Memorandum of Conversation, by the Chief of the Division of Far Eastern Affairs (Hamilton)

I called on the Chinese Ambassador at his residence. I referred to the approaches made by the Ambassador to the Secretary several days ago at which time the Ambassador had raised the question of a credit of approximately $30,000,000 being extended to the Chinese Government for the purchase of flour and cotton cloth. I referred also to the fact that the Secretary had informed the Ambassador that this question was a very complicated one and involved consideration of many factors, financial, economic and political. I said that at some stage in the process of considering the matter it would probably be appropriate that technical experts of this Government study various phases of the question. I said that in the Far Eastern Division we had been giving thought to the question which the Ambassador had raised and that it seemed to us that our thinking might be clarified if we could obtain from the Ambassador information in regard to certain points.

I then asked the Ambassador whether there was contemplated an agreement along the lines of the R. F. C. credit of 1933.21 The Ambassador replied in the affirmative.

I thereupon asked the Ambassador whether it was contemplated that the goods would be used in China and not elsewhere. The Ambassador again replied in the affirmative.

The Ambassador interposed that he would like to give me a little background in regard to this whole matter. He said that last June when Dr. H. H. Kung was in Washington, Dr. Kung and the Ambassador had talked to Mr. Jones of the R. F. C. and to Mr. Pierson of the Export-Import Bank in regard to the question of China obtaining credits for materials to be used in constructive enterprises in China. The Ambassador continued that before consideration had been given to this proposal, the fighting broke out on July 7 at the Marco Polo bridge; that thereafter the whole matter remained in abeyance, chiefly because of uncertainty as to the question whether this Government would invoke the Neutrality Act; that early in December, when it appeared that it was not likely that the Neutrality Act would be invoked, the Chinese Ambassador furnished the Export-Import Bank with a list of goods desired by the Chinese Government for constructive purposes in China, the total purchase price to aggregate [Page 548] approximately $50,000,000. The Ambassador said that no affirmative action had been taken by the Export-Import Bank. The Ambassador said that in view of this fact it had occurred to him that it might be more practicable for this Government to extend a credit for relief purposes. He said that although his Government did not, he personally understood the questions presented to this Government by reason of the Neutrality Act. He said that he had therefore presented this question to the Secretary.

The Ambassador said that in his conversation with the Secretary he had mentioned flour and cotton cloth as merely illustrative. He said that his Government would be interested in obtaining on credit raw cotton (which is widely used by the Chinese people for padding of clothes during the winter), wheat, medicines, and perhaps other things. He said that his Government would be interested in purchasing trucks which could be used to transport the relief supplies to the main centers of distribution (and possibly to interior points).

In reply to my inquiry as to the purpose to which the Chinese Government would put such goods, he said that such goods would be utilized for the relief of the Chinese people who had been rendered destitute as a result of the hostilities. I inquired whether it was not a fact that most of these destitute people were in areas controlled by the Japanese military. He replied in the negative. He said that Japan controlled only the cities and certain railway lines, and that the people in the country were not under Japanese control. (Comment: It remains the belief of officers of FE that the majority of the people who need relief are in areas not controlled by the Chinese Government.) The Ambassador indicated that the Chinese Government might wish to utilize some of these goods for relief purposes at Shanghai and at Tientsin and in other areas under Japanese control but that the major portion of the commodities would be utilized in territory under the control of the Chinese Government.

I asked the Chinese Ambassador how his Government would take care of the problem of distribution, and where and by what means would delivery be effected in China. The Ambassador said that even should the Japanese take Hankow, supplies could be sent in through French Indo-China and through Burma. I pointed out that this would probably be expensive and not very rapid. I asked how the supplies would be distributed into the interior. He said that it was his idea that the village magistrates and American missionaries might be utilized. I remarked that there would still remain a very difficult problem of distribution.

I asked the Ambassador what quantities of goods the Chinese Government could use. He said that he could not answer that question.

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He said that if and when the Secretary was in position to inform him that this Government was favorably disposed in principle, he would wire his Government for details and information as to the amounts and types of goods which the Chinese Government needed for relief purposes.

