The Ambassador in the United Kingdom (Kennedy) to the Secretary of State

No. 860

Sir: I have the honor to refer to telegram No. 640, July 15, 2 p.m. and previous correspondence regarding the request by China for a loan from Great Britain, and to transcribe below the pertinent portion of the speech made by the Prime Minister12 in the House of Commons on July 26, 1938, (Hansard Col. 2971 [2961]).

“The right hon. Gentleman asked me, Can we show what we are doing to carry out our obligations under the League resolutions? and [Page 542] he made special reference to the request of China for a loan. We considered long and anxiously whether we should be justified in introducing the special legislation which would have been necessary if this Government had granted or guaranteed such a loan, and we came finally to the definite conclusion that we should not be so justified in the case of a loan, which would have been based upon security of hypothetical value, and as to which it was by no means certain that, if it were granted, it would achieve the objects which were intended. The fact that we have not been able to grant or guarantee a loan to China does not exclude all forms of assistance, financial or otherwise, and there are various proposals which have come to us from China for assistance in another way, which are not open to the objections at any rate which we found to a loan, and which are now under examination by the Government Departments concerned.”

An inquiry of the British Treasury elicited the fact that the Prime Minister’s speech had been written particularly with an eye to the Opposition’s criticism of his policy, and that the “various proposals” which are “now under consideration by the Government Departments concerned” have only to do with the Export Credits Guarantee Department, (Embassy’s 652, July 19, 6 p.m.13).

Incidentally, in the course of a conversation between Sir Frederick Leith-Ross, Economic Adviser to the British Government, and Dr. Herbert Feis, Adviser on International Economic Affairs, the former indicated that he had pushed for a British Government guaranteed loan and he seemed definitely of the opinion that action of this type was for the moment settled. This particular conversation did not touch upon the possibility of more indirect measures of assistance. But Sir Frederick Leith-Ross indicated that his initiative was prompted at least as much by the wish to safeguard the Chinese currency against a marked decline, as by the thought of providing funds for military purposes for the Chinese Government and he expressed the considered opinion that if the Chinese currency broke decidedly this would lead to such a withholding of trade bills as to weaken critically the Chinese Government.

Respectfully yours,

For the Ambassador:
Herschel V. Johnson

Counselor of Embassy
  1. Neville Chamberlain.
  2. Not printed.