693.002/614: Telegram
The Consul General at Shanghai (Lockhart) to the Secretary of State
[Received April 26—1 p.m.]
584. Following from Tokyo.
“273. April 26, 10 a.m. Our 267, April 23, 8 p.m.,79 Chinese customs. In further elucidation of the documents submitted, the British Ambassador has informed us orally as follows:
With respect to [In explanation of] the last sentence of the first paragraph of the note from the Foreign Minister to the British Ambassador, Craigie said that the Vice Minister desired to include the sentence “in the event there should occur an abrupt fall in the currency”.80
With respect to the final sentence in Craigie’s informal letter to the Vice Minister regarding such assistance as the British authorities in China can properly render in overcoming transfer difficulties in connection with the payment of the foreign loan obligations, Sir Robert said that during his negotiations with the Vice Minister the latter had pressed for assurances that the British authorities in China would use their influence to persuade the Bank of Communications and the Bank of China to permit their Tientsin branches to sell to the Yokohama Specie Bank in Tientsin bills against their credit balances in order to provide the necessary yuan exchange for the quotas of the governments in North China. Sir Robert said that he could not agree to endeavor to persuade the banks to act along the lines desired and that he finally agreed to compromise on the understanding that the British authorities would place the matter before those banks and leave it entirely to them whether they could meet the desires of the Japanese.
Sir Robert then went on to say that he also had an understanding with the Vice Minister, outside the agreement, to the effect that the interest charges on the Tientsin–Pukow Railway loans and the Hu-kuang Railway loan (both British) while not covered by the proposed agreement nevertheless had a secondary lien on the customs revenues. In the event the interest should not be forthcoming due to restrictions against traffic on account of Japanese military operations, the interest service was to be paid out of customs revenues after the service had been paid on the loans constituting the first charge on the customs revenues. He said that it was quite likely that the interest service on the [Page 684] Tientsin–Pukow Railway would have to be paid out of the customs revenues but it was not likely that the Hukuang Railway loan service would come up before 1941. He said that in order to get the Vice Minister to agree to this the Japanese required equal treatment of the 6% Treasury notes issued for compensation for public property and salt interests in Tsingtao in 1923 and the Chinese Government 8% bonds for refunding interest and foreign debt.
Sir Robert Craigie said that when putting up to his Government the proposed agreement as it now stands he stressed the fact that the conclusion of the agreement would be very helpful to all concerned as there were two schools of thought in Japan: the one dominated by the military whose tactics were to present a fait accompli, and the other the civilian element who believed that through negotiation and agreement much could be done in dealing with the foreign powers to assure their good will and their cooperation when and if needed and the agreement would tend to demonstrate that the policy of the latter was by far the better one. (With regard to this last paragraph please see our 239, April 11, 6 p.m.81).
Please repeat to Department as our 273, April 26, 10 a.m. Grew.”