The Ambassador in France (Bullitt) to the Secretary of State
[Received 11:40 a.m.]
703. Jean Monnet, foreign agent for the Chinese Reconstruction Finance Corporation, who has just come to Paris from London, called on me yesterday afternoon. He is well-known to Dr. Hornbeck and has for some years been in the habit of informing me with regard to forthcoming events in the Far East. On the whole I have found his statements and predictions remarkably accurate.
The Department has undoubtedly been informed fully by our Embassy in London with regard to the matters Monnet discussed, but I venture to report his statements in case the Department should wish me to pursue the matter further.
Monnet said that Kung, Financial Minister of China, with the full approval of the British Government had been conducting negotiations with the leading banking houses in London for the floating of a loan of the Chinese Government to be offered for public subscription in the London market. Monnet said that he himself could scarcely believe in the results of these negotiations. They were too good to be true. It had been agreed definitely that a Chinese Government 30 year loan of between 3 and 6 million pounds bearing interest between 6 and 6½ [Page 600] percent should be offered for public subscription in the London market during the month of June by the Hong Kong [and] Shanghai Bank and the private banking houses of Schroeder, Lazard, Rothschild, and Morgan Grenfell. A portion of the loan might also be offered in Shanghai.
The loan would be for the purpose of constructing a railroad from Canton to Fukien and a railroad from Pukow to Sinyang. It had not yet been determined whether or not the loan should be secured by the allocation of specific Chinese revenues. It might be issued merely on the credit of the Chinese Government.
I asked what part the Chinese Consortium would play in this loan and Monnet replied that he understood that the United States had agreed to the dissolution of the Consortium and that Great Britain favored the dissolution of the Consortium. He did not know exactly how Japan received the dissolution of the Consortium. In any event the British had stated flatly that they were prepared to go ahead with the loan even if the Japanese should refuse to permit the dissolution of the Consortium. This he took to mean that the British already had some sort of an understanding with the Japanese with respect to the matter. He knew that most serious negotiations had been in progress in London during the past few weeks for the preparation of an Anglo-Japanese agreement to replace the defunct Anglo-Japanese allegiance [alliance?]. He said that he had reason to believe that the British might be ready to offer the Japanese recognition of Manchukuo. Leith-Ross had advocated recognition of Manchukuo ever since his visit to China.
I asked whether the Chinese Government would not react violently against such recognition and he replied that the Chinese Government would not.
He went on to say that Kung after visiting Paris this coming week desired to visit the United States for the purpose of obtaining a loan to strengthen the reserves of the Central Bank of China and to retire certain outstanding loans bearing excessively high rates of interest. In view of the great improvement in the credit of the Chinese Government which would be produced by the floating of the projected London loan, Kung hoped to be able to interest American bankers in a loan.
In spite of my repeated expressions of skepticism, Monnet insisted that the British loan to the Chinese Government referred to above was an established fact. He said that if the Japanese should object, the British would invite Japan to participate in the loan and to offer a portion of it for public subscription in the Japanese market. But whatever attitude the Japanese might take, the British were determined to go through with the matter.[Page 601]
Kung will reach Paris Tuesday evening and has an engagement [to] dine with me on Wednesday. I should be greatly obliged if the Department would give me any information and instructions it may deem appropriate as to the line I should take with Kung.