Memorandum of Conversation, by the Adviser on Political Relations (Hornbeck)

The Chinese Ambassador called this afternoon in consequence of an intimation made by Mr. Hamilton88 in a conversation with Mr. Leonard Hsu89 this [yesterday] morning in connection with the question of a possible loan by the Bankers Trust Company to China (see Mr. Hamilton’s memorandum90).

The Ambassador said that, as Mr. Hornbeck knew, he, the Ambassador, was endeavoring to make the most effective use possible of China’s financial resources, especially China’s stock of silver, toward establishing credits and making possible purchasing by the Chinese Government in the United States. He said that he was trying to make each dollar’s worth of China’s silver stock do the work of two dollars. He said that the United States Treasury had been very helpful in its purchasing of silver. He said that he now had under way a negotiation with the Bankers Trust Company for a loan of from $10,000,000 to $25,000,000; this loan to be secured 50 percent by deposit of silver either with the Bankers Trust Company or elsewhere and 50 percent by resources of the Bank of China; the loan was to be for three (?) years and was to bear interest at from 3 to 4 percent; the negotiations had reached a point at which, before going further, he wanted to obtain the “blessing of the Department of State.” He said that approach had been made to Mr. Hamilton on the subject and that now he, the Ambassador, would very much like to have the Department’s view.

Mr. Hornbeck said that such a question involved consideration of a number of factors. He said that the American Government has been pursuing in regard to China and Japan, in the light of the fact that those two countries are engaged in hostilities, and in the light of the further fact that there is on the statute books of the United States a “Neutrality Act,”91 a course designed to conform first of all to the desire of the American people that this country shall not become involved [Page 527] in armed conflict and that, where there is armed conflict, this country shall not encourage or contribute to the prolonging of the conflict. This Government is trying, Mr. Hornbeck said, to maintain and preserve on behalf of this country a position of neutrality. The people of this country are opposed in principle to the furnishing of funds, furnishing of munitions, etc. For good reasons, the President has seen fit not to make proclamation putting into effect provisions of the Neutrality Act; but the Administration is being guided by the spirit of that Act. Markets in this country are open to foreign governments which, engaged in hostilities, seek to raise funds and to make purchases of munitions, etc., but encouragement is not being given by the Government to such transactions. We had reached, before the Japanese-Chinese hostilities began, a point where the Department of State had ceased to pass upon the question of loans abroad. We had become very conservative on the subject of “giving our blessing” to projects contemplating loans abroad.

Mr. Hornbeck then went on to say that, speaking in all friendliness, he wondered whether the Ambassador had given full consideration to various possible effects, as regarded China’s interest, which might flow from the obtaining by China at this time of loans in this country. He said that, among other things, Japanese agents have been very active toward obtaining loans and credits for Japan; there has been on the part of American financial interests perhaps more of a disposition to be interested in possible Japanese financing than in possible Chinese financing; there have been informal approaches to agencies of the American Government toward ascertaining the attitude of the Government; and, in general, the Government has discouraged rather than encouraged embarkation by American interests upon such projects. If the Chinese Government succeeded in floating a loan or loans in this country, would not persons interested in possible Japanese financing become more active and be likely to be more successful in that field than has hitherto been the case?

The Ambassador said that he thought that Japan had already succeeded in getting a good deal of financial assistance, especially credits in this country. He said that he had taken into consideration the possibilities which Mr. Hornbeck had mentioned.

Mr. Hornbeck said that the most conspicuous of the transactions of Japan had been in sale of gold. He wondered why China did not simply sell more silver. He was not overlooking the Ambassador’s statement that he wanted a dollar’s worth of silver to do the work of two dollars; but advantages gained along that line would be advantageous only for a short time: what the Ambassador had in contemplation was a short-term loan, and it is amazing how soon payment on short-term loans becomes due. The Ambassador said that he had [Page 528] in contemplation other loans which, when and as negotiated, would make possible payments when due.

There followed some further discussion of points of which mention is made above; and Mr. Hornbeck finally said that, as the Ambassador would realize from what had been said, the Department was not in position either to give a blessing to or to make an objection to entry by the Bankers Trust Company upon a loan project. The Ambassador asked whether this meant that the Department “did not object.” Mr. Hornbeck said that that was not exactly the meaning: he repeated that the Department was not in position definitely to “make an objection to,” i. e., to veto.

Mr. Hornbeck then brought up another subject (the matter of Bernhard and Company: record of which is made in a separate memorandum92).

S[tanley] K. H[ornbeck]
  1. Maxwell M. Hamilton, Chief of the Division of Far Eastern Affairs.
  2. Chinese Industrial Commissioner in the United States.
  3. Not printed.
  4. As amended May 1, 1937; 50 Stat. 121.
  5. Dated March 24, not printed.