893.51/6693: Telegram
The Ambassador in the United Kingdom (Kennedy) to the Secretary of State
[Received September 22—4 p.m.]
995. In view of the report in the Radio Bulletin of a conference between a Chinese financial delegation and the Secretary of the Treasury, I wish to refer to my 924, September 14, 5 p.m., and previous communications regarding the status of Anglo-Chinese discussions for British financial aid to China. At the same time I venture to give you my feeling which is based on nothing tangible that the group of Cabinet Ministers and permanent officials, who threw their weight against the giving of a British guaranteed Government loan in July, is now even more strongly opposed to British intervention. No doubt the critical European situation has strengthened their belief in the Tightness of their previous decision but even before the Czech situation [Page 561] came to a head Sir Charles Addis,34 for example, who is nothing if not favorably predisposed to the Chinese, in a confidential talk with a British banker emphasized the view that in the long run Great Britain would have to work with and to some extent through the Japanese in fostering its interests in China and he went on to comment on the fact as significant that the Japanese had not broken up the Maritime Customs organization35 and that this would eventually furnish an important means through which “we can rebuild”.
With the above in view an opportunity was taken to talk with Leith-Ross. He implied that no substantial financial aid for the Chinese was contemplated but he added the proviso that in the event of a European war such assistance would certainly be given. Inasmuch as Leith-Ross had personally advocated the British Government guaranteed loan it may be of interest in connection with the above that he stated that the recent Japanese actions in Tientsin had disillusioned some of those who were hopeful that Japan would ultimately cooperate with other interested powers in China. Leith-Ross went on to say that he understood that whereas the Chinese still had a substantial amount of foreign exchange most of it was earmarked against commitments already entered into. Although there was still a steady trickle of silver coming in from private hoardings his estimate was that the Chinese Government would have very little silver available for sale in the new year. Chinese exports through the south were still holding up comparatively well and the Chinese had been quite competent in obtaining the resulting foreign exchange. But he expressed surprise that the Chinese had continued to service their foreign obligations and did not expect them to do so much longer.
Leith-Ross was impressed by the resistance the Chinese had put up over Hankow and was not at all sure whether it would be taken within the Japanese time limit. He estimated Japanese casualties in China thus far at about a quarter of a million, 60% of which were due to disease. Since the recent change of tactics Japanese losses had been increasingly heavy, nevertheless there were this week new indications that they might extend their operations to the south. He estimated this would require a further 200,000 troops and such a move might be “in China’s ultimate interest” and he reiterated his belief that in the long run the Japanese would not be victorious.
He said that he understood that some of the Chinese Government’s financial advisers feared that the internal financial situation might reach a point which would cause the Chinese to lose faith in their currency and banking system which would in turn cause a loss of faith in the authority of the present Chinese forces. This might make [Page 562] them willing to work under puppet Government control. However, the British Embassy in China did not agree with this view; they felt that Chinese nationalism was sufficiently aroused so that the average Chinese would stick by his currency almost regardless of its backing and continue to oppose Japan. Leith-Ross felt that on this question the situation turned and he indicated that he had pointed out to the Japanese here the unwisdom of their taking steps to undermine the Chinese currency; that if they brought chaos to China they in turn would suffer as well. In this connection the head of the Yokohama Specie Bank in London had called to see Leith-Ross and made strong protestations to the effect that Japanese commercial and financial interests and in particular his bank were strongly opposed to any action which would seriously undermine the Chinese dollar and he went on to inveigh in the usual manner against the Japanese militarists.
Incidentally it is Tani36 in Shanghai who from time to time makes approaches to the British respecting Anglo-Japanese aid for the margin and control of Chinese currency.