Office of the Historian

893.51/7382

The Special Assistant to the Secretary of the Treasury (White) to the Secretary of the Treasury (Morgenthau)62

[Washington,] August 15, 1941.

Subject: Developments of Special Interest in the Far Eastern Situation

I believe that you will find of interest the following items which have been culled from the cables and other materials coming into my Division.63

1. Dollar-Yuan Stabilization Board.

(a)
The British have appointed Hall-Patch, although on a temporary basis.
(b)
Fox reports that steps are now being taken to carry through the official organization of the Board.
(c)
The British take the view that as a result of freezing Chinese assets, the prime function of the Stabilization Board will largely disappear. In Shanghai, however, financial circles expect the Stabilization Board will support fapi in the local “black market”.

2. British proposal of an economic mission to China and visit of Sir Otto Niemeyer.

(a)
The British suggestion of an Anglo-American economic mission to China, of which Sir Otto Niemeyer was to be the British representative, may again come up for consideration since Sir Otto has now arrived in Washington.
(b)
Ambassador Gauss writes on August 1 that he was confidentially informed of the British proposal by Quo Tai-chi, Chinese foreign minister. Quo informed him that the coming of the mission might have a good “psychological” effect. Gauss, however, is of the opinion that it could accomplish very little and suggests that the invitation to the United States to join might have been prompted to some extent by the consideration that the principal recommendation of the mission would probably be outright financial assistance and the United States would probably be expected to supply the greater part of this [Page 702] assistance. Moreover there is the suspicion, according to Gauss, that the British proposal is another attempt to embarrass Kung.64

3. British proposal of a Chinese central exchange control committee in London, Washington, Singapore and Rangoon to assist in administration of freezing controls.

(a)
The Chinese have responded favorably to the British proposal. The Treasury has taken the position that a decision regarding this matter is to await report from Fox and visit of Niemeyer.
(b)
Taylor has been sent to Shanghai to observe and report on the operation of the freezing controls there.
(c)
Fox has suggested securing the assistance of a Treasury expert, Lockhart (our Consul-General in Shanghai) also suggests the stationing of a Treasury expert at Shanghai if it is thought desirable to keep close contact with the situation there.
(d)
Fox reports that the Ministry of Finance desires a list of Chinese nationals who are depositors in the U. S. together with their securities and other holdings. The Ministry also asks how it could requisition such funds.
(e)
The Generalissimo is disturbed by the newspaper report that American assets of Germans, Italians, Japanese and Chinese who are doing business within the British Empire and other allied territories have been unfrozen.

4. Actions taken by the Japanese in China against American interests.

U. S. freezing of Japanese assets have brought retaliatory freezing from the various puppet governments and Japanese authorities in China. In addition, however, further measures unrelated to freezing have been taken against American interests. For example, in Shanghai an export control system has been instituted similar to that already in operation in North China; in Chefoo, mail is not being delivered, and in Swatow, anti-American and anti-British demonstrations were held opposite the Consulates.

5. Conditions in unoccupied China.

(a)
Economic. Inflation in unoccupied China continues, while the Government takes no effective steps to remedy the situation but merely continues to print money. The Government officials are reported to be afraid to take any effective measures against the landlords, who are largely responsible for China’s economic ills.
(b)
Political.
(1)
Mr. Taylor reports a conversation with Madame Sun65 in which she expressed concern about the “Chungking appeasers”.
(2)
Mr. Hemingway66 reports of extreme bitterness between Kuomintang leaders, including the Generalissimo, and Communists. Some in Chungking favor peace with Japan and U. S. support for war against Communists. Hemingway agrees with H. S. policy of opposing civil war in China.

6. Burma Road.

(a)
In May, 1940 the volume of goods imported over the Yunnan–Burma highway approximated the best performance of the Yunnan French Indo-China railway in the month prior to the severance of that line in 1940. In June, traffic declined because of rain, but an animal transportation route has been opened between Kunming and Burma to supplement the regular highway transportation system.
(b)
The Chinese complain that the Customs authorities in Rangoon are unsympathetic and non-cooperative, with resulting delays in clearing cargo from the wharves.

7. Decline of the Chinese national currency in Shanghai.

Fapi has tended to decline in Shanghai, being 5–3/16 cents on July 28 and 4–7/32 cents on August 11. This decline is explained by the heavy purchases of foreign exchange by speculators, importers and foreign banks; the insufficiency of the available supply of exchange because licensing has stopped the repatriation of funds and remittances from abroad, and the fact that much of the export business in Shanghai is carried on by the Japanese and the export bills have not yet begun to come to the licensing banks.

  1. Copies transmitted by Mr. Morgenthau on August 15 to President Roosevelt and the Secretaries of State, War, and Navy.↩
  2. Harry Dexter White was also director of Monetary Research, Treasury Department.↩
  3. See telegram No. 324, August 1, 1 p.m., from the Ambassador in China, p. 690.↩
  4. Widow of the late Dr. Sun Yat-sen and sister of Mme. Chiang Kai-shek.↩
  5. Ernest Hemingway, American novelist, war correspondent in China in 1941.↩