China, 1937

CHINA, 1937 PSF: China, 1937 Box X 3 DEPARTMENT OF STATE till DIVISION OF FAR EASTERN AFFAIRS January 9, 1937. The Situation in the Far East. Reports indicate that the situation at Sian (Shensi Province) is becoming daily more acute due (1) to the threatened outbreak of hostilities between Government forces and the forces of General Yang Hu-cheng (one of the principal in the Sian revolt and at present in command at Sian) who refuses to accept the Government's order cashiering him; (2) to the spread of communist influence in Sian among soldiers and the populace;and (3) to the possibility that the Sian troops may join forces with Chinese communist armies in Shens and Kansu Provinces. Our Embassy in China is taking steps looking toward the protection and evacuation of American citizens in Sian and other dangerous areas. The Japanese Minister for Foreign Affairs is reported to have stated in a radio broadcast (1) that Japan had concluded the Japanese-German anti-communist pact because of anxiety to save China and "Manchukuo" from communist penetrat: (2) that Japan had not joined a Fascist bloc;and (3) that Japan's fundamental policy 1s still aimed at increasing friend ship with the United States and Britain and at reaching diplo- matic understanding with the Soviet Union and with China. Although conditions in China are unsettled, generally speaking the situation in the Far East does not at present give cause for any serious apprehension. ber 100 JCV/REK m.m.H. Stat THE SECRETARY OF THE TREASURY WASHINGTON File china n3) n January 25, 1937 P.F. My dear Mr. President: The Chinese Ambassador came in today with a secret and confidential message from T. V. Soong, who wished to inform me that the inclosed account in the New York Times, from Hong Kong, is the true story of what has recently taken place in China. Respectfully, The President, The White House. THE NEW YORK TIMES, TUESDAY, JANUARY 12, 1937. his superior officer solely, it is M- "The detention came from a sim- ANTI-CHIANG PLOT serted, as a means of gaining a ple effort to have assurance that hearing. China's policy would be revised definitely to take up arms in de- Pied for Consideration fense of our country and to have a LAID TO NANKING Remarkable scenes ensued after positive end put to the tremendous Chiang Kai-shek was taken to Sian annual wastage of millions in Chi- under heavy guard. The young nese money, Chinese lives and Chi- "marshal" repeatedly stood before nese property involved in incessant him hours on end, refusing to be civil wars and the perpetual pursuit seated in the presence of his chief, of so-called bandits. Clique That Insisted on Punitive while he pleaded for dispassionate "These so-called bandits are still Expedition to Sian Held to consideration of his proposals. From Dec. 14 onward Chang Chinese despite their views, at the Hsueh-liang sent the government re- Have Sought His Death. worst are not a menace to their peated telegrams reiterating his pa- cifie intentions and expressing his country, as are the Japanese, and have in them, if the authorities readiness to release the generalis- would take the trouble to ascertain, simo if the government sent a suit- VERSION ABSOLVES CHANG patriotism, reason and reform of able emissary. Chiang Kai-shek's the spirit which might be utilized in release, according to this version, could easily have been effected the country's service." within four days after the coup, but Stresses Japanese Inroads Coup Called Sincere Attempt instead the crisis was prolonged until the close of the fourteenth Chang Haueh-ljang then declares that while vast sums have been at Unity, Not a Mutiny-Sup- day. It is now said that many of the spent in chasing the so-called ban- pressed Message Bared. dits, approximately one-eighth of telegrams from the "young mar- China's area has been allowed to shal" were entirely suppressed. the fall into the grip of the Japanese Sian situation was misrepresented, and T. V. Soong, former Finance and the central government has Wireless to THE New York TIMES. Minister, and Mrs. Chiang Kai-shek thus far failed to do one thing open- HONGKONG, Jan. 11.