033.1100 Rogers, James H./45
Memorandum by the Chief of the Division of Far Eastern Affairs (Hornbeck)56
In a telegram for Secretary Morgenthau under date May 17, 5 p.m.,57 Professor James Harvey Rogers states inter alia that Dr. H. H. Kung, Chinese Minister of Finance, has proposed the granting to China by the American Government of a rehabilitation loan, the proceeds to be used for highway construction, flood control, currency reorganization and other unifying projects. Dr. Kung has assured Mr. Rogers that he will in the near future submit satisfactory security provisions for such a loan and Mr. Rogers states that he has “agreed to receive” from Dr. Kung the detailed proposals. Mr. Rogers suggests that if the price of silver is to be further raised simultaneous consideration should be given to a governmental loan to China.
In connection with the foregoing it is believed that under no circumstances should Mr. Rogers discuss with Dr. Kung or with other officials of the Chinese Government any proposals for a governmental loan from the United States unless and until he is expressly instructed to do so. Such opinion is based largely on factors as follows:
[Page 384]In May 1933 there was extended to China by the Reconstruction Finance Corporation a fifty million dollar credit (recently reduced to twenty million dollars) for the purchase of American cotton, wheat and flour. Experience has shown that this credit has been not only of doubtful benefit, if any, to China and has been to the definite disadvantage of some American interests and that it has subjected the American Government to widespread criticism abroad. In Japanese quarters in particular the claim has been made that the credit is, in effect if not in fact, a political loan to China and that it contravenes the China Consortium Agreement of October 15, 1920. Irrespective of the fact that the primary purposes of the American Government in granting the credit under reference were to aid the domestic price situation and to remove from the American market surplus stocks of cotton, wheat and flour, objectives which were attained in only a small degree, it would appear that in concluding the Consortium Agreement in 1920 the interested banking groups (American, British, French and Japanese) were assured of the full support of their respective governments and that they did not contemplate encountering competition from the concerned governments in the granting of loans to China. At any rate it has been contended by Japan, and by others, especially British officials, that the Reconstruction Finance Corporation cotton and wheat credit violates the spirit, if not the letter, of the Consortium Agreement of 1920.
Coupled with the foregoing is the long and discouraging history of defaults on the part of the Chinese Government in meeting its admitted obligations to American and other foreign creditors58 and the fact that Chinese revenues and other forms of security are already so heavily mortgaged as to render further hypothecation thereof as of little or no value to new creditors. The Chinese Government is now, and has been for many years, heavily indebted to American and other foreign creditors not only on loans made but also on supplies furnished and services rendered and it has failed to take remedial steps or even to consider seriously means by which the liquidation of such obligations may be effected.
It should also be borne in mind that the existing situation in China differs but little from that which has existed for many years and that even an approximate rehabilitation of that vast country is not likely to occur for decades to come. Furthermore, there have recently been injected into the existing political and economic situation by Japan new factors which directly affect American relations with the countries of the Far East.
In official and public declarations in April of this year Japan made known its definite opposition to the granting by foreign governments [Page 385] to China of “political loans”. In view of the known weakness of China’s financial structure, which is such that no private banking institution would under existing circumstances consider seriously the granting of further loans, and in view of the aforementioned objections to the Reconstruction Finance Corporation credit on the grounds of its contravention of the international China Consortium Agreement of 1920, it is believed that other nations, as well as Japan, would consider as political any further loans made or credits extended to China by the United States.
In view of the foregoing, which outlines only a few of the more important elements in the existing situation, it is believed that, unless and until the American Government may on its part have decided that it desires to enter upon a program of financial assistance to China, there should be no discussion by American officials with Chinese officials of any such possibility. Such discussion, in the absence of a definitely arrived at desire on the part of the American Government to pursue such a course, cannot fail to lead to misunderstandings in various quarters and if it eventuates in the conclusion of no loan will have served merely to the further muddying of waters that are already very “thick”. It is believed that no loan made at this time by the United States to China could have for the United States sufficient advantages to offset its certain disadvantages; that no such loan is likely to be made; and that therefore expectations on the part of the Chinese and suspicions on the part of other powers should not be raised by discussion of the possibility.
- In transmitting this memorandum to the Secretary of State, Mr. Hornbeck stated in a covering memorandum: “It is believed that it might be well to suggest that the Secretary of the Treasury instruct Professor Rogers that he should refrain from entering upon discussion of such matters. (Note: It is believed that anything in the nature of business or contemplated business between the American Government and the Chinese Government should be discussed only through channels and by officials expressly authorized by the governments concerned to engage in discussion of such matters.)”↩
- Telegram No. 226 from the Consul General at Shanghai, p. 436; see also telegram No. 63, March 23, 5 p.m., to the Consul General at Shanghai, p. 430.↩
- See also pp. 542 ff.↩