893.51/6706

Memorandum by the Adviser on International Economic Affairs (Feis)

Mr. Carson, of Davis, Polk and Wardwell, telephoned me yesterday afternoon to inform me that the credit transaction between the Guaranty Trust Company and the Chinese Government, which was discussed with me some weeks ago, would be completed today. The contract would be signed by the Chinese Ambassador. It provided for a loan by the Guaranty Trust Company of $10,000,000 for I believe two years, at a low rate of interest, against the security of $10,000,000 of United States Government bonds to be put up by the Chinese Government.

I conveyed to him, as in our previous conversations, our perplexity as to the motives of the Chinese Government for entering into such a transaction. Mr. Carson said that as far as they could understand the matter, it was being carried out for psychological reasons, and that since it was seemingly legitimate business, the Guaranty had decided to execute it. After consulting with Mr. Hamilton, I informed Mr. Carson the Department had “no comment to make” on the transaction.

In view of the fact that the Treasury is now in discussion with the Chinese financial mission, I conveyed word of the prospective transaction to the Treasury. Mr. Lochhead of the Treasury telephoned me this morning and stated that he had passed the information on to the Secretary of the Treasury, and had been requested to say that the Treasury likewise had “no comment to make” about the transaction.

However, he said that the Treasury had curiosity in regard to its terms and character, and thought it possible, for example, that the [Page 565] Chinese Government didn’t actually have the bonds, but might first be credited with the $10,000,000, with them would buy the bonds, and deposit the bonds as security. In the wish to get further information, Mr. Lochhead asked me if I would not tell the interested parties this morning that the Treasury was desirous of further details, and to ask them to telephone such details to the Treasury. I said I would do so.

I telephoned Mr. Havens Grant of the same law firm this morning (Mr. Carson being away from New York), and Mr. Grant said he would immediately telephone Mr. Lochhead.

H[erbert] F[eis]