Foreign Relations of the United States Diplomatic Papers, 1939, The Far East, Volume III

893.51 Salt Funds/239: Telegram

The Ambassador in China (Johnson) to the Secretary of State

Chungking, August 21, 1939—8 a.m.
[Received 10:34 a.m.]

503. Department’s 156, August 12, 3 p.m., and 158, August 15, 6 p.m.⁹⁶

1. The Embassy learns that the so-called merger of the Salt Revenue Administration with the Ministry of Finance is the scheme for the establishment of uniform salary scale described in the last enclosure to Shanghai’s despatch of June 23,⁹⁷ that execution of the plan is meeting with opposition and that it probably will have little effect on the separate identity of the Salt Administration.

2. In regard to the advisability of an informal approach by me to the Minister of Finance with a view to bringing about effective use of the foreign Salt Staff and improvement in their service conditions, my view is that such an approach if tactfully made might prove informative but would probably fail to accomplish the particular results desired, for the following reasons:

3. The Chinese consented to employ foreigners in the Salt Service in the beginning only because it was a condition of the Reorganization Loan Agreement⁹⁸ and efforts to curtail their authority began some years ago and have been accelerated especially since the enactment of the new organic law in 1936. My impression is that after the Salt Administration had been set in operation with foreign cooperation they felt that the presence of foreigners was useless and a reflection on their capacity as Chinese. While racial pride and jealousy furnished part of the motive for eliminating the foreign staff it seems from statements made by foreign personnel of the Administration regrettably probable that during the incumbency of T. C. Chu, the present Director General, more sinister reasons of financial irregularity have crept in. Nevertheless outward deference to the principle of the joint authority and responsibility of foreign and Chinese officers has been paid by the Minister of Finance.

4. The Chinese presumably hoped that by professing loyalty to the idea of joint authority they would enhance the value of the salt revenue as security for future loans and might also induce the interested powers to intervene to recover some of the salt revenues seized by the Japanese. I believe that the Chinese have long ceased to attach real value to the technical assistance rendered by the foreign officials and that it would be difficult to persuade them to restore genuine authority to such officials unless they were led to expect that practical benefits like those described would follow. No evidence has come to me that any such expectation would be warranted.

5. In any event I cannot but observe that the course of recent events would make present insistence on this point of foreign participation in the Salt Administration seem captious and a misplacing of emphasis. Payment of customs secured obligations was suspended on January 15 and of salt secured debts on March 26 (see Embassy’s despatch of April 15⁹⁹) while a general moratorium was declared on July 27 (see message transmitted through the Chinese Embassy¹). On the outcome of the present struggle of the Chinese Government for existence depends the whole structure of American and European investment and enterprise in China. The emergency demands concerted attention to the major issue. It is my frank opinion that unless it derives assistance from events or sources abroad neither party to this conflict can win a decisive victory. However, unless China succeeds in regaining its territorial and administrative integrity it seems to me safe to predict that at least the larger part of its funded indebtedness will become a total loss. Japan will not share the spoils of war whatever they may be.

6. I am not expressing these views as the basis of advice that the Western Powers intervene to save China from extinction although I believe that economic assistance particularly in the support of Chinese currency would affect powerfully the outcome of the struggle but to explain why I regard the present moment as inopportune for pressing such a comparatively minor detail as the administration of the salt revenue especially in view of the fact that we do not like [that it is?] the Japanese invasion and not the lack of effective foreign authority that really menaces the interests of the American bondholders.

7. I wish to add that I have both sympathy and admiration for the loyal foreign officials of the Salt Administration who have given devoted and effective service under heavy discouragement and now find themselves (with the exception of Lockhart, who is paid in foreign currency) pauperized through depreciation of the Chinese currency. I do not blame Tenney² and others who have submitted their resignations. The Chinese Government also is struggling with a problem of the utmost difficulty and importance—that of providing out of its diminished resources the amount of salt required by the people at prices within their reach knowing from experience that if it fails there will be riots. The entire situation is one that evidently calls for constructive advice and assistance rather than contentious criticism.

Repeated to Peiping, Shanghai.

Johnson

96. Latter not printed.
97. Not printed.
98. See despatch No. 845, May 6, 1913, from the Chargé in Peking, Foreign Relations, 1913, p. 180.
99. Not printed.
1. See the Chinese Ambassador’s note of July 29, p. 850.
2. R. P. Tenney, an American.