Office of the Historian

693.002/651: Telegram

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

Shanghai, May 12, 1938—6 p.m.
[Received May 13—7 a.m.]

649. Department’s 297, May 7, 1 p.m.

1.
Inquiry made in various quarters, including the customs and the British Consulate General, fails to disclose information indicating that any foreign currency is being collected at Shanghai in payment of customs duties; hence no foreign currency belonging to the customs is being deposited in any bank except that which is being converted at the Government rate.
2.
For the months of February and March Shanghai customs revenue totalled in round figures 11,800,000 local dollars and 15,500,000 local dollars were expended in that period at the official rate of exchange for the purchase of foreign exchange to meet foreign obligations secured by the customs. With 2,000,000 monthly available from Tsingtao, Chefoo, Tientsin and Chinwangtao it is believed that the net customs revenue available for foreign obligations will be sufficient (if the Central Bank supplies the customs with exchange at the official rate as it is now doing) as under the terms of the Anglo-Japanese arrangement the present quota for the port under so-called Japanese occupation is about 54% of the total of which Shanghai’s share is about 33% of the total. It is also known that revenues collected at Tientsin are increasing and are now averaging over 3,000,000 local dollars a month.
3.
While the amount of foreign exchange which the Central Bank grants the customs to meet foreign obligations would not under normal circumstances be an item affecting adversely China’s foreign exchange resources, it must necessarily be an important factor at present when little or no foreign exchange is accruing to the Chinese Government in the areas under Japanese occupation. The average amount of foreign exchange allowed by the Central Government each week ranges from 20% to 30% of average amount applied for which latter amount averages about 1,000,000 pounds. The Hankow authorities are becoming increasingly strict in regulating exchange and they are now beginning to designate items which may be covered as well as reducing the amounts. Japanese banks are getting very small coverage and some of the larger American and British corporations [Page 710] are not able to make remittances in the full amounts applied for under the new restrictions.
4.
It would seem that the question of foreign exchange for customs collections in the occupied areas rests entirely upon the action of the authorities at Hankow who administer the exchange regulations. To withhold the permits might impair Chinese Government credit and to grant necessary allotments would strengthen the Japanese hold on the customs in the occupied areas. If the Chinese make it possible to convert the customs collections in the occupied areas into foreign exchange, I believe it will be only because they do not wish to impair their credit abroad or on account of political expediency.

Repeated to Embassies Hankow, Tokyo.

Lockhart