893.51/6738
Memorandum of Conversation by the Chief of the Division of Far Eastern Affairs (Hamilton)
| Participants: | Mr. Hall-Patch, Financial Adviser to the British Embassy in China; |
| Mr. Bewley, Financial Counselor, British Embassy, Washington; | |
| Mr. Hornbeck; Mr. Adams;54 | |
| Mr. Hamilton; Mr. Jones.55 |
Mr. Hall-Patch, Financial Adviser to the British Embassy in China, called upon Mr. Hornbeck by appointment made through the British Embassy. Mr. Bewley accompanied Mr. Hall-Patch. Mr. Hornbeck asked Mr. Hamilton to be present.
[Page 578]Mr. Hall-Patch inquired whether Mr. Hornbeck would prefer to ask him questions or to have him proceed with general comments in regard to the situation in China and in Japan. Mr. Hornbeck suggested that Mr. Hall-Patch give us the benefit of his general comments and said that as Mr. Hall-Patch proceeded with these comments we might wish to ask certain questions.
Mr. Hall-Patch talked first about the currency situation in north China. He said that in north China the Japanese military was determined to have its way and to regard north China as more or less a possession of Japan. He said that, contrary to the advice of Japanese financiers and of Japanese commercial and trading circles, the Japanese military had insisted on inaugurating in north China a new currency which was tied to the yen. Mr. Hall-Patch said that if the Japanese military were successful in making this new currency completely effective, foreign trade in north China would be stopped, because in his opinion the new exchange could be made effective only as a result of the setting up of a very rigid system of exchange control accompanied by general control of import and export trade. He said that he thought this new currency system in north China would work to the economic disadvantage of Japan but that the Japanese military was insistent that the new currency supplant the old currency. He mentioned the fact that the existence of the concessions at Tientsin and the continued circulation in the concessions of the old standard currency were definite obstacles in the way of the success of the new currency. He observed that so long as the foreign traders could continue to use this old currency, they might hold on in north China. He mentioned definite measures which the British and the French at Tientsin were taking (or were considering taking) to keep some of the old currency in circulation.
With regard to central China, Mr. Hall-Patch said that the situation there was different from that obtaining in north China in that in central China the Japanese Army had not as yet insisted upon introducing the new currency. He said that there were substantial elements among the Japanese which opposed the introduction into central China of the new currency. He mentioned Mr. Kodama, the head of the new Japanese Central China Development Company, as one of those who strongly opposed the introduction of the new currency into central China. He expressed the view that those elements among the Japanese who did not wish to see the new currency introduced into central China had a reasonable prospect of having their view prevail unless the Chinese Government currency should collapse. He intimated that he did not see how the Chinese Government could prevent such a collapse for very much longer, because the Chinese Government’s only means of maintaining its currency were [Page 579] remittances from abroad and the sale of Chinese Government silver, the supply of which was now not large. He said that in his opinion the collapse of the Chinese Government currency would be a serious blow to Japan as well as to the Chinese Government; also that such collapse would be a particularly heavy blow to foreign trade.
In reply to inquiry, Mr. Hall-Patch said that it was his estimate that the will to resist still continued among the Chinese who he thought would henceforth engage in very little positional fighting. He said that some disintegration had already set in among the Chinese within the occupied areas and that he expected this disintegration to continue as the months passed. He said that in his opinion the Japanese needed to get some respectable Chinese to head the new regimes which they were setting up in China; that if they could get such a respectable Chinese, some of the Chinese merchant and banking classes as well as peasants would probably incline to discontinue their active opposition to the Japanese. He said that such Chinese as the Japanese had up to the present been able to persuade to come forward as officials of new regimes were not respected by any element among the Chinese.
In reply to a further inquiry, Mr. Hall-Patch said that in his opinion the chances as matters stand are that the Japanese will attain their objective in China. He said that he thought achievement of this would, however, require a matter of ten to twenty years, after which he felt that the Chinese would gradually throw off the Japanese yoke. He said that during this period of from ten to twenty years it was his view that Japan would become an increasing menace to the rest of the world.