-Another were actually foreibly prevented ly and courageously to uphold na- version of the Sian coup of Dec. 12 from leaving Nanking for Sian. tional interests or even plainly to has been received by this cor- intimate to Japan that her preda- During this period intensive prop- tory policies must cease. respondent. According to It, the aganda was carried on representing "The world has often enough detention of Generalissimo Chiang Chang Haueh-liang as "the supreme Kai-shek was not actually mutiny traitor of 10,000 years" and Chinese stood amazed at the apparent cow- ardice of China and has been public opinion was wrought to the and the generalissimo's life was horror-struck that she lifts not one highest pitch of excitement, while far more endangered by the gov- hand to defend herself, her sov- Nanking rang with declarations ereign rights or her people," the ernment's punitive expedition and that "the prestige of the govern- statement continues. the government's aerial bombers ment exceeds in importance the "I have been blamed and I have than by his captors. welfare of any individual. not shirked responsibility, but I am Although urgent representations Moreover, this version has it, a. not the central government and were made to the effect that the small but powerful Nanking cabal therefore I am unable to commit advancing punitive expedition and actually posed behind the legalistic this country to war. But I want to aerial bombing of Sian endangered statement that the mutiny must be be ordered by the generalissimo to Chiang Kai-shek's life, military suppressed and was seeking to put fight the Japanese and to see this preparations were rushed ahead an end to Chiang Kai-shek's life. country nationally engaged in an and aerial bombings were ordered Events proved, it is declared, that open effort to protect itself, and despite protests because the planes these men had long been entrench- what I see instead is the suppres- designated for use for this purpose ing themselves against his possible sion of public opinion and public were a portion of those that the death and had even apportioned of- thoughts regarding this vitally im- Chinese public had presented to fices and territories among them- portant national question. Chiang Kai-shek on the occasion of "When such a condition exists It selves. his fiftleth birthday last October. is obvious that changes must be Documents Support Version Pilots Avoided Bombing made, and all that I and my asso- A series of documents supporting clates want is the development of a In some cases pilots loyal to the this version has come/ under the resolute national policy to defend generalissimo merely flew from writer's observation. Entirely con- Loyang beyond Tungkwan Pass, our country, to initiate and carry tradicting previous widely pub- out reforms devised to have China dropped their bombs upon open licized versions of the Sian affair, fields and returned, reporting they properly developed and to give pro- they indicate that General Chang had bombed Sian. This occurred tection to the lives and the prop- Hsueh-liang, instead of typifying while Mr. Soong, Mrs. Chiang Kal- erties of the people. the worst characteristics of Chi- shek and W. H. Donald, Chiang "We want by any means possible nese politics, which for years have Kai-shek's Australian adviser, were to end the passive resistance on the blocked the country's unification, in Sian arranging for the generalis- part of certain officials who con- in reality acted desperately, hoping trive to frustrate efforts at reforms simo's release. to force reforms at home and stur- Regarded as illustrative of the of a progressive nature and who In- dier policies abroad. basic Issues underlying the Sian deed are responsible for the non- The Sian coup, it is declared, also fulfillment or practical failure of coup is an explanatory statement established the fact that the old- addressed to the general public in. plans initiated by the generalissimo style treacherous political militar- China, the United States and Eu-j himself." Ism has become strongly entrenched rope which Chang Hsueh-liang tele- Would Fight Foreign Foe in certain inner circles of the gov- graphed from Sian Dec. 19. This ernment. Above all, Chang Hsueh-liang's remarkable statement was sup- These revelations, if true, doubt- statement proceeds, he and his pressed in its entirety, allegedly by associates want China's armed less presage drastic changes in the Nanking cabal, which is said forces used against the invading/ high government circles if Chiang to have insisted upon a punitive ex- Kai-shek is to retain his paramount foreign foe and not against the pedition, announcing its readiness position and startling alterations in Chinese people. to use aerial bombers to "wipe Sian foreign policy would also follow, "The national army has not from the face of the earth." Chiang Kai-shek, according to the moved one step against Japan, but Chang Haueh-liang began his swift as thought we see it being latest version, was not detained at statement by declaring that he