The Consul at Hong Kong (Gourley) to the Secretary of State

No. 1056

Sir: I have the honor to refer to the Department’s telegram of October 9, 1934,41 stating that during the past four months the Department has granted export licenses for shipments of 465,000 cartridges, 544 revolvers, and a small quantity of rifles, shells, etc., to three Hong Kong firms (Hong Kong Sporting Arms Store, Outdoor Sports Equipment Company and Ying Tak Kee), the exporters stating that this merchandise is sold only in Hong Kong under license from the Hong Kong authorities. The Department states that in view of the amount and frequency of recent shipments it is desirable to ascertain whether such material is actually finding its way into China, and requests this Consulate General informally to obtain a list of the Hong Kong licenses granted to the above-mentioned firms during the last few months for the sale of such articles. The Department [Page 514] also requests information as to the procedure now followed by the Hong Kong Government in granting licenses for the exportation of arms and munitions of war from Hong Kong to China.

In accordance with the instruction, a brief telegraphic reply based on preliminary investigations was transmitted to the Department on October 18th.43 In this connection it may be mentioned that the original code telegram was garbled, and that the requested repeat was not received by this office until October 17th.

The Hong Kong market for arms and ammunition is very limited, the demand being chiefly (1) for the Government forces, and (2) for sporting purposes. The former is entirely supplied by England. There are only seven or eight local stores handling such material, each firm being required to take out an annual license to deal in arms from the police, who exercise strict control over the traffic, and who have complete statistics on imports, exports, stocks on hand, etc. Importers are not required to obtain permits for individual shipments of arms and ammunition; only annual licenses, as stated above, are obligatory. In view of this fact, the exporters’ statement to the effect that the recent shipments were to be sold only in Hong Kong under license from the Hong Kong authorities, is subject to interpretation as far as the question of license is concerned; the market in Hong Kong for such quantities does not exist.

According to the police, the procedure now followed by the Hong Kong Government in granting licenses for the exportation of arms and munitions of war from Hong Kong is as follows:

Generally speaking, the exportation of arms and munitions of war to China from Hong Kong, as from Great Britain, is prohibited except with a permit from the Nanking Government.
For exports from Hong Kong to Macau the police require an import permit issued by Macau. It is understood that such permits are easily obtained, but they are said to be expensive. Since Macau is Portuguese and not Chinese, it does not come under Chinese restrictions, of course, and the Hong Kong Government sees no reason for refusing these exports. The police have suspected for some time that a large majority of the shipments to Macau, which are considerable, eventually find their way into China. This Consulate General was confidentially informed that the Governor of Hong Kong has requested that police to maintain a close watch on arms shipments to Macau.
In accordance with the Barcelona Convention of 1921, the Hong Kong authorities do not interfere with through shipments of arms and munitions on a through bill of lading.
Transshipments at Hong Kong are allowed regardless of ultimate destination if the consignee can show by producing the sales contract that the merchandise is really destined elsewhere and that [Page 515] Hong Kong is merely a port of transshipment (Barcelona Convention). In the case of China the import permit issued either by Nanking or Canton is accepted under these circumstances.

It will be noted, therefore, that while the Hong Kong authorities may be technically correct in stating that no arms or munitions of war may be exported from Hong Kong to China without a permit from the Nanking Government, there are several ways by which such shipments may pass through Hong Kong en route to Canton. A definite distinction is made between exported and transshipped cargo, and it is clear that the Hong Kong authorities accept the permit issued by the Canton Government when it is a question of transshipment at this port. (See confidential despatch No. 942 of June 30, 1934). According to the police, the following procedure is quite feasible in connection with (4) above: an exporter in the United States might obtain a permit from the Secretary of State on the basis of Hong Kong as the destination of the merchandise, the consignee in Hong Kong might, before the shipment arrives, register the sales contract with the Hong Kong police showing that the merchandise is really destined to Canton, and the shipment would be allowed to pass on a Canton import permit as being transshipped cargo.

The frankly-admitted opinion of the police is that there are too many loopholes, as far as Hong Kong is concerned, for the restrictions on arms imports into China to be effective.

The Hong Kong police have furnished confidential statistics44 as to the movement of American arms and ammunition purchased by the Outdoor Sports Equipment Company, Ying Tak Kee, and the Hong Kong Sporting Arms Store during the period June 1 to September 30, 1934. It will be noted (Table A) that (1) the total imports of American cartridges by these three firms were 427,600 rounds; exports to Macau and Canton 274,950 rounds. (2) 68,000 shells were imported; 28,450 shipped to Canton and Macau. (3) 260 revolvers imported; 262 exported to the same destinations.

Table B, relating to the Outdoor Sports Equipment Company, shows that (1) 232,900 cartridges were imported from the United States; 161,050 were exported to Canton. (2) 31,500 shells imported; 22,450 exported to Canton. (3) 129 revolvers were imported; 128 were exported to Canton. There is attached the Outdoor Sports Equipment Company’s record of exports for this period. It may also be of interest to note that up until two months ago this firm had a branch in Macau.

Table C indicates that Ying Tak Kee imported 33,200 cartridges from the United States. Exports to Macau 28,900; to Canton 2,000.

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Table D shows the importation of cartridges by the Hong Kong Sporting Arms Store as totalling 161,500; exports (1) to Macau 63,000, (2) to Canton 20,000. The Consulate General has just been informed that this firm is soon expecting 200,000 rounds of ammunition and 330 revolvers shipped during September from the United States. The police state that practically all of this shipment is to go to Canton.

In view of the circumstances surrounding the arms traffic in Hong Kong, therefore, it would appear that a large part of the American arms material consigned to Hong Kong is in fact finding its way into South China.

Respectfully yours,

L. H. Gourley
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