811.51693/78
Memorandum by the Chief of the Division of Far Eastern Affairs (Hornbeck)
Reference: Mr. Phillips’ memorandum of conversation with Mr. Cameron Forbes of July 25.18
Mr. Forbes asks Mr. Phillips to tell the President that Forbes has been discussing with the Export and Import Bank the possibility of governmental assistance toward the purchasing of Russell and Company (in China); and that Forbes feels that the Bank could assist toward formation of an American bank in Shanghai starting with a capital of $10,000,000 to finance Chinese enterprises and that Forbes has already obtained approximately $9,000,000 toward the creation of such a bank; also, that Forbes looks forward to the bank’s assisting China in railway construction to Szechwan; also, that no legislation would be necessary in order that the bank “take a hand in the situation”.
Comment: Mr. Forbes has returned from his tour of observation—with and as Chairman of the American Economic Mission to the Far East—full of enthusiasm for business with China. He has some definite and positive ideas on the subject of what should be American policy in regard to the Far East. He has stated to me on several [Page 608] occasions during the past ten days, and he repeated to Mr. Norman Davis19 in my presence this morning, that he believes we should go ahead with business enterprises regardless of what the Japanese may think about our efforts; and that we should make it a point to “speak softly but carry a big stick”.
With regard to the proposal to form an American bank in Shanghai with a capital at the outset of $10,000,000, the advantage or disadvantage of proceeding with such an enterprise must depend largely, as is the case with so many projects, on the character of the commercial backing and the personnel which would be associated with the enterprise. In the course of the past twenty years there have been organized for business in China several American banks and financial or quasifinancial organizations. Unfortunately most of these enterprises have “folded up”, and some of them have definitely “failed”. In the light of this fact and of the very recent collapse of the various enterprises with which the name of an American very active in the Shanghai business world has been associated, it is highly desirable that any proposal for the creation of a new American bank in China be approached conservatively. It is believed that if the proposed enterprise could have the backing of several men of such character and standing as is possessed by Mr. Forbes, the project might safely be given the blessing and assistance of the American Government.
With regard to the proposal for the resurrection of Russell and Company, the same points should be considered and the same hypothesis may be laid down. (Note: It is assumed that Mr. Forbes has in mind the creation of a new organization resembling the old (but long since disposed of to other interests) American trading firm of Russell and Company—in which the Forbes family was actively interested and which had a very good reputation.) The character of the backing and of the personnel are the important items to be considered.
With regard to the question of assisting in railway construction into Szechwan, the fact must be kept in mind, throughout, that any project for the building of such a railway line will probably have to be dealt with in terms of existing British and French and German and American rights, and of diplomatic and other cooperation between and among those four countries, and of popular opinion in China and popular and official opinion in Japan. Existing and long-standing concessionary rights and agreements which relate to such a project cannot be disregarded or swept aside; and Japanese views and aspirations cannot be left out of account; and the political situation in China, with its local contentions and animosities must be taken into account. If this project is handled carefully and sufficient time is allowed for [Page 609] working out a carefully conceived plan step by step and diplomatically, it may be that Mr. Forbes’ idea of linking up the contemplated bank with the construction, ultimately, of such a railway, might be put into execution. But if the matter is proceeded with hastily and without full knowledge and scrutiny of inescapable facts in the situation, this project would probably go the way of a considerable number of earlier American projects which nave been hastily conceived and rushed forward only to be broken against stone walls of foreign opposition or buried in quicksands of Chinese unreadiness and unwillingness (such as the Hsinmintun–Fakumen Railway, Chinchow–Aigun Railway project and the Siems–Carey projects).
It is believed that no decisions involving or committing the United States Government in connection with any of these matters should be made by any other agency of the Government without there first having been full consultation with the Department of State.