693.002/761: Telegram
The Consul General at Shanghai (Gauss) to the Secretary of State
[Received October 16—8:30 a.m.]
1339. Inspector General of Customs informs me confidentially that he is sending a message to the Minister of Finance through the British Embassy substantially as follows:
“The extension of the occupied areas has automatically increased the financial strain on China in respect of obligations secured on the customs and unless a modus vivendi on the lines of the proposals set forth in the so-called Anglo-Japanese understanding is found, the drain on China’s reserves will not diminish during hostilities and will probably be increased. The Minister has already instructed the Inspector General to keep informed the interested powers (America, Great Britain [Page 744] and France) and while executing these instructions he has been instructed to take no action likely in his judgment to be prejudicial to China’s prestige or interest. As Your Excellency is aware, the interested powers are unanimous in advocating the paramount importance of maintaining the integrity of the service, in order to preserve as far as possible the various interests connected with Chinese and foreign trade, shipping and finance. The Inspector General thinks that in endeavoring to conform with this policy, a somewhat wider latitude in giving effect to the suggestions of the powers in connection with the adjustment by the customs of the service of the loans, et cetera, secured on the customs should not be opposed. If the advice of the powers in this connection is followed, the release of the accumulated Shanghai revenue now lying in the Hong Kong Bank would in effect be merely a book transaction, since the quotas due from the occupied areas for loan payments, et cetera, exceed the present balance by about 10 million dollars; and as regards the indemnity balance in commerce (pounds sterling 420,000, that is about 7 million dollars) it has already been suggested that this could possibly be adjusted by a reduction in the sum due from the occupied areas leaving the sterling balance in the Hong Kong Bank, provided, of course, that the Japanese authorities would accept such a plan. If some such arrangement could now be effected locally, the Inspector General considers that the financial interests of the Government would be better preserved for the time being.”
- 2.
- Inspector General orally expressed to me the hope that we would support his representations to the Minister of Finance. I replied that I would report the matter to the Department and to the Ambassador. At the same time upon reading the text of his message I made the comment that it was not my understanding that the American Government had tendered advice as to the detailed proposals made in the penultimate sentence of his message to the Minister of Finance.
- 3.
- As Japanese military operations have now in effect closed the port of Canton and the principal customs revenue ports are now in Japanese hands, the question of the integrity of the customs and the question of foreign loans and indemnities secured from customs are becoming increasingly serious. The Chinese Government having failed to accept the Anglo-Japanese customs arrangement or to authorize the Inspector General of Customs to exercise a discretion which might permit him in effect to implement that authority without formal approval, we find a situation in which all customs revenues are passing into Japanese control and there is no release of any funds for loan and indemnity payments. More serious perhaps is the danger of complete disruption of the present more or less international character of the customs service. I am informed that certain foreign advisers of the Ministry of Finance and certain elements of the Chinese Government favor the withdrawal of the Customs Administration from all Japanese occupied ports. If this should be ordered or if the Japanese should take the position that China having or [now?] failed [to] accept the Anglo-Japanese arrangement, Japan [Page 745] is under no obligation further to respect the existing Customs Administration, we would soon find a situation similar to that in Manchuria where the customs is under complete Japanese domination and control to the disadvantage of other foreign trade and interests. From the purely selfish standpoint of the interests of our trade it seems to me that we should do whatever we can to guard against such a calamity.
- 4.
- As to the proposals made by the Inspector General to the Minister of Finance, I doubt very much whether the Japan [Japanese?] would be willing to accept the suggestion concerning the Japanese portion of the Boxer indemnity now deposited in the Hong Kong Bank to the amount of 420,000 pounds. Will insist upon the foreign currency payment and refuse to accept its equivalent in local Chinese dollars.
Repeated to Chungking and Peiping. By mail to Embassy at Tokyo.