033.1100 Rogers, James H./35: Telegram

The Consul General at Hankow ( Adams ) to the Secretary of State

For Morgenthau from Rogers. Study of Chinese balance of international payments has yielded following preliminary conclusions.

[Page 434]
1.
Balance is increasingly adverse. One reason is the advance in the price of silver in terms of pounds, dollars and yen, has caused prices of Chinese exports, which are largely agricultural products, to decline greatly. Another reason is that remittances of Chinese emigrants, the largest single source of inflowing funds, have been reduced by depression conditions abroad and now by higher silver prices which have reduced the value in Chinese money of the sums remitted.
2.
Unless this adverse balance can be soon checked considerable silver outflows seem likely.
3.
Already drains of silver from the interior to treaty ports has reached considerable proportions, leading several of the provincial governments to impose restrictions on export of silver.
4.
Finally, drains from the country districts seem to come from two sources: (a) the farmers are in such poor condition that many of them are drawing upon their silver hoards to meet living expenses. (b) the local money lenders and native banks unable to collect on many loans are fast liquidating and depositing their silver holdings in military banks which in turn send them to treaty ports for greater safety.
5.
To replace these liquidating loan agencies which are necessary to keep agricultural production above the famine level, the Nanking Government is organizing agricultural cooperatives but the process is inevitably slow.
6.
Any further rise in the price of silver in terms of major currencies at this time would aggravate this situation.
Adams