The Consul General at Shanghai (Josselyn) to the Secretary of State
[Received January 29—10:40 a.m.]
126. There seems to be a range of possibilities explanatory of the Chinese Government’s restrictive measure of January 10 in which it virtually instructed local American banks to make no remittances in any form whatever abroad on the basis of US currency notes paid in here, thus making the financing of imports difficult for many and impossible for some. (This is supplemental to my 118 , January 28, 9 a.m. and should be considered also in light of my 117, January 28, 11 a.m.)
Is it not likely that by now the Chinese authorities sense our cessation of active discussion and furtherance of negotiations on various economic matters in their interest, in accordance with the Dept’s secret directive60 issued at the time of General Marshall’s arrival in China and that restrictive measures now being taken or contemplated may be in the nature of mild or covert retaliation? (Sent to Department; repeated to Chungking as 56.) In other words, if we are going to mark time in our plans for aiding China pending definite Chinese action in meeting our views on major political issues, is it not quite likely that they may feel in turn that their bargaining position in these and other negotiations would be enhanced either by postponing-action or going slow in the matter of facilitating the resumption of trade? If such is the case, does it not seem quite likely that the setting of a rate of exchange for foreign trade and the granting of permission to remit abroad and the deciding of procedures for banks to follow in financing imports may be delayed for some time further or until other major issues are settled? This, despite confidential statements or the circulation of rumors from time to time to the effect that the setting of a rate of exchange is soon to be made?
If these questions can be answered in the affirmative, then it would seem likely that the mere fact of the American banks not having yet registered with the Chinese Government would scarcely be of sufficient weight or importance in this interim stage of relations, to warrant the rather drastic action of January 10 in virtually blocking imports. It will thus be of interest to consider the confidential statement of the Minister of Finance in light of these probabilities and of future developments.
Foregoing is contributed by Commercial Attaché and is to be followed by further information and comment.