893.51/6126
Memorandum by the Chief of the Division of Far Eastern Affairs (Hornbeck)
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This brings us back to the question raised earlier in this memorandum: Would a dissolution of the China Consortium24 be of advantage, or of no concern, or of disadvantage to the United States?
The advantage, concern, or disadvantage of the United States should be considered in terms of policy and of political and diplomatic interest and concern in the field of our Far Eastern relations.
The chief advantages to us of the Consortium Agreements have been, first, that they are in line with one of the underlying principles for which we have contended, that of cooperative action and individual and collective self-restraint on the part of the powers in the carrying on of public business in and with regard to China where there exist certain rights and obligations which are common to the powers; second, that, whereas if the field of making loans to China and of doing business in and with China of types which require special action by the Chinese Government be left to free and unrestricted competition, the United States and American nationals stand little chance (because of the more emphatic methods used by foreign governments and foreign nationals supported by their governments in dealing with the Chinese Government), by contrast, where the principles of cooperative action and of individual and collective self-restraint are agreed upon and observed the United States and American nationals stand an approximately equal chance of doing with and in China some of this type of business; and, third, the assumption of a collective interest and responsibility by the banking groups of the several major powers which groups constitute the membership of the Consortium has effectively prevented irresponsible loaning (with a mixture of economic and political objectives) by certain powers to China and acquisition by irresponsible groups of politicians in China of funds borrowed by such irresponsible groups in the name of China and applied by the borrowers to wasteful enterprises (sometimes of greater or less public interest and sometimes of purely personal interest). The American Government and the American people sincerely believe in the principle of equality of commercial opportunity; they also believe that the achievement by China of real political and economic progress, in the direction of stability of national strength, would be in the best [Page 470] interest of all concerned; they do not believe in and they try to discourage action calculated toward or tending to perpetuate and increase civil strife and economic disorder in China; they do not believe in cut-throat competition among the powers toward the securing of special political or economic advantages in or at the expense of China; they believe in an effort on the part of all the powers to be helpful to the Chinese and to promote progress in China.
Ever since the early 1850’s, the American Government, having from time to time experienced and observed the relative difficulties of régimes in which the principle of free competition has prevailed and régimes in which the principle of cooperative action has prevailed, among the powers, in relations with China, has weighed the advantages and disadvantages of the two régimes and has decided repeatedly in favor of the principle of cooperative action. Since the days of John Hay, thirty-five years ago, the American Government has most of the time been the foremost proponent of the principle. At the Washington Conference this Government played a leading part in bringing about general agreement that that principle was desirable and should prevail. Since then each Administration in this country has been guided by and has made frequent reference to the Washington Conference treaties and agreements. The present Administration for more than three years has persevered on the same line. The long and the short of the matter is, there is no other possible course which the American Government might follow with any prospect of advantage and with any likelihood of other than disadvantage. Free and unrestricted competition among the powers in relations with China cannot possibly be to our advantage. Already, activities of Japan in disregard of the cooperative principle and the Washington Conference agreements in regard to China has resulted in political difficulties and economic disadvantage to this country. Already, activities of the British Government, more forceful than the methods which the American Government—American commercial interests being somewhat apathetic and American public opinion being adverse to a vigorous diplomacy for the promotion of American interests in the Far East—is in position to use, have obtained for British commercial interests in China a position of technical advantage in competition with American commercial interests. If the principle of cooperative action passes into the discard, it is going to be increasingly difficult for American commercial interests to hold their own, to say nothing of making progress, in China.
The break-up of the China Consortium would be a step in that direction.
The moment is fast approaching when the banks, both in this country and in others, which have had their confidence if not their foundations shaken by the economic and financial debacle which set in in [Page 471] 1929 and from which we are just beginning to emerge—the banks, which have their vaults full of money which they have been afraid to put to work—will begin to respond to the demands of new opportunities. It will probably not be long before they will be eagerly looking about for opportunities. They will again scan not only opportunities in their own countries but opportunities abroad. With the Consortium gone, China will appear a field unattractive indeed for the investment of funds. Yet the traditional concept of China as a great potential market will continue to prevail. The Far East in general will still have a lure for merchants and financiers. The doctrine which Japanese propagandists have been preaching for twenty years: that the Occident should do business with China through Japan: will sound increasingly attractive. Wanting to place funds somewhere in the Far East, foreign bankers and merchants will tend to give ear to that idea. The Japanese will be encouraged to reiterate that business with China can be done, if at all, with promise of success only if done through Japan. If foreign funds be withheld from investment in China and be supplied in considerable amount to the Japanese—for no matter what purpose—the way of Japan toward the establishing of a Japanese hegemony in the Far East will have been made easier and the “open door” into and in China will have been narrowed and will be tending toward a shrinkage into nonexistence.
Hence, it is believed that a break-up of the Consortium would be to the disadvantage of the United States in that it would contribute toward a weakening of our general position as regards policy in relation to the Far East and would facilitate the attainment by other countries of ends which, if achieved, would put our trade with China in a position of increasing disadvantage. With regard to trade, the contention may be made that we would gain more by having our trade with Far Eastern countries pass through or be under the control of Japan than by having it continue in the natural channels which it now follows. That contention is one which must rest on considerations which are largely matters of opinion. In the opinion of the undersigned and his immediate associates in the Department, the adoption of and action in accordance with such a view would not be warranted. Experience of the past thirty years has shown that when control of commerce in any area in the Far East outside of Japan falls into Japanese hands, Japanese interests prosper relatively and the foreign interests, while there may accrue to them some absolute gains, do not prosper relatively and often are at last squeezed out entirely. Japanese trade, from point of view of production and export, is coming increasingly into competition with the trade of other nations, everywhere. Once make Japan a channel for trade to and [Page 472] from China, the tendency will be for Japanese interests to get the cream and most of the milk of that trade.
It is believed that, as between China and Japan, the American Government should still proceed on the principle of playing no favorites. This country has of course no intention of using force for the preservation of the “open door” in China. At the same time, there would be nothing to be gained by our giving up of our advocacy of the principle of equality of commercial opportunity, in application to that region as elsewhere. We need not discontinue our diplomatic efforts on behalf of American policy and interests in the Far East. The existence of the Consortium is in line with our general effort on behalf of the principle of equality of commercial opportunity. The Consortium is an instrument in support of the principle of cooperative action. As between a break-up or a continuance in existence of the Consortium, our influence, if exerted, should be on the side of continuance.
It is believed that it would be warrantable and advisable for this Government to discuss this question informally with representatives of the American banking group in the Consortium. It is believed that in such a discussion we might reasonably intimate that we would regret seeing the Consortium broken up.
It is suggested that the Chief of the Far Eastern Division be authorized to discuss this matter in the sense indicated with Mr. Thomas Lamont.25
- See agreement signed at New York, October 15, 1920, Foreign Relations, 1920, vol. i, p. 576.↩
- The Secretary and Under Secretary of State on March 30 authorized Mr. Hornbeck to discuss this matter with Mr. Lamont, of J. P. Morgan & Co., representing the American Group of the China Consortium.↩