Memorandum of Conversation, by the Adviser on Political Relations (Hornbeck)

Reference, Mr. Hornbeck’s memorandum of conversation with Mr. Lamont, January 13; and London’s telegram 74, January 19, 6 p.m.

After my conversation with Mr. Lamont of January 13, I asked the Far Eastern Division to review the subject of the China Consortium as it has come up during the present Administration and to consider further the question of the Department’s attitude in the light of Mr. Lamont’s latest approach on the subject. Upon receipt this morning of London’s 74, January 19, 6 p.m., I conferred with Mr. Hamilton, Mr. Mackay23 and Mr. Adams,24 and, on the basis of a community of view among the four of us (it being impossible throughout the morning to confer with the Under Secretary or the Secretary), I called Mr. Lamont on the telephone. The conversation proceeded as follows:

I inquired concerning Mr. Lamont’s recent trip to Florida and Mr. Lamont stated that he had had a thoroughly enjoyable holiday. I remarked that I hoped and trusted that he was in a very good humor. He indicated that he was. I then said that I wanted to inform him confidentially of information which we had from a source which I would not name, in London. I said that our informant stated that the “announced intention of the American Group to withdraw from the Chinese Consortium” was being received very unfavorably (in London); that “the present time” is regarded there as “particularly [Page 725] inopportune” for such a development; I read, in paraphrase, most of the first page of the telegram under reference above, through the words “750 annual charge”; and I read the last two lines, “Department of State’s attitude is represented as being mildly opposed to the withdrawing of the American Group”.

I then said that I was giving Mr. Lamont this information in confidence and on my own responsibility. I said that after our conversation on January 13 I had reported fully to the Far Eastern Division and the Under Secretary; that I had not since then discussed the matter further with the Under Secretary, but that I had discussed it fully with officers of the Far Eastern Division. I said that officers of the Far Eastern Division shared the view which had been that of the Under Secretary, Mr. Hamilton and myself when Mr. Lamont had first raised the question with Mr. Welles some days ago, namely, that dissolution of the Consortium Agreement or withdrawal of the American Group from the Consortium at this time would be regarded unfavorably by the Chinese and probably favorably by the Japanese, which view I had mentioned in my conversation of January 13 with Mr. Lamont; and that it was interesting to me to know that the “city” reaction in London, as reported, was that such an action would in the present circumstances be of benefit to Japan and react adversely on the interests of Great Britain and the United States. I said that a point had been raised by one of my associates which had not been covered in previous conversations: the associate had pointed out that so long as the Consortium Agreement25 is in effect, banks members of the various Groups will be restrained from giving financial assistance to Chinese puppet governments, whereas, if the Consortium is dissolved or any Group withdraws from it, the restraining influence of a Consortium Agreement would disappear and some bank or banks might choose to do such business.

Mr. Lamont expressed himself as being annoyed over this approach by “the British Foreign Office”; he was particularly critical of the express mention of a particular bank (Kuhn, Loeb and Company) and of the question of the “750 annual charge”. I explained that our information had not come from the British Foreign Office or from our Embassy in London; I stated that it had come to us in confidence from a source which, as I had stated, I would not disclose; and that I was giving it to Mr. Lamont in confidence and for his confidential information; I mentioned the fact that he himself had mentioned to me the matter of the one bank (by name) and the matter of the service charge which the Groups had been paying to the Hong Kong and Shanghai Bank over a period of many years. I said that there are two points which we here especially noted in the information [Page 726] given us, namely, first, the mention of an “announced intention of the American Group to withdraw” and, second, the statement that the Department of State’s attitude was represented as being “mildly opposed to the withdrawal of the American Group.”

Mr. Lamont then went on in a milder and thoroughly friendly tone to the effect that there has been no announcement of an intention on the part of the American Group to withdraw; he said that after his return from Florida last Monday he had telephoned to London; that he had said that the American Group was considering withdrawing; that he had indicated—in line with the exchange of views which had taken place between himself and me on January 13—that the American Group perceived no reason why it should continue to pay a fee to the Hong Kong and Shanghai Bank on the theory of services rendered when no services were any longer being rendered; and that he had stated that, in fairness to all concerned, he should let his London associates know that the American Government looked with disfavor—he said that he had not said “mildly opposed”—upon the idea of a withdrawal by the American Group. I said that I was very glad to have this authoritative account, and I thanked Mr. Lamont for his courtesy in giving me it. Mr. Lamont went on to say that the matter was still under consideration on the part of the members of the American Group and that a meeting would be held by them on Monday next at which it would be further considered. I said that I was very glad that I had taken occasion to give him the information which had come to us and that he had given me the information conveyed in his statement.

Comment: Putting one, two and three together, I derive the impression that Mr. Lamont is not unwilling to continue the membership of the American Group in the Consortium; that Mr. Lamont has informed the British Group that the American Group expects to discontinue payment of the fee to the Hong Kong and Shanghai Bank; that the “city source” from which the information given our Embassy in London originated gave the Embassy a somewhat distorted account; that if the British really are anxious to have the Consortium remain in existence and to have the American Group not withdraw, they will probably “take” the discontinuance of payments to the Hong Kong and Shanghai Bank by the American Group; and that, with a little official urging on our part, which can be done informally, the American Group will be willing to let the matter rest there, the Consortium continuing in existence and the American membership therein continuing. I do feel, however, that we should give a little further indication of a hope on the Department’s part that no action will be taken at this time toward dissolution of the Consortium or termination of the American Group’s membership therein.

Stanley K. Hornbeck
  1. Raymond C. Mackay, Assistant Chief of the Far Eastern Division.
  2. Walter A. Adams of the same Division.
  3. Signed at New York, October 15, 1920, by British, French, Japanese, and American banking groups, Foreign Relations, 1920, vol. i, p. 576.