With regard to the question whether in his opinion it was possible for foreign governments to take effective action to restrain Japan, he expressed the view that thoroughgoing economic embargoes on both imports from and exports to Japan would be effective but that he did not think such action was possible. He said further that if such action should be taken he thought it likely that Japan would take positive action of a military character against one or more of the countries which adopted such redressive action against Japan. He said that even the more conservative element in Japan was now as a result of the fall of Canton and Hankow “flushed” with the sense of victory.
As illustrative of the type of action by other countries which the Japanese particularly resented, Mr. Hall-Patch said that sometime ago a group of Japanese had formed a British incorporated company; that the company had secured the right from one of the provinces in Australia to mine certain rich deposits of iron ore; that subsequently the Australian Commonwealth Government had had [Page 580] a geological survey made of Australia and had found that the deposits of iron ore in Australia were not nearly so large as had been thought previously; that the Commonwealth Government had thereupon informed the Japanese-controlled company which had obtained the provincial government’s sanction to carry on mining operations that it (the Commonwealth Government) could not approve the contract; that the Japanese Government had made strong representations to the Commonwealth Government pointing out that the Japanese had entered into the contract in good faith, that a large amount of Japanese capital had been put into the enterprise, that it was inconceivable to the Japanese Government that the Commonwealth Government had not been aware of the permission granted by the provincial government, and that the Commonwealth Government had previously asserted its belief in the principle that raw materials should be made available to countries not possessing such raw materials. Mr. Hall-Patch said that he anticipated that the Japanese Government would carry this matter to London. (His account of this matter gave the impression that he thought well of the Australian action.)
Inasmuch as Mr. Hornbeck had another appointment, Mr. Hall-Patch and Mr. Bewley went to Mr. Hamilton’s office where Mr. Adams and Mr. Jones joined them. After Mr. Hornbeck had seen his additional caller, Mr. Hornbeck also came to Mr. Hamilton’s office.
In reply to questions, Mr. Hall-Patch gave further interesting information in regard to the details of the currency situations in north and central China.
Mr. Hornbeck referred to reports which had come to our attention that there was a difference in opinion between British investment circles in China and British trading circles in China as to the policy which the British Government should follow. Mr. Hall-Patch said that he was not aware of any difference and he said that British investment circles as well as British trading circles had some months ago reached the point in their thinking where they believed that Japanese success in the hostilities with China would mean the ousting of British investment and trading interests in China. Mr. Hornbeck referred to information which had reached us to the effect that the British Foreign Office had some time ago been in favor of making a currency loan to China but that interests in the city had opposed such action and had been successful in having their viewpoint prevail. Mr. Hall-Patch said that he believed that the fundamental difficulty in regard to a currency loan was that such a transaction would not be sound from an economic point of view and he expressed the view that, if British financial circles in the city had opposed such a step, they had done so on purely economic grounds. He said that the British Export [Page 581] Credit Guarantee Department was still struggling with the question of extending credits to China and that the chief difficulty in all such matters was the question of security. He said that the question of security was also the chief obstacle in connection with plans for building the Burma–Yunnan Railway. He said that in Great Britain no new credits were being extended to Japan; that existing credits were being continued but when they came up for renewal were being shortened as to the period of time; and that the whole trend was to place business with Japan on comparatively a cash basis.
Mr. Hall-Patch asked whether we could see any objection to his raising with the Treasury Department the question of the current exchange between the British and American Governments of more detailed statistics in regard to capital movements and exchange operations between the United States and the Far East than appear in the Treasury Department’s Statistics of Capital Movements between the United States and Foreign Countries and of Purchases and Sales of Foreign Exchange in the United States. Data in regard to China and Japan are not given separately in that publication, as are the data for several European countries, but are classified in the geographical area of “Far East (including China, Japan, Netherlands East Indies, Straits Settlements, and the Philippine Islands)”. Mr. Hornbeck stated that he could see no objection to a discussion of the question with the Treasury Department.
As he was leaving, Mr. Hall-Patch said that he expected to go to London and after about six months to return to this country. He said that he hoped to have a further talk with Mr. Hornbeck upon his return. Mr. Hornbeck assured Mr. Hall-Patch that he would be very glad to see him.
Mr. Hornbeck and Mr. Hamilton thanked Mr. Hall-Patch for his courtesy in calling and for having given officers of the Department the benefit of his comments and of his knowledge of current developments in China.