so long as the Powers recognize existing Chinese Government by diplomatic contact is it consistent for them to insist that the Government is incapable of functioning without the approval of each of the provinces.
5. Japanese delegates have proposed elimination of paragraphs 1 and 2 of draft protocol set forth in our 37, May 12, 1 p.m., and that $9,000,000 annually disposed of by those paragraphs be thrown into impounded fund to await disposition of Conference. The British are submitting Japan’s proposal to Foreign Office. We believe present indications are the British will accept Japanese proposal. While we believe deleted paragraphs follow letter and spirit of Washington Treaty in that they evidence disposition pro tanto to effectuate abolition of likin we would not recommend standing out against the Japanese proposal if the British agree.
6. Unless we are prepared to withhold recognition until China evolves stable government, which course might ultimately be best for the Chinese people but which we believe other powers, especially British and Japanese, would not at this time adopt, we believe we should follow the plan to implement Washington surtaxes as suggested in paragraph 4 (5).82
7. It may be the British will recede from their previous insistence about accompanying note as indicated in second paragraph of our 43, June 10, 3 p.m., and that they will deliver the protocol unconditionally. If, however, they or the Japanese insist upon accompanying note we should like to have your authority to vote with them on that proposition.
8. Inasmuch as decision as to which of the three courses above outlined we should follow involves general policy of our Government [Page 766] toward China, we should much appreciate your instructions as promptly as possible.