893.5151/368: Telegram
The Consul General at Shanghai (Cunningham) to the Secretary of State
[Received February 23—11:03 a.m.]
71. 1. Referring to Department’s February 17, 3 p.m. to Tokyo,9 it is difficult for a layman to discuss intelligently international finance. However, after careful investigation and numerous conversations with bankers and persons who have made a careful study of exchange, both prior to and subsequent to receipt of Department’s instructions, I have reached the following conclusions:
2. The recent sustained rise in silver has stimulated imports into China somewhat but trade is retarded owing to uncertainty of future silver prices.
3. A substantial rise in silver would temporarily increase imports into China especially if accompanied by a stabilization of silver within narrow fluctuations. There can be no substantial sustained increase in imports so long as internal political conditions remain disturbed and the United States share in China’s import trade depends primarily on the comparative value of the currency of Great Britain and other competitors.
4. Higher-priced silver particularly if that price is reached by a gradual increase will not destroy but will benefit China’s export trade. It is interesting to note that China’s export trade was greatest when the price of silver was much higher than at present. The highest point in recent years for silver was in 1919 and 1920 which were very satisfactory years for the export trade. However, China’s export trade was best during the years when the price of silver was from 5 to 7 cents per ounce higher than it is today. Present export trade is better than it was when silver was lowest about 18 months ago. It is admitted that many things must be taken into account when considering export trade but it would be exceedingly unsound to state that an increased price of silver would increase China’s export trade.
5. Chinese bankers are in a state of panic and fear radical American action. They intend to demand embargo or other action by the Chinese Government in the event the United States paid high artificial price for silver bullion. The demand of Chinese bankers is similar but in reverse order to Shanghai demands made in February and March 1930 for a prohibitive import duty on silver in order that China’s money would not reach a ruinously low price. The demand is now for an embargo or increased export duty which will have the result of placing China in the position of having a controlled currency. [Page 428] At what price an embargo would be urged has not been ascertained but 60 cents per ounce has often been mentioned.
6. Those who within past few days have made representations to the United States against a high-priced silver profess to believe that a gradual increase to a point very much higher than it is at the present time would not be objectionable if commodity prices advanced correspondingly.
7. Chinese bankers are almost a unit in declaring that China must take precautionary measures in event of artificial high price of silver. If peradventure the raising of the price of silver should deleteriously affect export trade this could be partially counteracted by China’s removing export and interport duties.
8. Finally it is difficult to anticipate what the reaction in China will be to action by United States alone in substantially raising silver. If such action should prove disadvantageous to China there is always to be kept in mind the possibility of anti-American agitation and this is particularly true when other nations may have a selfish purpose in assisting in the development of such a sentiment.
- Not printed.↩