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

No. 457

Sir: I have the honor to refer to despatch No. 428 of April 21, 1937, from the Embassy, Nanking, commenting on the proposal to sell American railway materials to the Chinese Government on credit.

In this connection I have the honor to invite the Department’s attention to two Special Reports written by Mr. Calder, Assistant Commercial Attaché, copies of which the Department presumably has received. The first is Special Report No. S–127 of April 9, 193767 in which he proposed the setting up of a commission in China composed of representatives in China of different American Government Departments which would operate under the auspices of the Export-Import Bank and work in association with an advisory committee of the Shanghai American Chamber of Commerce to check up on proposals for the purchase of American railway and other materials on credit, and to promote commerce with China in other ways. He describes steps which the British Government has taken in this sort [Page 593]of activity. It will be recalled that despatch No. 1195 of April 23, 1937, from the Embassy, Peiping,68 transmitted a memorandum of conversation between myself and the Commercial Attachés dealing with various aspects of Mr. Calder’s idea.

(Parenthetically it may be remarked that during a recent visit to Shanghai I was informed that up to the present time no actual credits have been arranged as a result of the activities of Mr. Kirkpatrick, representative of the Exports Credit Guaranty Department of the British Government. This was attributed to the fact that terms thus far insisted upon by Mr. Kirkpatrick’s organization were onerous.)

The second report to which I refer is Special Report No. S–137 of April 23, 193769 on the subject “Further Suggestions for Coordinating, Improving and Entrenching the American Position in China in relation to Developing a Policy for Extending Credits”. In it Mr. Calder attempts to show how such a method of coordinated effort as he proposes might serve American business in China.

There is enclosed a copy of a news item70 from the Central News Agency release of April 20, 1937 indicating that the Japanese Government intends to set up in Shanghai a combined government and private business organization “for the study of Chinese economic conditions”. A section of the Japanese Foreign Office under the direction of the East Asiatic Affairs Bureau is to exercise control. During the course of a visit made by the Japanese Chargé dAffaires a day or two ago he stated that this report was substantially correct. He said that the project required a rather difficult coordination of different government Departments with each other and with Japanese commercial interests, and it might take several months to complete the organization.

Under the leadership of the Department of State the American Government is operating powerfully to remove causes of war by promoting international trade through the agency of reciprocal trade agreements. From the standpoint of this policy the present moment is an important one in American-Chinese relations. Partly as a logical result of China’s endeavor to become a prosperous modern state, stimulated by a desire to achieve the economic and military strength necessary to resist Japanese encroachments, the Chinese Government has launched a determined effort to expand communications facilities and to develop various lines of industries. These projects are not new ideas in China, since they are in line with policies laid down by Dr. Sun Yat-sen. In the dozen years since the death of Dr. Sun, however, the country has been so occupied with the task of “unification” that they have been neglected. At the present time, [Page 594]there is no armed opposition to the Government anywhere, except as instigated by Japan. There is even a prospect that the Japanese policy of armed invasion of China may be laid aside for an indefinite period, as indicated by the announced attitude of the present Government in Japan and by the result of the Diet elections of April 30. China’s currency has been stabilized ever since the relevant measures were put into force on November 3, 1935 and conditions in general have favored the success of the Chinese Government’s present striving toward economic progress.

Germany, Great Britain, France and Japan are the nations which, up to the present, have given the clearest indications of desiring to take advantage of this beginning of a new era of economic activity in China. In considering whether it is worthwhile for the American Government to take any unusual step in the same direction, I am impressed by the fact that two factors are necessary to make such a measure successful. One factor, China’s desire to utilize American products and American credit, undoubtedly exists; the other factor would be a desire in the United States to export manufactured products and to extend credits. It may be conceded that American manufacturers are always on the lookout for opportunities to sell their products, but it has seemed to me not quite so evident that the need to sell to foreign countries is so strong that the American Government or American bankers would be willing to extend unusually favorable credit terms to bring this about. To an observer in China, appearances would indicate that for a considerable time American industries will find an ample market for their output in replenishing the void caused by the four years’ depression which started in October, 1929.

As an American engaged for many years in serving and attempting to foster the enterprises of American citizens in China and in attempting to strengthen the ties between these two historically friendly democracies, I should naturally be eager to advocate any project which promised to enhance the interests and prestige of the United States in China. The policies of the American Government with respect to China rival in importance any which our Government has espoused. A strengthening of the economic bonds between the two countries would lend more authority to the United States in supporting those policies and an apparent withdrawal of the United States from China economically would correspondingly weaken it.

In spite of these considerations, I do not feel moved to support wholeheartedly the proposal that a special organization be set up in China for the avowed purpose of facilitating the extending of credits for the sale of American railway and other materials to China. If the urge to sell such products in China were sufficiently strong to justify this measure, I should favor it, but so far as my observation goes, the urge is not sufficiently compelling.

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Another aspect of the matter does, however, strike me as very important, that is the desirability of keeping our Government informed to the fullest possible extent of economic developments in China. To do this successfully would involve a great deal of translating, many conversations with Chinese leaders, and the collation and study of masses of data. Doubtless each of the agencies of the American Government in China is attempting to do its duty in this respect in its own particular field. The Embassy, certainly, is doing its best to report important economic trends and undertakings, to translate pertinent laws and other documents, et cetera. Nevertheless, there is a possibility that these somewhat diffused efforts might be more effective if a scheme were elaborated to coordinate them. Such a scheme might lead to other developments, including the credit plan, although it seems at present of doubtful utility. It is certain that the insight which would be gained into the plans and activities of the Chinese Government would be of service in preparation for the negotiation of a new commercial treaty. It is this phase of Mr. Calder’s proposal, therefore, which seems to me worthy of most attention at this moment.

Respectfully yours,

Nelson Trusler Johnson
  1. Not found in Department files.
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