Foreign Relations of the United States, Diplomatic Papers, 1938, The Far East, Volume III

893.51 Salt Funds/169: Telegram

The Consul General at Shanghai (Gauss) to the Secretary of State

Shanghai, March 9, 1938—4 p.m.
[Received March 10—7 a.m.]

371. Dr. Lockhart, the American Associate Director General of the Chinese Government Salt Administration, has today handed to me (for the Ambassador) and at the same time is handing to the British, French and German diplomatic representatives and to the representatives of the American, British, French and German banking groups interested, a memorandum outlining the very serious effect upon the Salt Administration and upon the system of regular monthly remittances of revenues for the unprotected foreign loans in particular resulting from hostilities and Japanese military occupation of certain districts.

2. The memorandum states that the Chinese and foreign Salt Administration officers at Kalgan, Taiyuanfu, Hangchow, Tsinanfu, Yangchow and Panpu⁷⁵ have been compelled to evacuate their posts as a result of actual hostilities or of chaotic conditions associated therewith; that the Chinese officers at Tientsin and Wuhu have also been obliged to evacuate; that the Associate District Director at Tientsin, a Japanese subject, participated apparently under compulsion in the seizure of the records and in the subsequent unlawful transfer of funds of the Changlu District Directorate to the control of an office allegedly functioning under the Peiping Provisional Government; that this same officer is reported to have assumed the designation of Associate Director General in North China and as such has appointed a fellow Japanese until recently at Amoy and a former Chinese salt officer as directors of the Shantung District; that at Tsingtao one or possibly two Japanese officers of the service are understood to have been appointed to the eastern areas of Shantung Province; and that with the forcible evacuation of senior foreign and Chinese personnel from the affected districts the administrative procedure governing production, storage, and release of salt against duty payment has either been brought to a standstill or taken over by the de facto authorities of the locality for their own benefit.

3. The salt revenue affected districts for the fiscal year ended June last totaled over 116,477,000 Chinese dollars or 54% of the aggregate for the whole country. The foreign loan quotas due from these Japanese occupied districts total over 563,000 Chinese dollars each month and are in arrears to a total of about 290,000 Chinese dollars to March 1 this year.

4. Although the Japanese Consular authorities at Tientsin assured the deputy of the Directors General last August that foreign loan interests would be respected there had been no other indication that the authorities set up at Tientsin intend to resume remittance of quotas.

5. Furthermore a foreign loan surtax imposed since 1931 to safeguard the loan service from impairment through currency depreciation has not been forthcoming from Japanese occupied districts. During the fiscal year ended June 30 last this surtax from the districts now Japanese occupied amounted to over 4,600,000 Chinese dollars.

6. The following foreign loans serviced from the salt revenue are jeopardized by the existing situation: Anglo-French loan of 1908, Hukuang loan of 1911, Crisp loan of 1912, Vickers Marconi loans of 1918 and ’19, Chicago Bank loan of 1919, and Pacific Development Corporation loan of 1919.

7. The memorandum emphasizes importance of salt revenue and maintenance of integrity of the Salt Administration in relation to China’s international credit, continued service of foreign loans, and continued stability of China’s domestic currency and finance. The interference with normal functioning clientele involves reduction in staff whose experience and energy have hitherto been vital factors in maintenance and increase of salt revenue and consequent support of loans secured thereon.

8. Memorandum is submitted as basis for consideration of what specific action should be taken toward preservation of integrity of the Administration and of the significant international interests represented thereby.

9. I add the following for your further information: the Chinese Director General of the Salt Administration with part of staff withdrew some time ago to Hong Kong and has been ordered to proceed to Hankow and Chungking. Lockhart remains at Shanghai temporarily in connection with foreign loan interests principally. The attitude of the Ministry of Finance appears to be one of desiring the withdrawal of the Administration from occupied areas to prevent development of organization and revenue by the Japanese. This would more or less tie Lockhart’s hands in any negotiations with the Japanese should they become necessary. He has not been approached by Japanese. There are reports that the special service bureau of the Japanese Army or its puppet governments will set up a salt bureau for Kiangsu, Chekiang and Anhui.

Repeated to Hankow, Peiping and Tokyo.

Gauss

75. North Kiangsu on Lunghai Railway.