493.11/1678: Telegram

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

159. My 125, February 7, noon [11 a.m.]. I have now received from Nanking a note from the Minister of Foreign Affairs dated February 13 accompanied by a translation the substance of which is as follows:

“The National Government by great efforts succeeded in balancing its budget during 1932 without recourse to borrowing; particulars as to how this was accomplished together with a full statement of the financial situation are contained in the report of the Minister of Finance dated December 15, 1932. Reduction of military expenditures and conversion of the loans were major factors in making possible the success of the National Government in this regard but the postponement of the American and British portions of the indemnity thereby reducing expenditures by almost $20,000,000 annually was likewise essential in making possible a balanced budget.

The difficulty of stabilizing the national finances has been greatly increased due to the reduction of customs revenues in the past year by about 25 percent. This reduction has resulted from the worldwide depression and from the Japanese seizure of the entire revenues of Manchuria thereby throwing upon the rest of the country the entire burden of loan and indemnity service. Unhappily these conditions still continue.

The National Government can scarcely go further in increasing revenue or curtailing expenditure. To resume indemnity payments at once in accordance with the schedule would disturb the financial equilibrium just attained with such difficulty.

The National Government appreciates fully the undertaking given that the present postponement does not constitute a precedent for [Page 663] the future. In existing difficult conditions however the National Government feels that it has no option but to seek a temporary continuation of the existing arrangement. The National Government being fully aware that activities are currently proceeding which are dependent for support upon indemnity payments would of course undertake to make arrangements with the agencies concerned for the support of these activities early in coming year.

I therefore have the honor on behalf of the National Government to request as a measure of temporary relief that the payments be postponed for a further year as from March 1, 1933, on the same conditions as before with the hope that the National Government may resume payments in whole or in part before the expiration of that period if circumstances permit. Otherwise the payments postponed would be made in the year following termination of the installments as now scheduled.

The National Government hopes that the Government of the United States will appreciate the position as above set forth and will concur in this proposal.”

Shall I make formal reply along the lines of Department’s 47, February 11, 2 p.m.?

When I last talked with my British colleague he had not received any formal communication. I shall endeavor to find out what he proposes to recommend to his Government in this matter.

Secretary of the Italian Legation states that his Minister is personally not opposed to postponement but has as yet received no instructions from his Government.