893.51/6569: Telegram

The Ambassador in Japan (Grew) to the Secretary of State

17. In the course of my conversation on various subjects with the Minister for Foreign Affairs this morning he said that I might like to know of certain rumors and reports which had reached him.

1. He said that reports were circulating in Japan to the effect that certain American bankers, unspecified, are considering or have decided to advance credits to the Chinese Government to the extent of 150,000,000 gold dollars to help China pay her debts and to stabilize the Chinese currency and at the same time certain English bankers were considering similar action to the extent of 30,000,000 pounds. The Minister did not say whether he had definite confirmation of the accuracy of these rumors.

2. Hirota then turned to the question of peace negotiations with China and said that before the Brussels Conference he had suggested to the American, British, German and Italian Ambassadors that Chiang Kai Shek should take the initiative in approaching the Japanese Government for peace negotiations. About December 27 the German Ambassador in Tokyo had asked Hirota if he would state the Japanese peace terms which could be conveyed to Chiang Kai Shek through Ambassador Trautmann and that Hirota had then stated the Japanese terms as follows:

Abandonment by China of all anti-Japan and anti-Manchukuo activities and cooperation with Japan for combating communism.
The establishment of certain demilitarized zones.
The settlement of Sino-Japanese economic relations.
Indemnification for the results of the hostilities.

I asked the Minister if he would care to elaborate on these various points. He said that the demilitarized zones should be created in Inner Mongolia, North China and the district now occupied by Japanese forces south of the Yangtze River between Shanghai and Nanking. Inner Mongolia was to have an autonomous government under sovereignty of the Chinese Central Government. The regimes in the other demilitarized zones were to have a considerable degree of autonomous power but they also would be under Chinese sovereignty. As for an economic settlement this would include the development of China’s natural resources and also a tariff agreement with Japan.

3. Hirota said he was aware that Kung had approached the American Government through Ambassador Wang to ask the American Government’s advice with regard to the acceptance of these terms and also to request the mediation of President Roosevelt. Hirota [Page 11] said that the Japanese Government had asked the Chinese Government for its reply to these terms about January 10th and that they were now awaiting a reply at any moment. Hirota said that he was telling me this merely because he thought I would like to be informed with regard to the situation.

4. The foregoing probably indicates the significance to be attached to reports published this morning in the papers that the Cabinet yesterday agreed on the principle that so long as “China manifests no desire to seek a settlement on a basis which will safeguard the peace of East Asia, Japan has no alternative but to resolve to face a war of endurance”. It is reported also that various measures such as declaration of war and withdrawal of recognition of the Chinese Government were discussed but not agreed upon. The Cabinet will reportedly decide today whether the Emperor will be requested to call a special conference to consider what measures should be taken to implement the principle above described.

Repeated to Shanghai for Hankow.