893.51/7062: Telegram
The Ambassador in China (Johnson) to the Secretary of State
[Received April 4—10:18 a.m.]
164. The following informal memorandum dated April 3 has been handed to me by Arthur Young who states that he personally strongly endorsed the justice of the position taken in the memorandum and the hope expressed in the last sentence:
“Doctor H. H. Kung would much appreciate Ambassador Johnson’s good offices in informally presenting the following for the favorable consideration of the appropriate authorities:
- 1.
- The Bank of China guaranteed the United States $25,000,000 credit of December 1938. During negotiations for the pounds 3,000,000 British credit last summer the British insisted upon and received a similar guarantee. They offered to waive it if the Americans did likewise but the Chinese Government did not feel that it should request a change in the already existing agreement for the American credit. It is now proposed that the Bank of China also guarantee the proposed United States $20,000,000 credit.
- 2.
- In guaranteeing the United States $25,000,000 and pounds 3,000,000 credits the Bank of China has already assumed extremely large contingent obligations and it is clear that assumption of further large liabilities of this nature would seriously strain the bank and place it in a difficult position for the future. Moreover guarantee of such large payments running over a term of years goes beyond the usual function of a commercial bank.
- 3.
- The giving of this guarantee for the United States $20,000,000 credit would be taken as creating a precedent and cause difficulties for China in future, as other countries such as Great Britain, France or Russia might be expected to ask similar guarantees for further credits. The extent of such guarantees might go far beyond a reasonable total. In any case bank guarantee of such obligations is injurious to Chinese Government credit.
The willingness of the authorities concerned to grant the United States $20,000,000 credit is greatly appreciated. It is earnestly hoped, however, that this proposal for guarantee may be eliminated.”
Sent to Department only.