re- mobilized against me now while our Sian because a plot existed for his alized confirmation of his action overthrow, nor was he held as a enemy is within our country, fat- was worldwide, because of lack of means of forcing millions of dol- tening at will upon its riches," it knowledge of the circumstances lars from the government or his leading to the generalissimo's de- goes on. "The world has been presented family. Chang Hsueh-liang for tention Admitting that the forceful with a spectacle the like of which weeks before the crisis endeavored detention of any one was virtually has not hitherto disgraced history, time and again to induce the gen- indéfensible, the young marshal and we are trying to prevent the re- eralissimo to listen to his pleas for denied cherishing personal ambl- currence of such a spectacle for- various reforms and changes of pol- tions, also denied attempting to evermore. That, in fact, is to be ley and finally seized the person of extract personally advantageous terms, and then said: the end of all this effort, to get the generalissimo to abandon the ideas of officials who militate bal" was aiming to achieve when it against the very life of China." sought to launch a punitive expedi- The statement adds that the tion against Sian. young "marshal's" group desires The upshot of the Sian affair, ac- the continuance of Chiang Kai- Chang Golfs Under Guard cording to the version now present- shek's leadership and does not wish ed. has been that Chiang Kai-shek Of 8 Submachine Guns to curtail his powers but wants did not find enemies to the con- them marshaled on behalf of the tinuance of his power in Sian but broad interests of China, not in the his most dangerous enemies in his By The Associated Press. narrow interests of selfish and un- own capital. NANKING. China. Jan. 11.- patriotic cliques. The statement In his retirement at his ancestral General Chang Hsueh-liang. un- continues: home at Fenghua the generalissimo der technical detention as a re- "The generalissimo's prolonged today must be fighting probably the sult of his coup at Sian Dec. 12, stay here is not of our doing. As gravest battle of his whole career. when he abducted- Generalissimo soon as Mr. Donald had arrived He must decide whether to com- here on Dec. 14 and the generalis- promise with the reactionary clique Chiang Kai-shek, played golf at simo had recovered somewhat from in his own capital or whether to the Nanking Country Club today his natural indignation and re- oust them. by force If necessary. under the muzzles of eight sub- luctance hitherto to talk, he ealmly Then he might proceed rapidly to- machine guns. enough discussed the problems con- ward founding a popular constitu- Whether the eight guards, each fronting us all and by the 15th tional government and rallying all had agreed in principle with the the country's patriotic forces to his lugging a weapon as they accom- points we had in view for the support for resistance against Ja- panied him over the course, were adoption of a defined national pol- pan and war if necessary as the there to protect the "young mar- icy and the effecting of changes only way of saving China's self- shal" or were detailed to prevent permitting the nation to develop respect, a possible escape went. unex logically and freely politically and plained. materially. Evil Motives Denied After the round the guards Welcomed Any Emissary Wirelens to THE New York THIS gathered up the golf clubs and. "I therefore telegraphed on the SHANGHAI, Jan. 11.-Deploring night of the 14th, welcoming any hints published in a British-owned still earrying the submachine one to come from Nanking to hear daily in Shanghai, Yeh Chut-sang. guns. clambered into automobiles the generalissimo's views and ar- aecretary general of the Kuomin- to return to the residence of T. range with him for the necessary tang's central executive committee, V. Soong, brother-in-law of safeguards to prevent the develop- declares that the Sian outbreak con- Chiang Kai-shek, where Chang ment of civil war. fronted the government with the double duty of rescuing Generalis- Hsueh-liang is a "prisoner." The generalissimo naturally vig- orounly demanded that he be re- simo Chiang Kai-shek and uphold- leased and proceed to Nanking, but ing law and order. while I personally had full confi- "Groundless criticisms and mali- dence that he would carry out his clous conjectures defamatory to the promises, it was impossible to risk: central authorities" is the way Yeh his being persuaded after his ar- Chut-sang characterizes the news- tival in Nanking to continue the paper's