Foreign Relations of the United States, Diplomatic Papers, 1937, The Far East, Volume IV

893.51/6416

Memorandum by the Chief of the Division of Far Eastern Affairs (Hornbeck)

[Washington,] June 25, 1937.

The British Foreign Office has given our Ambassador in London a “very confidential” memorandum giving information regarding H. H. Kung’s loan negotiations in London.

[Here follows summary of British memorandum, quoted in telegram No. 394, June 21, 2 p.m., printed on page 605.]

Comments.

1. In the light of the whole tone of this memorandum together with previous information from other sources, it looks as though the British Government were favorably inclined toward the idea of a loan by British Banking interests of at least pounds 10,000,000—for flotation before the end of this calendar year.

2. It would seem that the British Government hopes that the American Government will view the “set-up” which the British Government outlines with favor. Reading between the lines, it would appear that the British Government is hinting at parallel action by the American Government and American banking interests. In the open, the British Government expresses a hope that the American Government will not be unfavorably disposed if the British go ahead with this project regardless whether other governments and financial interests take parallel action.

FE⁸⁰ perceives no reason why the American Government need view the project, from either angle, unsympathetically. We would suggest that serious consideration be given to the question whether this Government would favor American action on parallel lines.

3. Dr. Kung has suggested that the Chinese Customs revenue be made security for the proposed loan. The British Government has emphasized to Kung that it would expect an assurance that the existing system of the Customs Administration be continued and that resumption of recruitment in that Administration of foreign personnel is highly desirable.

At the Chinese Customs Conference in Peking in 1925–26,⁸¹ the American Delegation shared the view of the British Delegation that the Chinese Customs Administration should be safeguarded. Employment of foreign personnel in that Administration was an important feature. There would seem to be now no reason why this Government should not share the British Government’s solicitude in that connection.

4. The British Government has taken the initiative toward dissolution of the China Consortium. This Government has given assent to negotiations on the part of the member financial groups looking toward that end. The British Government now expresses the hope that, in case dissolution of the Consortium has not been brought about by next autumn, the American Government will use its influence toward obtaining consent of the American Group to issuance by British interests of the loan under consideration.

It is believed that the American Group will be prepared to consent without prompting from the American Government.

5. We have reason to assume that Dr. Kung when in Washington (he is to arrive next Monday morning) will broach the subject of a possible loan by American interests (or an extension of credit in some form by American governmental agencies). It is believed that this Department should adopt a neutral attitude, at least at the outset.⁸² It is believed that the Administration might to advantage suggest to Dr. Kung that he take the matter up with American financial interests. If, then, Dr. Kung acts on that suggestion and American financial interests seek the views of the Government, the project which might at that stage have been worked out between Dr. Kung and the said financial interests could be considered by the Administration on its merits. (A loan by American banking and financial interests paralleling and equaling in amount a loan by British financial interests, on the basis of the outline of conditions given in the British Government’s memorandum, might lead to several advantages and several disadvantages, both political and economic.)

S[tanley] K. H[ornbeck]

80. Division of Far Eastern Affairs.
81. See Foreign Relations, 1925, vol. i, pp. 833 ff., and ibid., 1926, vol. i, pp. 743 ff.
82. The Under Secretary of State sent to the President, for his information, a copy of telegram No. 394, June 21, 2 p.m., from the Ambassador in the United Kingdom, p. 605.