800.51693/7–2844: Telegram

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

1303. Sun Fo30 asked the Counselor to call on July 26 to discuss inter alia question of regulations for foreign banks which we had brought informally to his attention (Department’s mail instruction 620, April 28,31 et cetera). Sun said that in recent National Defense Council committee meeting presided over by Generalissimo he had opposed various projected restrictions including prohibition against acceptance by foreign banks of Chinese deposits but Kung had favored such restriction, arguing that otherwise Chinese deposits would flow to foreign banks as being safer than Chinese banks, and Chiang concurred. Sun said he had nevertheless prevented final decision and suggested that chief hope of avoiding unwarranted restriction on foreign business, et cetera, would be for pressure to be brought upon Kung during latter’s visit in United States. Sun also said that he thought it would be helpful if we could include in our commercial treaty draft appropriate provisions covering questions of unwarranted restrictions on American business and illiberal internal economic and business policies and he thought that early presentation of the draft treaty to the Chinese Government would do much to “clarify the atmosphere”.

We concur in Sun’s suggestions. As regards possible approach to Kung (we made similar suggestion in our 1235, July 12 [18]32 paragraph 2) we feel that it would be helpful if Kung could be made clearly to understand that the extremely nationalistic trend of Chinese policies in respect to American and foreign business interests in China will in the end define [defeat?] its own purpose if restrictions on foreign [Page 1061]enterprises are such that foreign capital will seek other fields; that, notwithstanding China’s needs of American banking and other assistance for postwar reconstruction and rehabilitation, American assistance, governmental or private, will not be forthcoming if the Chinese Government persists in its illiberal policies; that we desire to help China, and in the postwar world to enjoy close political and economic collaboration with China, but present Fascist tendencies including tendencies toward state economic controls cast discouraging shadows on prospect of fulfilling desire. It might be intimated also that there would seem to be little point in concluding a commercial treaty with China unless the Chinese Government sincerely and effectually shares our desire for collaboration within a framework of liberal internal and international business economic policies, as in absence of such policies basis for collaboration is lacking.

Kung as Department is aware is adept at voicing nice sounding platitudes such as his recent announcement that protection will be given to foreign investments in China—a statement which is practically without meaning against the background of present conditions, governmental actions and tendencies in this country. It was our impression during the protracted discussions with him on financing United States Army expenditures33 that he would not believe that we could be steadfast and were not to be beaten down by repetition of extraneous arguments, high sounding sentiments and applause, and precious interlocution which flow from him with the facility of a phonographs He is essentially the small Shansi banker and to him every transaction is one out of which it is a matter of face as well as of material selfishness that he shall drive a good bargain and make a good profit. In some respects he exemplifies the leaders of Chinese Government as whole; they have grown so used to asking and receiving without giving materially in return that it is now difficult for them to believe that there is any corollary obligation on China’s part and that Uncle Sam will not always be Uncle Sugar without some quid pro quo. It is our opinion that the time to begin a process of re-education has already come and that such education is necessary not only for the sake of American interests alone but also for China’s sake and for the sake of the mutually advantageous relations which we wish to have with China. We believe that Kung’s presence in the United States offers an exceptional opportunity both to officers of the American Government and to American business interests to bring home to the Chinese Government some of the realities of the situation which is developing. We believe that Gmo34 will pay more heed to Kung’s advice in these matters than to advice of any one official here.

Gauss
  1. President of the Chinese Legislative Yuan.
  2. Not printed.
  3. Ante, p. 994.
  4. For correspondence on this subject, see pp. 824 ff.
  5. Generalissimo Chiang Kai-shek.