893.51/6670: Telegram
The Ambassador in the United Kingdom (Kennedy) to the Secretary of State
[Received August 30—5:45 p.m.]
840. Department’s 437, August 10, 5 p.m.
1. The references made in my 710, August 3, 10 a.m.26 are still representative of the broad outlines of the situation.
2. The present situation was discussed with the Foreign Office which suggested that Butterworth consult the Export Credit Guarantees Department which in turn outlined the position as follows:
(a) P. W. Kuo27 has been pressing for credits which would in effect amount to an advance of about pounds 10,000,000. The scheme envisages the setting up of an organization in China having monopolistic control of the export of certain mineral and agricultural produce [Page 552] and effecting an arrangement similar to the Anglo-Turkish comptoire but as implied in the Embassy’s previous communications the deal is by no means on the point of consummation. It has not been fully worked out; the Export Credit Guarantees Department is not convinced that they will be able to obtain sufficient security and they are not without doubts about the benefit to the Chinese of taking trade out of the hands of individual professionals and canalizing it under the guidance of amateurs. Furthermore the Anglo-Chinese merchant and banking houses are not without influence here and they might well make difficulties.
The exact status at the moment is that Kuo is pressing the Export Credit Guarantees Department for a letter to be sent to the Chinese Ambassador in London defining the British terms and the British anticipate “a painful interview” with him tomorrow for they believe that the writing of such a letter would carry with it something of the same objections that led them to reject the proposal for a British Government guaranteed loan and they fully expect that any such letter would be “waved in the face of the Japanese.” Furthermore the British are aware that the Chinese Embassy in Paris has been attempting to work out a proposal along somewhat similar lines without the knowledge of the Chinese Embassy in London. On the other hand the Chinese Embassy in London to mislead their Paris colleagues has indicated that everything has been settled here.
Furthermore the Export Credit Guarantees Department itself is having difficulties. It was set up as a nonpolitical commercial body with an advisory committee of businessmen, and now in the face of increasing pressure from the Foreign Office, and to some extent the Treasury, to undertake operations for reasons which are difficult to defend on their commercial merits, it is somewhat hamstrung. Its advisory committee of businessmen naturally do not wish to accept responsibility for losses incurred for political causes; and in any case it cannot by statute give credits for armaments.
The Export Credit Guarantees Department states therefore that in the given circumstances no decisive action can be taken about the above in the next few weeks anyway. A Cabinet decision may well prove the propelling factor.
(b) Tentative discussions have been taking place regarding the Marsman proposition (Embassy’s 652, July 19, 6 p.m.28). The Mars-man group claim that their Chinese associates are in a position to obtain funds for the construction of the railway from the Burmese border to Chengtu. They look to the Export Credit Guarantees Department for about pounds 2,500,000 worth of rolling stock and equipment [Page 553] and offer as security a first charge on the revenue for the whole line. The Export Credit Guarantees Department has the same opinions of the Marsman group as reported in the Embassy’s telegram No: 652 and they have been unable to ascertain the Marsman group’s exact status, whether it is acting as co-principal or merely in a consultative capacity. This Department likewise is inclined to the view that this line is a long range peace time project and that whereas it might open up an important trading area and save some 2,000 miles of sea journey, it is difficult to envisage its construction and completion in the present circumstances. The Burmese are represented as not being actively favorable to the proposition, although some observers predict that such a line would turn Rangoon into an important entrepot center.
(c) The Export Credit Guarantees Department consider an improvement in the Burmese-Yunnanfu motor road and motor equipment as offering the most practical immediate procedure. Hall-Patch29 considers that the Chinese order for trucks will eventually go to United States manufacturers because of price. Thorney-croft has, however, put up a proposition to the Chinese and the Export Guarantees Department for 100 trucks, 25 percent in cash, the remainder in monthly installments over a 2-year period.
(d) A. G. Marshall who arranged the Leno Goldfield–Marshall settlement has now been turning his interest from Russia to China. He has put up various tentative propositions which were described as being designed to get a prior commitment from the Export Credit Guarantees Department with a view to including [inducing?] the Chinese to come in. None of them is yet considered as likely to mature and bear fruit.