Memorandum of Conversation, by the Assistant Chief of the Financial Division (Luthringer)62

Participants: Sir Frederick Phillips, British Treasury Representative
Mr. H. Ashley Clarke, Chief of the Far Eastern Department of the British Foreign Office
FE, Mr. Hamilton
FD, Mr. Luthringer

Sir Frederick Phillips presented Mr. Hamilton with a copy of a draft of the financial aid agreement with China which the British propose to ask the Chinese Government to sign.63 He indicated that he thought that although the Chinese Government would probably sign the agreement substantially as it stands there might be some difficulty in obtaining Chinese consent. Sir Frederick then stated that as we knew the British Government did not feel that it was in a position to offer the Chinese Government aid in such terms that the British might be presented after the conclusion of hostilities with a situation in which China would have large accumulated balances of sterling which could be presented in payment for exports of goods and services from the sterling area. Therefore the British Government had felt it necessary to stipulate that the sterling aid could be [Page 518]used only for Chinese purchases of exports from the sterling area during the war or as collateral for an internal issue of Chinese bonds. Sir Frederick referred specifically to a provision in the proposed agreement to the effect that Chinese sterling area purchases would be on the basis of contracts concurred in by the Government of the United Kingdom as particularly likely to encounter Chinese objection. Sir Frederick said that they wished to keep us informed on the matter and he indicated that it would be appreciated if we could use our influence with the Chinese Government to obtain their consent to the proposed agreement.

Mr. Hamilton replied that speaking for himself and without undertaking to speak for higher officers of the Department he felt that such a course would be most difficult in view of the nature of the United States financial aid agreement which was signed several months ago.64 He then went on to say that it had been our feeling that our financial aid to China was almost entirely a political and military question and that financial considerations had been secondary. He said that the political feeling in China following the military reverses in the Far East had been such that we considered it imperative to make a gesture of aid to China as promptly as possible and of such a nature as to have the maximum political effect in China. Having signed an agreement such as we had he did not see how we could undertake to attempt to induce the Chinese to sign a more restrictive agreement with the British. Mr. Hamilton then referred to the prevalence of anti-foreign feeling in China the onus of which we shared with other foreign countries and spoke of the danger of taking any action which the Chinese might feel was motivated by considerations of self-interest or imperialism.

Mr. Clarke remarked that the proposed British agreement was far from a financial agreement of the usual type and the British felt that they had gone as far as they could within the necessities of their financial situation.

Mr. Hamilton asked Mr. Luthringer his opinion. Mr. Luthringer replied that he strongly concurred with the views Mr. Hamilton had expressed. Mr. Luthringer added that on the other hand he felt that there were great differences between the British financial position and our own and that perhaps some of the Chinese at least might appreciate these differences. Mr. Hamilton commented that he would leave such matters to the financial experts. He repeated that he wished to call attention simply to broad and important considerations of a political nature in the Far Eastern situation.

Sir Frederick then said that even though we might not be in a position to approach the Chinese on the matter he thought that if [Page 519]the Chinese approached us much would depend upon the attitude which we took at the time. Sir Frederick asked whether the Chinese had approached us and he was informed that so far as Mr. Hamilton and Mr. Luthringer were aware no such approach had been made to this Government.

Sir Frederick also remarked that it was the feeling of the British Government that the sterling assets of the Stabilization Board of China should not be replenished from the £50,000,000 of financial aid which is the subject of the agreement under reference. He pointed out that none of the $50,000,000 contribution of the United States to the Chinese Stabilization Fund had yet been utilized and said that he had asked Treasury whether it would object if some of these dollars were used to acquire sterling for the Stabilization Fund. He indicated that he had not yet received an answer to this inquiry.

Sir Frederick stated that this whole matter had been taken up by him with Dr. White of the Treasury Department but that he had not yet received an indication of the Treasury Department’s reaction.

Mr. Hamilton said that we would, of course, be glad to refer this matter to other officers of the Department and inform the Treasury Department of Sir Frederick’s and Mr. Clarke’s approach to us.

  1. Copy forwarded on June 9 to Harry Dexter White, Assistant to the Secretary of the Treasury.
  2. Not printed.
  3. March 21; see bracketed note, p. 490.