793.94/7896: Telegram

The Counselor of Embassy in China ( Peck ) to the Secretary of State

133. This office’s 92, April 16, 5 p.m.

An officer of the Embassy has been confidentially informed by a responsible official of the Foreign Office that (1) reports alleging the conclusion of a Sino-Japanese anti-Communist agreement in the North on May 6 have been received by the Foreign Office but have not been confirmed; (2) the Japanese have been using the smuggling situation in the North as a coercive argument for the conclusion of such an agreement but Hsiao Chen Ying and the other interested Chinese officials have been a stumbling block through their insistence that the East Hopei regime continue to exist; (3) details of the specific Japanese proposals or of the progress of the discussions between them and Sung Che Yuan and latter’s associates are not known but the Foreign Office expects to have this information soon.
Informant denied that the National Government had given up hope of avoiding the conclusion of such an agreement and said that (1), the Chinese Government was considering the imposition of consolidated taxes on smuggled goods as a preventative against smuggling; (2), the Chinese Government has instructed its Ambassador in Washington to approach the Department in regard to the smuggling situation; (3), loss to the customs revenues now amounted to Chinese dollars 2 million weekly; (4), the Embassy would shortly be furnished reliable statistics and full information concerning smuggling.
Repeated to the Department and Peiping.