The Under Secretary of State (Phillips) to President Roosevelt

My Dear Mr. President: Developments of importance in regard to relations with China during the week February 25 to March 2 have been as follows:

On Monday, February 25, the British Ambassador called on me and stated that the Japanese had recently asked for information with regard to the attitude of the British Government toward the financial situation in China; and that the Foreign Office had thereupon decided that this was an opportunity to explain the British Government’s views to the three other Governments principally concerned, namely, China, the United States and Japan. The Ambassador continued to the effect that the British had followed the situation in China, and especially proposals involving loans or credits, with close attention; and that they had had to discourage such loans or credits. He then handed me a copy of a confidential memorandum giving “reasons for which His Majesty’s Government believe that foreign loans or credits for China would not offer any real or lasting remedy.” He said that the views expressed in that memorandum had been communicated to the Chinese and to the Japanese Governments. However, he said, the British had been careful to indicate that the situation was one with regard to which they felt grave concern and they have emphasized their desire to help China, in cooperation with the other governments [Page 548]principally concerned. Their general policy in the Far East was influenced by their desire for cordial relations between China and Japan, based on a friendly settlement of outstanding difficulties. This they regarded as the only possible basis for a general relaxation of tension in the Far East which they considered of supreme importance and without which they felt that there could be no satisfactory solution of any of the particular problems. They felt that any plan to help China needs a sound basis and must be carried out with friendly agreements with the other powers and of China herself. They would value an expression of the views of the Chinese Government as to how this might be done. If China responded favorably to their communication, the British Government would welcome the cooperation of the United States in any useful steps.

The Ambassador concluded his remarks by asking whether we could give any indication of how we view the problem as a whole. He said that he had purposely refrained from alluding to the American silver purchasing policy and that he would say, on his own initiative, that an easing of the tension in the Far East would have a very real effect upon naval negotiations.

On the next day, February 26, we gave the Chinese Minister the reply, which had been decided upon before the British Ambassador’s call, to his notes of February 5 inquiring about the possibility of a loan or a credit from the United States to China. In this we said:

“… the American Government deems it not practicable for the United States to embark upon an undertaking such as is envisaged in this outline and ventures to inquire whether the Chinese Government has given thought to the possibility of presenting this outline or an outline similar in essential features simultaneously to the governments of those foreign powers—of which the United States is one—which have in the past manifested interest in projects relating to Chinese financial problems and especially in projects for Chinese currency reform.”

From the above it will be seen that the positions taken by the British Government and by the American Government were identical in regard to two points of major importance: each of the two replied unfavorably to China’s solicitation from it of a loan or a credit; each indicated its thought that such assistance as might be rendered to China in that connection should be on a basis of cooperation among several of the powers most concerned. The British Government, however, went further than did we: they affirmed their desire to be of assistance to China, they intimated that China should come to an agreement with Japan (which intimation on Great Britain’s part would be highly gratifying to the Japanese, but probably not so to the Chinese), and they volunteered an initiative toward canvassing with the interested [Page 549]powers possibilities in relation to the question of bringing about an easing of tension and affording to China some form of assistance.

On February 28 the Chinese Minister came to us and gave us information which showed that the British Government had expressed itself to the Chinese Government in terms similar to those in which it had expressed itself, through the British Ambassador here, to us.

When, on February 26, we made our reply to the Chinese notes to us, we told the Chinese Minister that we expected to inform the British Government of the exchange of communications between the Chinese and us.

On Friday, March 1, the British Ambassador called, and I informed him that we had considered with gratification the information which he had given us on the 25th. I told him of the approach which the Chinese had made to us on the subject of a loan and a credit and I informed him of the substance of our reply. I then stated that this Government wishes, as does the British Government, to be of assistance to China and that we believe, as do they, that the giving of assistance, if any, to China should be by way of cooperative action by and among the principally interested powers with, of course, the assent and collaboration of China. I pointed out that, to that extent, our views were apparently identical. I made it clear that in speaking of assistance I was not in the slightest degree committing this Government to any line of action whatsoever. I then said that we were not convinced that the rendering of such assistance should be made conditional upon there first being achieved a relaxation of tension in the Far East; that in our view it is conceivable that the according of collective assistance to China in her present moment of great need might contribute toward preventing further deterioration in the situation in China and toward making possible a more satisfactory resolving of some of the questions there than can possibly be brought about under existing conditions. I said that we would like to know whether the British Government was disposed to take the lead in trying to work this matter out among the powers which had in the past shown the most interest in projects for Chinese currency reform and in Chinese financial problems; and that we would view with gratification its doing so.

Late on the evening of March 1 there came in a telegram from London in which Atherton gives an account of a conversation with Craigie, now an Assistant Under Secretary in the British Foreign Office. Craigie, stating that these were his own strictly confidential views, said that in the recent British proposals for an Anglo-Japanese-American-French-Chinese discussion of the economic situation in the Far East and especially China, the first reactions of the Tokyo Foreign Office had apparently been favorable.—This is indicative of something [Page 550]more specific and more comprehensive than anything that the British Ambassador had said to us. Also, I may remark in passing, the press reports this morning give ground for doubt whether the reaction of the Tokyo Foreign Office has been in fact favorable.—Craigie thought that if the price of silver could be kept from going above its present level and if the international conversations to which he had referred were to lead to some sort of an international loan to China, the result might be an easing of the Far Eastern tension and the economic conversations thus successful might be followed by political conversations affording hope that China and Japan might evolve a modus vivendi on the Manchuria question. Craigie felt that any Far Eastern action in which Japan was not included would be to the disadvantage of Anglo-American objectives in the Far East. He said that the objective of British policy at this time was to ease the tension in the Far East and bring Japan into some naval agreement that could be accepted by Great Britain and the United States. He said that the British Foreign Office understood that Hirota desires a naval conversation at an early date, but that he, Craigie, did not feel that it could be held before the end of September.

In the meantime, press stories appeared last evening and this morning spreading reports to the effect that consideration is being given internationally to the question of possible financial assistance to China. The Japanese Ambassador and the Chinese Minister, noting these stories, have made informal inquiries. To these we have as yet made no reply. An important press story has come from London this morning to the effect that it has been given out there that the British Foreign Office has approached a number of powers on the subject, including France.

In the light of all of the above, it is our view in the Department that we should let the most possible be made of the fact that the British Government has taken the initiative in regard to this question; that, in brief, we should, with gratification, let them play the part of broker in an endeavor to explore the possibility of bringing the powers into line for the considering and the possible carrying out of a plan for improving the situation in the Far East, in which plan there may be involved the affording cooperatively of some financial assistance to China. On our part, we shall have to decide, tentatively but as definitely as possible, how far we may be willing to go by way of encouraging the British Government and giving assurance of support, in principle, in the effort upon which that Government is embarked. It is my belief that the effort has constructive possibilities and that we should give it encouragement.

Faithfully yours,

William Phillips