793.94/6855: Telegram
The Counselor of Legation in China (Peek) to the Secretary of State
[Received February 2—7:58 a.m.]
21. 1. Kung, Minister of Finance, called on me February 1, 7 p.m., and saying he thought I might want to report to the American Government the present state of affairs, he described what he designated the “grave situation” of the Chinese Government and the entire nation.
2. While Kung employed very restrained language he nevertheless attributed the gravity of the situation in large part to the silver purchase policy of the American Government which he said had unduly raised the price of silver instead of stabilizing it as had been the intent of the silver agreement. This in turn caused the drainage from China of $260,000,000 in 1934, mainly in the last 4 months 10 times the export in any one previous year which tightened currency and credit and has made it impossible to finance not only ordinary commercial and industrial operations but even vital government activities such as the economic reconstruction of the country and the suppression of the communist forces West China.
3. Kung said that disaster threatened unless financial aid obtained from some foreign source and he referred to a proposal which he stated he had submitted to the American Government recently.41 He asked that I telegraph the Department expressing his earnest hope that this proposal would meet with the approval of the American Government.
4. As being a phase of the situation of no particular interest to the American Government and to European Governments he referred to recent news reports from Japanese sources to the effect that the Japanese Government is pressing on China collaboration with Japan in all fields to the exclusion of the white races and he particularly instanced a report carried in Reuter’s service on February 1 quoting General Minami as advocating that Europeans, Americans and Orientals each [Page 38] take steps to preserve peace in their respective areas and that China abandon policy of depending on the United States, Europe and the League in opposing Japan. He said I might safely infer from the Japanese reports what proposals are being made in China by Japan. In spite of my questions Kung refused to indicate in precise terms what demands, if any, the Japanese are presenting at the present time but he repeatedly emphasized that now is a crucial time in the history of the Orient and that timely financial aid from the United States enabling China to preserve independence in facing Japan would save the world from the threat of Japan’s imperialistic designs.
5. Chinese leaders, with whom I have conversed during the past week, have been more reticent than is their custom when talking about Japanese oppression in China and I conclude either that the Japanese have not made formally any fresh demands on China or that the Government is favorably considering a policy of submission to and collaboration with Japan and is attempting to keep it secret until it is to some extent an accomplished fact. It is certain that there are leaders in the Government who advocate this policy arguing that the assistance hoped for from the United States and the League has hitherto given no promise of materializing in effective form. The most probable explanation of the contradictory reports is that the pro-Japanese group in the Government have succeeded in persuading Chiang Kaishek to listen to Japanese secret overtures and that he has forbidden any discussion of the subject with outsiders.