894.51 So 8/2: Telegram
The Ambassador in Japan ( MacVeagh ) to the Secretary of State
[Received November 21—9:50 a.m.54]
128. Your telegram 84, November 19, 4 p.m. I believe that refusal of the Department to pass loan would be viewed by Japanese Government as evidence of distrust of the intentions of Japan in Manchuria and as an indication of lack of faith by the American Government in the repeated assurances given by Japan that she intends to abide by her promises given to respect the territorial integrity of China. The Japanese Government is certain that her policy in Manchuria can be properly described as one of penetration-exploitation. The attitude of Japan is that the increase of her interests in Manchuria, while benefiting Japanese industry, distinctly benefits the Chinese. The Japanese Government since 1922 has taken every occasion to repudiate any idea of action in Manchuria, whether industrial or otherwise, in opposition to or in derogation of Chinese sovereignty. I assume, naturally, that Mr. Lamont in asking for the Department’s approval of the loan explained the objects for which the advances would be used. (Press reports have indicated that the money would be used for loans to the Chinese for needed railway construction in Manchuria. See our despatch No. 667 [668?] of November 8.55) If these are legitimate purposes I feel sure that rejection by our Government of their appeal [Page 485] for assistance in working out the undoubtedly difficult problems confronting them in Manchuria would be a great disappointment to the Japanese.
The Japanese are extremely anxious to obtain the financial assistance needed from the United States rather than from other sources, and they believe that if American people are financially interested in Manchuria it will help Japan in developing the country along lines of making it a place safe and desirable for nationals of all countries, including China. (See our despatch No. 661  of October 11.)55a In my opinion if this assistance is refused, it is not unlikely that the result will be close cooperation between Japan and the Soviet Union. The Russians are sending a new ambassador here who is not a career man but who represents mainly the economic side of the Soviet Government.
It has been my feeling for a long time that we should make use of the first opportunity offered to convince the Japanese that we have an honest desire to help them in reaching a solution of their difficulties when we can legitimately do so. A refusal by our Government to approve the investment of American capital in a Japanese enterprise operating legally in Manchuria for no other reasons apparently than that it has not been our past policy and that the Chinese; might look upon the action as indicating that the American Government has placed itself behind Japan, would surely not be viewed by the Japanese as a step in this direction. (Unfortunately the only record of the attitude on this problem which I can find in the Embassy’s files is the case of the proposed loan to the Oriental Development Company. See Department’s telegram No. 153 of December 19, 1922, noon.56 This case does not seem analogous to the present one.) I greatly fear that if J. P. Morgan & Company is willing to make the advance in this case and is deterred solely by the Department’s attitude, the Japanese will ascribe it to a deep-rooted feeling of distrust and suspicion of Japan, especially with respect to its attitude toward China, on the part of [the American Government?].
I need not point out that conditions are not what they were a few years ago. The Washington Conference treaties marked the beginning of a new era, or were intended to do so. I therefore believe that the Japanese would expect us to make our decision in this case without regard to our past attitude: to act in the light of the new facts as we find them. The guaranteeing of the good will of China for us is an extremely important consideration, but doubtless the Japanese feel [Page 486] that all the various factions which make up China today are inclined to view with distrust all Japanese undertakings in Manchuria and to look upon any aid to Japanese enterprise there as support of what the Chinese consider, without warrant, the political ambitions of Japan in Manchuria. It is also the feeling of the Japanese that if this attitude of the Chinese is allowed to be the only test by which American loans are to be judged, the result will be to debar indiscriminately all American capital from being invested in any Japanese enterprises in Manchuria. I add one very important consideration, i. e., that in refusing to pass the loan it would be hard to convince the Japanese that our action was taken only because of fear that its approval would be misunderstood by the Chinese and not because we believed that the fear of the Chinese regarding Japanese intentions were [well founded?].
The conversations which Mr. Lamont had in Tokyo were almost all with men who represent important financial interests. The Japanese had two purposes in their conversations with Mr. Lamont, first, to convince him that Japan’s financial condition was fundamentally sound, and, second, to secure his opinion with respect to methods for improvement by which Japanese securities would be made more attractive to Western bankers. At first Mr. Lamont was purely receptive and opposed to including special matters in the discussions, but near the end of his visit, at a conference in which all important financial interests were represented, Lamont and Jeremiah Smith gave a clear-cut and sweeping criticism of Japanese industrial and financial methods and offered suggestions as to means of improving them. At that time they gave a sympathetic hearing to the suggestion that a loan be made to the South Manchuria Railway. I believe that Lamont was impressed with the sincere desire on the part of the Japanese bankers to place their business on a sound basis and as far as possible to adopt the suggestions which Lamont and Smith had made. I think Lamont left with the feeling that Japan’s financial condition was fundamentally sound. Lamont talked also with businessmen about Japan’s policy in China. I feel he was convinced that the Japanese were sincerely and earnestly seeking a way by which Japan could aid China in solving her own problems without an undue sacrifice of Japanese interests. I am convinced that the visit of Lamont and those associated with him had a helpful and encouraging effect on the situation in Japan, although it was only indirect as I have not heard that Lamont even talked of any specific loan with the exception of that to the South Manchuria Railway.