suggestions that a punitive wasfare his colleagues there had expedition was ordered because of launched and which they undoubt- evil motives by any clique or that edly would desire to keep going in any attempt had been made to seize préference to materializing active power while the generalissimo was defense against Japan. detained. In defense of the govern- Further stressing that it was ment's action, he states: strange Nanking had not sent any "After careful consideration It emissary, Chang Haueh-liang closed concluded that the twofold duty his statement with the declaration could not be carried out in a better that he was ready to proceed to way than by taking stern. swift Nanking, stand trial before the na- measures to deal with the situation tion and accept punishment. and by ordering a punitive expedi- That a virtual impasse "has de- tion against the rebels. veloped in Nanking is evidenced "It was felt that only by means by the fact that although Chang of stern measures could it hope to Hsuch-liang has been pardoned he prevent further aggravation of the is kept under surveillance by the situation and that only military Military Affairs Commission and pressure could hope to bring about also that while Chiang Kai-shek is the speedy rescue of the gen- in retirement at Fenghua, armies eralissimo. have been ordered to march "Furthermore, to parley with the through Shensi and occupy Sian rebels would not only have meant and Lanchow, Kansu's capital. putting n. premium on military re- This military movement is de- bellion but also would have caused plored by those who feel that mili- the rebels to intensify their de- jary pressure now will probably re- mands and would have led to pro- sult in having Chang Hsueh-liang's tracted negotiations and unexpected and the other armies involved in developments." the Sian coup join with the Com- munist forces. Pretext for Japan Seen Any such development would give Japan the desired pretext for dras- tic action. it is asserted, and this is believed by certain circles to be precisely what the Nanking "ca- EXT yte new Jew DEPARTMENT OF STATE WASHINGTON March 2, 1937 My dear Mr. President: The matter of the China Consortium, dealt with in the proposed telegram hereto attached, is important. The existing Consortium Agreement came into existence in 1920 in consequence of an initiative taken by the American Government, in the Wilson administration, in Md 1918. The Agreement was concluded between banking groups of four countries, with the blessing of their governments (American, British, French and Japanese) respectively, providing for cooperation in and sharing of loans to China. The Consortium has never made any loans, but the existence of the Agreement has prevented the borrowing by China of money from independent and irresponsible sources. In this administration, in response to inquiries from the American banking group, we have taken the position that we favor continuance in existence of the Agreement, with the thought that at sometime the Consortium might be able to do some business as originally intended ,HID and the further thought that any move toward termination of The President, The White House. - 2 - of the Agreement might have a disturbing effect as regards the general Far Eastern situation (in other words, we favored letting the matter of the Consortium remain in statu quo). During the past few months representatives of the British banking group have been in correspondence with the American banking group, proposing that certain busi- ness in China available to British interests be excepted from provisions of the Consortium Agreement or regulations which have been adopted by the banking groups thereunder. To this, the American banking group, with the Department concurring, has not been able to give assent, for the reason that such action would strike at the very root of the principle on which the Consortium is based. Now, the British Government comes forward with a memorandum in which, after pointing out various facts in the situation and affirming, in effect, that they would welcome the devising of some method by which at the same time the Consortium would be preserved and the safeguarding specifi- cations of the Consortium Agreement be modified, they in conclusion propose definitely that the Consortium Agreement be terminated. Their memorandum is attached hereto. We have given the matter very careful consideration. We talked with representatives of the American group. We would gladly offer suggestions whereby the Consortium might be kept in existence and at the same time the practical - 3 - practical issues be satisfactorily met. But we do not see how this can be done: the Consortium Agreement has both negative and positive features; a dropping of the latter with retention of the former would produce a resultant possessed of little value; and it would probably lead to new perplexities in place of those which it might resolve. We remain, however, open to suggestions. We therefore have drafted a telegram in which we accept the British Govern- ment's outline of the facts, express our confidence in the principle upon which the Consortium Agreement was based, and give assent, with expression of our regret, to a procedure on the part of the banking groups, if and when, directed toward termination of the Consortium Agreement; and, in connection with our formal reply, we instruct the Embassy in London to call attention to certain inconsis- tencies, as they appear to us, in the statements which the British have made in their approaches to us on the subject. A part of our effort is to make the record show clearly that the proposal that the Agreement be terminated did not originate in this country. We have informed representatives of the American Group of our position and of the substance of this draft and their views are in accord therewith. I shall appreciate an indication from you whether the proposed telegram to our Embassy at London meets with your approval. Faithfully yours Enclosures: Draft telegram. Memorandum from British Government. Ea PREPARING OFFICE TELEGRAM SENT TO BE TRANSMITTED ILL INDICATE WHETHER ct NONCONFIDENTIAL CODE to Department Department of State OR to to Kny. Washington, February 26, 1937. AMEMBASSY, New drepared draft LONDON (England). not 10 H2 RECORDED EASH DELIVED BA THE OVERVIOUS Your telegram 57, February 10, 5 p.m., and despatch 2850 of February 11 in regard to China Consortium. One. It is the Department's desire that Atherton, unless he perceives objection thereto, hand to Cadogan, as the reply of the American Government to the Foreign Office memorandum of February 10, a memorandum reading as follows: QUOTE The American Chargé d'Affaires has the honor to refer to the memorandum of February 10, 1937, on the subject of the China Consortium which on the date indicated was handed to the Chargé by Sir Alexander Cadogan. The American Government is appreciative of the frank expression of the views of the British Government as set forth in the memorandum under reference and has given most careful considération thereto. In the opinion of the American Government the Consortium Agreement was soundly conceived toward serving the best interests of all concerned. Although it must be admitted that the hered by y operator M., . 19 c. R.-No. 50 1-1402 U.S. GOVERNMENT PRINTING OFFICE PREPARING OFFICE TELEGRAM SENT TO BE TRANSMITTED WILL INDICATE WHETHER CONFIDENTIAL CODE Collect NONCONFIDENTIAL CODE Charge Department Department of State PARTAIR OR PLAIN Charge to Washington, $ - 2 - Consortium has not achieved what was envisaged at the time of its inception, the existence of the Agreement has, it is believed, served as an effective deterrent to the making to China of certain types of loans which. had they been made, would in all probability have retarded rather than advanced progress in that country, and it has in effect encouraged the government and the people of China to adopt an attitude of greater self-reliance and to resort in increased measure to domestic resources, financial and otherwise, for the fulfillment of their needs. These services, although of a negative character, have operated to the distinct benefit of China and probably of other countries interested and concerned. The American Government desires, however, noither to impode the course of constructive development in China nor not to place in the way of the British Group obstacles which might prevent the acceptance by British interests of the offer recently made by the Chinese Government of a contract for the construction of a railway from Canton to Meihsien. Therefore, ánd in view of the pertinence and importance of those factors in the existing situation, as set forth in the in the light Britich Rev memorandum under reference, and of the opinion efthe Enciphered by Sent by operator M., 19 D. c. R.