I said to the Ambassador that it was my understanding that the Chinese Government needed at the present time above all else foreign exchange and money with which it could purchase commodities abroad. I said that I did not see how the Ambassador’s proposal would assist China in these respects. The Ambassador agreed that his proposal would not furnish the Chinese Government with foreign exchange. He said, however, that his proposal would relieve the Chinese Government from the necessity of spending sums of money for the relief of destitute Chinese. I remarked to the Ambassador that in a time of national emergency, such as that now confronting China, was it not true that, while the Chinese Government assisted in a modest way in the problem of relief, the destitute people were cared for primarily by their own families and by charitable organizations. The Ambassador maintained that the Chinese Government was expending considerable sums of money on relief.

I said to the Ambassador that if cotton goods were furnished, they presumably would take the form of gray goods which normally require further processing. I asked how and where this processing could be done, inasmuch as most of the Chinese mills were in Shanghai and Tientsin. The Ambassador made no definite reply to this question, other than to say that the Chinese Government might like to obtain cotton as well as cotton goods.

The Ambassador repeated that his proposal represented merely a general idea and that if and when the Secretary was in position to inform the Ambassador that this Government was favorably disposed in principle, the Ambassador would wire his Government for details. The Ambassador said that the matter was urgent inasmuch as winter would soon be confronting the Chinese destitute population and as two or three months would probably be required to work out the details and to effect deliveries in China.

As of interest in this general connection, the Acting American Commercial Attaché to China22 reports under date July 1423 that there had come to his attention press reports in regard to wheat or flour loans or credits. The Acting Commercial Attaché states that Mr. John Earle Baker, an American who is directing the work of the China International Famine Relief for the Chinese Government, [Page 550] “states that at most for relief purposes, and not for any commercial purpose, for distribution in Shanghai to refugees his committee could now use only about 6,000 tons spread over one year”. The Acting Commercial Attaché comments further as follows:

“A Chinese Government wheat and flour loan with Shanghai as the destination would seem now to be out of the question as this is in Japanese occupied territory, in fact the report above which states that most of the Chinese mills are now in Japanese occupied territory is true. If American loan wheat or flour were to be shipped to Chinese controlled territory at the present time, transportation problems of a serious nature would enter in, deliveries would have to be made to South China (which is not a flour consuming but a rice consuming area) and thence by inland transportation to distant bread consuming points in the interior. It is believed too many complications would be involved under present conditions of transportation and high costs thereof to warrant the consideration of such a plan at this time.”

As of further interest, there are quoted below excerpts from a despatch of June 24, from the American Consul General at Hankow,24 as follows:

“There is enclosed a leaflet issued by the International Red Cross Committee for Central China on June 1, 1938, being a survey of the war refugee situation by the Committee’s advisor on war refugee relief. This report constitutes a sober, dispassionate survey and is based on replies to questionnaires sent out by the Red Cross Committee as well as on personal investigation by the author and other members of the Committee. It shows that, although the number of persons who have moved as a result of the war undoubtedly runs into millions, yet the actual number of refugees in Central China receiving or in need of help in refugee camps is much less than might be expected. The reason for this is that many times the number of refugees being cared for in camps are receiving assistance from their fellow country-men in ways which are not immediately obvious. That is to say, large numbers of refugees are being cared for by their family or by their clan, others by their provincial guild or by one or other of the many Chinese charitable organizations such as the Red Swastica Society. The report gives the number of refugees in camps in Wuhan (Hankow, Wuchang and Hanyang) as 40,000 and states that this is the largest concentration of refugees in Central China.”

“Evidence that there is a great movement amounting almost to a migration, chiefly westward, of Chinese people is given by missionaries who come to this office from their stations in Honan and Hupeh. Many of these refugees have some funds; more are totally without funds and are dependent on charity along the road.”

M[axwell] M. H[amilton]
  1. A press release was issued on June 4, 1933, by the Reconstruction Finance Corp. regarding its extension of a $50,000,000 credit to China for the purchase of U. S. cotton and wheat (893.48/708).
  2. A. Bland Calder.
  3. Not found in Department files.
  4. Not printed.