493.11/1673: Telegram

The Minister in China (Johnson) to the Secretary of State

128. My 102, January 31, 11 a.m. I am now in receipt of a letter from Peck reporting fully his conversation with Lo at the time of presentation of note.

Lo inferred to Peck that he considered our advancement of proposal at the present time as directly connected with Allied war debts problem and stated that favorable action by China at the present time would greatly strengthen hands of the American Government in dealing with European creditors as financial plight of Chinese Government is well known. As China’s debt to the United States is for a relatively small sum Lo stated he could conceive of no other explanation for America’s insistence upon payment at the present moment and added that if China could be of assistance to the United States at the present time in bringing about settlement of vastly more important matter of European debts he favored China’s doing so. In reply to direct question Peck stated he knew of no ulterior motive behind presentation of plan at present juncture but refrained from making any categorical denial not wishing to dampen his enthusiasm. Lo strongly favored appointment of [com]mission and making immediate payments on account even if they were not large.

Peck believes Lo sincerely desires to cultivate American friendship in the hope of prompting a continuance of American assistance in connection with present controversy and that he also believes failure to curb Japanese aggression in Manchuria would be destructive of policies which United States has sponsored in the Far East as well as violative of China’s sovereignty.

Lo read Peck letter from Yen urging him to see to it that Chinese press emphasize assistance afforded to China by the United States and urge purchase of American goods and those of other friendly nations. Lo said he had telegraphed Sze to urge the Department to take some steps to emphasize importance of nonrecognition issue. Lo considers that he has strong influence with the Chinese press because of its confidence in his integrity.

Peck considers that Lo’s remarks were sincere insofar as they [Page 632] reflected his deep appreciation of the position taken by the United States in the present controversy and that he believes debt commission proposal will give China a chance to reciprocate the good will.