893.51/6682: Telegram
The Consul General at Hong Kong (Southard) to the Secretary of State
[Received September 10—7 a.m.]
Following from McHugh. Financial mission composed of K. P. Chen, T. M. Hsi and two secretaries now scheduled leave by clipper September 9. Morgenthau indicated disapproval of Y. C. Ku and it became necessary to find a substitute. Selection of Hsi who is the general manager of the Central Bank was opposed by Rogers and Soong because of his lack of aggressiveness plus recent loss of grip due to war strain. The untimely death of Sing Loh Hsu who was en route to Chungking for final instructions and who was scheduled to replace Chen left no alternative.
General confusion and lack of active appreciation of China’s actual financial crisis have characterized the situation since the invitation first came more than a month ago. Chen’s delay in starting appears to have been due mainly to inability to get clear instructions and full powers from Kung, rather than because of ill-health although he is not well. Rogers has mentioned frequently of late that Kung had no plan or policy for meeting the crisis and demurred even on supplying [Page 558] Chen with frank statement of present Chinese position plus concrete suggestions for presentation to Morgenthau. He claims that ideas for a possible cash advance by the United States against future deliveries of wood oil, wolfram or other commodities were first suggested to Chen by Nicholson.33 He undertook study of them and has since evolved rough plan on wood oil but admits he still lacks complete information. Rogers independently had worked out several such ideas months ago for presentation to London and since arrival here has tried to coach Chen. He states that London rejected all schemes when he was there in June because they anticipated the present crisis in Europe and felt that the slightest move on their part might disturb the delicate balance of relations with Hitler.
News of Chen’s trip has in the meantime leaked out in Chinese circles and he has been harassed by visitors who believe that the United States is about to pour money into China and want to share in spoils (there is reason to suspect that the associates of Kung are conniving in this respect [)]. Campbell was approached on September 7 by one C. H. Lee, wealthy mine owner, who admitted close friendship with Kung and former business association with C. T. Wang. He inquired if it would be possible to send a message direct to Morgenthau to offer him a chance to purchase antimony or other minerals direct with no question of loan. He promised to return in a few days with specific proposition. Rogers had mentioned to me that prior to leaving Chungking Kung had proposed instructing K. C. Li to make informal inquiries in Washington as to what Morgenthau might have in mind which former strenuously opposed.
Rogers gave me the following figures on Chinese position direct from composite balance sheet of the Central Bank: total sales of foreign exchange in the market since last August equaled pounds sterling 53 million; monthly sales have dropped from a peak of over pounds sterling 5 million in February to 1.7 in July. He estimated it would be 1.4 million for August and thought they could reduce it even further. Reserves have diminished however to about pounds sterling 5 million. Monthly service of foreign loans requires 400,000. Both he and Young assert that the Chinese dollar appears undervalued at its present level and that the relative stability since early in June has been accomplished at comparative small cost. They also state that thus far internal prices have not risen greatly and that the note issue has increased only about 25 percent. [McHugh.]
Repeated to Embassy at Chungking.
- M. R. Nicholson, Treasury Department Attaché in China.↩