The Ambassador in Japan (Grew) to the Secretary of State

No. 502

Sir: A successor to Marshal Chang Hsueh-liang in Japan’s esteem seems to have appeared in the person of Mr. T. V. Soong. Mr. Soong’s success in obtaining loans abroad has received wide and resentful attention in the press and in official quarters.

Since the conclusion of the Sino-Japanese truce in North China on [Page 509] May 25 [31],26 the Japanese have had high hope that anti-Japanese feeling and the boycott in China would die down. Certain events, such as the abatement of the boycott movement in certain parts of China and the rise of a pro-Japanese league of South-Seas merchants in Canton, had encouraged this hope.

Mr. Soong’s foreign borrowings aroused the apprehension that this hope was premature, this apprehension being confirmed by the results of the Lushan Conference, if newspaper reports may be accepted. This conference, called by Chiang Kai-shek to deliberate on the Nanking Government’s future policies, is reported to have decided for continuation of the anti-Japanese policy, as well as acceptance of the 50 million dollar loan from America. Japanese have quite naturally interpreted the new loans as furnishing new sinews for the anti-Japanese campaign, and they are not at all pleased.

The unfriendly significance in Japanese eyes of Mr. Soong’s activities abroad seems to be further confirmed by the report that he is returning to China in the company of Dr. L. Rajchman, who as technical adviser for China of the League, is regarded with suspicion by Japan. Japanese observers seem convinced that technical assistance by the League is likely to develop into political assistance, and that directed against Japan.

Japanese observers believe that these loans were raised by Nanking to strengthen Chiang Kai-shek and the Soongs against their political rivals, the Kwan[g]tung-Kwangsi coalition and the communists, and at the same time to check Japan. The Chugai of August 1 stated:

“We may conclude, from Mr. Soong’s activities abroad, that China has confirmed her policy of checking Japan by using foreign influence. In the furtherance of that policy the authorities seem agreed on the unification of military administration as a preliminary to national unification, and military unification will be sought through the establishment of Chiang Kai-shek’s despotic power”.

Japanese observers see in these foreign loans further invitation to China to resist Japan, and attribute ulterior motives to the Powers which are reported to be advancing the money. They believe that in view of China’s defaults on previous loans, these new loans must carry some concession or compensation in return for the risk involved, which will work to Japan’s disadvantage. The Fukuoka Nichi Nichi stated on July 30th:

“The intent of the Nanking Government is clear. The anti-Japanese movement has rekindled with the news that Mr. Soong is returning. We are led to believe that the Soong loans are connected [Page 510] in some way with the boycott movement. With the backing of the United States and Britain, the Chinese are quite certain to instigate a malignant campaign against Japanese goods”.

The same paper stated earlier:

“China is reported determined to resist Japan over a long period and is planning to obtain the assistance of Great Britain, the United States, Germany and France by offering them various concessions”.

The Tokyo Nichi Nichi stated on July 19th:

“We cannot help feeling that the Powers in advancing loans to China, knowing well the true aspect of the country, are actuated by some ulterior motive. All who know the past and present of China, know in what way she will employ the foreign loans secured by Mr. Soong …27 It is imaginable that Mr. Soong is intent on forming an economic bloc with the Powers for positive resistance to Japan”.

The attitude of the Japanese Government in regard to these loans was officially expressed in a vigorous telegram alleged to have been sent by the Foreign Minister to several Embassies abroad. The Department has, in all probability, a version of this telegram, but the text as appearing in the local press, is reproduced here for the sake of record:

  • “1. While the Japanese Government is little concerned with the activity Mr. T. V. Soong is displaying in obtaining foreign loans, it is advisable that Japanese diplomatic representatives abroad take appropriate measures to remind government authorities, political parties, business leaders and financial groups of the Powers that the loans China is going to raise are apt to be misused for military purposes to oppose Japan and Manchukuo, and that a promiscuous supply of loans to China will tend to disturb the peace of the Far East. The loans China is anxious to raise cannot be regarded as of a commercial nature, for they are used for the purchase of weapons and for the benefit of a certain faction.
  • “2. Under the circumstances, Japanese diplomatic representatives abroad are asked to explain this well to the governments and financial groups of foreign countries, and call attention to the fact that the Japanese Government is determined to strictly deal with China in the case of the Manchurian and Shanghai emergencies, in case China makes use of the foreign loans to again take measures to positively oppose Japan and Manchukuo, and that the parties which in this way give aid to China shall be held as partly responsible for a recurrence of the Sino-Japanese trouble.”

Japanese observers point to the undoubted misuse of similar loans in the past, including the wheat loan from the United States, and deplore the effect on the Far Eastern situation which these new funds will have. The Osaka Mainichi (English edition) stated on July 20th: [Page 511]

“We do not know if the Powers are advancing substantial loans to China simply for their own profit or with the intent of rescuing China, without a due comprehension of the conditions in that country. But inasmuch as the loans to China are calculated to create further serious trouble in the Far East, the Japanese Government ought to take measures to make this known to the Powers”.

The same editorial expresses amazement that in spite of bitter experience with previous loans to China, the United States is willing to risk more money. Japanese point to their own notorious Nishi-hara loans28 and other loans, on which even the service charges have been defaulted, as outstanding examples of Chinese financial improbity. Exclusive of the Nishihara loans for which China claims no responsibility, various loans made by Japan to China since 1916 are calculated by the Asahi to amount, principal and interest, to Yen 300,000,000. The Asahi states that if Japan has hitherto taken no decisive steps to collect these debts, it is because she has given sympathetic consideration to China’s financial circumstances.

Whether or not “sympathetic consideration” has restrained Japan from trying to collect her debts in the past, it appears that she is now contemplating strong measures to recover them. The Asahi of July 30th states:

“If the Nanking Government fails to repay either the part or the whole of these loans, the Japanese Government may be obliged to exercise the right of mortgage. The Japanese authorities are said to be considering the seizure of telegraph, telephone and radio equipment in China, and the War Office is now holding negotiations with the Kwantung Army (Japanese) in regard to this move”.

Threats of a similar nature have appeared in several newspapers.

In view of these statements, and of paragraph 2 of the Foreign Minister’s telegram above quoted, the question arises whether Japan may eventually attempt to use these defaulted loans as an excuse for employing force in excluding foreign influence and extending her own interests in China.

On the other side of the picture it is of interest that the Prime Minister, in a recent private conversation at his residence, said to me that he wished that the United States could help to get China on her feet. He did not however seem to wish to elaborate the theme nor to specify in what manner such assistance might be rendered.

Respectfully yours,

For the Ambassador:
Edwin L. Neville

Counselor of Embassy
  1. For text of agreement signed at Tangku, see Foreign Relations, Japan, 1931–1941, vol. i, p. 120.
  2. Omission indicated in the original despatch.
  3. See Foreign Relations, 1918, pp. 122123, 130133, 147148, 155158.