The Ambassador in China ( Johnson ) to the Secretary of State

No. 428

Sir: I have the honor to refer to despatch No. 407 of April 6, 1937 from the Embassy, Nanking,57 in reference to the “Desire of Chinese Ministry of Railways to Establish Credit Arrangement for the Purchase of Railway Equipment”, which set forth information in regard to the possible attitude of the Export-Import Bank of Washington toward the desire of the Chinese Government that the Bank supply credits for the purchase of American railway material.

There is enclosed a memorandum57 of a conversation which took place on April 17, 1937 between Mr. Peck, Counselor of the Embassy, and Mr. Robert S. Norman, an American citizen, legal adviser to the Ministry of Railways.

I do not quite understand why Mr. Norman called at the Embassy and made the observations set down in the memorandum concerning the present very active program of the Ministry of Railways for the extension of the railway system of China. Long association with Mr. Norman leads me to think, however, that his call was prompted by a sincere desire that this program of “railway expansion” should succeed and “should not be marred” by too precipitate action on the part of the Chinese authorities or “by losses on the part of possible American cooperators.”

The general impression made by Mr. Norman’s remarks was that the effort of the Chinese Government to obtain extensive foreign [Page 583] credits for the supply of railway materials had been remarkably successful and that it would be very unfortunate for the success of this great undertaking in the long run if the Chinese Government and its foreign collaborators should lose sight of the necessity for proceeding cautiously and with due regard for the possibility of unforeseen accidents. For example, it will be noted in paragraph 3 of the enclosed memorandum that Mr. Norman pointed out that in the case of each new railway there would be a period of two or three years following the beginning of construction before the railway would begin to turn in revenue for the payment of interest and the re-payment of principal. His implication was that interest charges during this period would be heavy and it might be that the Chinese Government was incurring obligations which it would be difficult to carry out, particularly if natural or political catastrophes should delay the construction of the railway and the time when its earnings would help to take care of amortization charges on the particular credit involved.

There is no doubt but that one event of this sort would prove a serious set-back to the course of railway expansion in China. I am convinced that Mr. Norman sincerely desires the success of China’s railway building program and that his warning remarks, if they may be regarded as such, were prompted by this attitude.

An observer in China at the present time cannot but be impressed by the energy with which the Chinese Government is pushing its program of economic reconstruction on all fronts, agricultural, industrial and communications. Reading between the lines of official pronouncements, it seems probable that this activity arises in large part from the belief that China will be called upon at an early date to meet a national crisis, possibly war with Japan, and that the whole scheme is designed to bring the nation to the highest possible point of efficiency before the crisis arises. If this deduction is tenable, support is given to the theory that China’s economic, social and political development is being accelerated to a marked degree by the fact and fear of Japanese encroachment.

Very truly yours,

Nelson Trusler Johnson
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