893.51/6797: Telegram

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

72. Department’s 21, January 25, 7 p.m.

My British colleague concurs with me that it would not at present be desirable to make the suggested approach to the Japanese Government with regard to the Japanese Government’s responsibility in connection with the Chinese Government’s suspension of payments on its foreign indebtedness.
It is Craigie’s belief that any future British loans to the Chinese Government for the purpose of currency stabilization will be made conditional on a resumption of Chinese payments on foreign indebtedness and he is of the opinion that such payments can be effected only through implementation of the provisional agreement concerning the maritime customs.
The opinion expressed in paragraph 1 above was based, so far as I am concerned, largely on the consideration presented by the Department in paragraph 2 of its telegram under reference. I had in mind, however, a further consideration. The servicing in foreign currencies of the Chinese loan is an obligation of the Chinese Government and to propose as a principle that the Japanese Government, by reason of military occupation of Chinese territory, has assumed a portion of the obligation of the Chinese Government might well lead to Japanese insistence on our recognition of Japanese claims to corresponding rights of the Chinese Government in respect of the revenues pledged for the service of these loans, and thus to a discussion the end of which it would be difficult to foresee.