893.51/6788a: Telegram

The Secretary of State to the Ambassador in Japan (Grew)

21. 1. The Department raises for your consideration the question whether the present, following the Chinese Government’s announcement of the suspension of payments on its foreign indebtedness, would [Page 809]perhaps be an appropriate and opportune time to make an approach to the Japanese Government in regard to the Japanese Government’s responsibility in connection with that indebtedness, along the following general lines:

The Chinese Government is, as the Japanese Government is aware, indebted to various foreign governments and nationals, including the United States Government and American nationals, and revenues of various revenue-collecting agencies of the Chinese Government, including the Maritime Customs, the Salt Administration, and the Consolidated Tax Office, are pledged for the service of such indebtedness.
Prior to the present Japanese military activities in China and until very recently the payments due upon the indebtedness in question were being made. Now, however, following the occupation by Japanese military forces of large areas of China, payments on that indebtedness have been suspended.
The Japanese Government cannot but acknowledge that its military forces have deprived the Chinese Government of and have taken over control—either directly or through régimes brought into being and maintained with Japanese military support—of territory and economic resources which formerly contributed to the servicing of the indebtedness referred to. In this connection, reference is made to the repeated assurances given by the Japanese Government that American rights and interests in China would be respected.
The Government of the United States considers that the Government of Japan has an inescapable responsibility for the consequences of the action of Japanese armed forces and this Government looks to the Government of Japan to arrange for the continuance of the servicing, in the foreign currency or currencies stipulated in the contracts of indebtedness, of that proportion of the indebtedness of the Government of China to the Government and citizens of the United States which the pledged revenues in the area now occupied by the Japanese forces would, under normal conditions, bear to the pledged revenues of the whole of China.

2. In considering the question of the advisability of making the above-suggested approach to Japan, there should be borne in mind the possibility that any actual effort by Japan to provide the foreign exchange necessary for the continued servicing of the foreign indebtedness secured by the revenues in question might lead to, or be used by Japan as a pretext for, the imposition of effective exchange and import and export control in the occupied portions of China.

3. The Department suggests that you may desire to discuss informally with your British and French colleagues the questions raised herein.

Repeated to Chungking and Peiping.