693.94244/16: Telegram
The Counselor of Embassy in China (Peck) to the Secretary of State
[Received May 19—9:30 a.m.]
146. 1. A foreign adviser to the Chinese Government has expressed to me the opinion that if the present extensive smuggling were to continue certain indirect unfavorable effects on American and other foreign interests would tend to result.
2. Customs revenue in 1935 was approximately 315,000,000 with expenses of collection say 30,000,000 and cost of loan service say 250,000,000. Up to last autumn the Government had counted upon surplus of customs revenue available for governmental purposes of approximately 50,000,000 yearly. However, during much of the period since last summer customs revenue has failed even to meet debt charges and for the first 4 months of 1936 has been about one-sixth below that for the corresponding period of 1935. Part of this decrease had been occasioned by economic factors such as stocking up of surplus imports during period of favorable exchange with consequent lessening of imports later but these economic causes would tend automatically to adjust themselves. This is not true of decreases in customs [Page 159] revenue caused by smuggling and since increase of revenue from taxation is difficult to achieve the Chinese Government will be obliged to depend more and more on loans if losses from smuggling continue. Informant observed that hitherto Chinese Government borrowing has largely represented investment of savings by the public but if dependence on loans were to go on independently [indefinitely?] there would be a tendency for the Government to expand its bank credit against obligations with inflationary effect. He thought that if this process were not offset by other factors there would ultimately develop a degree of risk threatening the position of Chinese currency in exchange transactions. This in turn would discourage exportation of foreign goods to China and would make it difficult for the Chinese Government to meet its obligations expressed in foreign currency.
3. Informant did not refer to any anxiety of the Chinese Government that the public might become alarmed and begin extensive exchanges of Chinese currency for foreign currency but the reassuring statement issued by the Minister of Finance May 17, (see my 144, May 18, 2 p.m.85) seems designed to forestall possibility of such alarm whether occasioned by anticipated results of revenue losses from smuggling or by other causes.
To the Department and Peiping.
- Not printed.↩