893.51/6386: Telegram

The Ambassador in France (Bullitt) to the Secretary of State

724. Reference to my telegram No. 723, June 3, noon; and your 248, June 1, 7 p.m. Kung, Chinese Minister of Finance, made a number of statements to me last evening which he asked me to regard as highly confidential.

He said that on his arrival in London the British had indicated their willingness to finance various railroad building projects in China through long term loans the proceeds of which should be spent in England. He had replied that he was not interested in such loans, that he could buy in many places in the world the materials necessary for the building of railroads on the basis of installment payments. If the British should be ready to offer better terms than anyone else he would be glad to buy in Britain but not otherwise (I assume that the offers above mentioned were the basis for Monnet’s statements reported in my 703, May 30, 11 a.m.).

He had then in a conversation with Eden, Chamberlain, Leith-Ross and Montagu Norman,77 stated that he believed that there was one loan which would be greatly to the advantage of China and Great Britain. That was a loan which would enable him to retire the outstanding internal Government obligations of China.

It would be necessary to have approximately 2 billion dollars Chinese (this he translated as 120 million English pounds). He said that by paying off outstanding internal Chinese Government bonds (which on the whole carried 8% interest, since they bore interest at 6% and had been sold at 80) and issuing such internal bonds as might be needed bearing 4% interest he could balance his budget. [Page 604]This would strengthen immensely the position of the Chinese Government which obviously would be of advantage to the British Government.

Kung said that then he had asked the British Government to persuade British bankers to lend him 120 million English pounds for this purpose. He was prepared to promise that the money would not be taken out of England. So long as he should have such a credit in England he could issue notes which would serve the same purpose as cash.

Kung asserted that Chamberlain, Eden, Leith-Ross and Montagu Norman had all agreed in principle that a loan of this nature would be to the advantage of Great Britain as well as China; but had said that in view of the present financial situation in Great Britain and the uncertainties of the European situation they did not wish to permit China to borrow more than 20 million pounds in the London market. They had proposed an interest rate of 5% on this 20 million loan. He had suggested 4%. The British Government furthermore had said that they did not wish the loan to be floated at the present time but wished it to be floated in September. They had requested him to return to England after his visit to the United States in order to sign the agreements for this loan. He expected to return to England in the month of July.

Kung added that next week he would visit Brussels and Berlin and sail for the United States on June 16th, then visit New Haven, Connecticut, to obtain a degree from Yale University, then visit Washington. He said that he was looking forward with the greatest eagerness to seeing the President and Secretary Morgenthau.

Kung said that when he reached the United States he hoped to be able to interest American bankers in making a loan to China which would fill the gap between the 20 million that the British Government is ready to have British bankers advance and the 120 million pounds which he wants. He considered the 12 [20?] million loan from Great Britain an established fact and a settled transaction; but China’s position would be enormously strengthened if he could add to it 100 million pounds from the United States.

Bullitt
  1. Governor of the Bank of England.