-No. 50 1-1402 N.S. GOVERNMENT PRINTING OFFICE OPERATOR PREPARING OFFICE TELEGRAM SENT TO BE TRANSMITTED ILL INDICATE WHETHER CONFIDENTIAL CODE it NONCONFIDENTIAL CODE e Department Department of State PARTAIR OR PLAIN e to Washington, - 3 - expressed by the British Government that features in the existing situation render perseverance in adherence to VECONDED 05 HYC GREA DELYCHED DA THE ДЕГЕСКТЬН ОБЕНУДОН the existing Agreement impracticable and that in the light of the attitude of the Chinese Government toward the Consortium no good purpose would be served by attempting to revise the Agreement, the American Government will, although with sincere regret, inform the American banking group party to the Consortium Agreement of the British Government's proposal that the Agreement be dissolved and will state that this Government will interpose no repeat no objection to participation by the American Group in negotiations, if and when proposed, among the banking groups, looking toward dissolution of the Consortium, as proposed. by the British my Government. UNQUOTE Two. You may add orally that your Government is sympathetically disposed in principle toward the suggestion made at one point in the British Government's memorandum that effort should be made to QUOTE discover whether there is any method by which, while restoring to its individual members the required liberty of action as regards industrial enter- prises, the major objects of the Consortium could be attained Norigmal impossible to insert hered by are there section as a quotation y operator M., 19 sey ). C. R.-No. 50 1-1462 U.S. GOVERNMENT PRINTING OFFICE PREPARING OFFICE TELEGRAM SENT TO BE TRANSMITTED ILL INDICATE WHETHER CONFIDENTIAL CODE et NONCONFIDENTIAL CODE to Department Department of State PARTAIR OR PLAIN ge to Washington, - 4 - by keeping in being co-operation between the governments concerned (including the Chinese Government) UNQUOTE; also MOL LO BE RECORDED ON COMMITTED BEEN BELVCHED BA THE ТЕГЕСКУБН OLERVIOS toward the view of the British Government, as reported in your telegram 101, February 26, 2 p.m., that preferable to a complete abolition of the Consortium and all that such abolition might imply would be a modification of the Consortium (Agreement); but that there seems to us to be an irreconcilable inconsistency between those suggestions and the statement of a definite conclusion arrived at which appears in the second sentence of the final paragraph of the British Government's membrandum under acknowledgment. You should add specifically that if the British Government finds it possible to offer or, through the British banking group, to sponsor, any suggestion which will at the same time provide for meeting the requirements for the altered situation as it exists today and preserve in essence the fundamental principles and objectives of the Consortium, the American Government will be prepared to consider sympathetically such proposal. Three. Please also inform Cadogan orally that the Department will, in making known to the American Group the hered by by operator M., # 19 # C. R.-No. 50 1-1462 V.I. GOVERNMENT PRINTING OFFICE PREPARING OFFICE TELEGRAM SENT TO BE TRANSMITTED WILL INDICATE WHETHER CONFIDENTIAL CODE Collect NONCONFIDENTIAL CODE Charge Department OR Department of State PARTAIR PLAIN Charge to $ Washington, - 5 - British Government's proposal and the attitude of the American Government in regard thereto, ask the American Group to consider the entire matter as strictly confidential to itself and not repeat not for communication to any of the other banking groups until such time as one of those groups, presumably the British, approaches it. Four. Inform Department by telegram when you have delivered memorandum and at the same time report such comments as may be made by Cadogan. UK solited not to be sent until approved by the President FOR car m.m.H. m. FE:RCM:SKH/EJL FE & WE EA MAR 2 Enciphered by mas Sent by operator M., . 19 D. C. R.-No. so 1-1462 U.S. GOVERNMENT PRINTING OFFICE oH 7 OPERATOR EMBASSY OF THE UNITED STATES OF AMERICA LONDON, February 11, 1937. No. 2850 SUBJECT: The China Consortium. 893.51 Yes No For Check 1.58 finade LUSA For RECEIVED OF DEPARTMENT OF STATE 937 FEB 23 AM Il 47 FEDERAL COMMUNICATIONS AND RECORDS Copies to Perping marking you FAN EASTERN AFFAIRS The Honorable 1937 The Secretary of State, Department my of State 893.51/6307 Washington, D. C. Sir: 1/ I have the honor to forward the text of the шешо- randum on the China Consortium which was handed me at the Foreign Office yesterday and re, orted to the we- partment in my No. 57 of February 10, 5 p.m. SEP The remarks made by Sir Alexander Cadogan, Under Secretary of State, at that time were in the main a 6361 resumé of the points made in the memorandum. at the conclusion of our talk, owever, he re- ferred to of previous conversation ne had with me, (reported in by note to the Chief of the Far Eastern. Division ásted December 16, 1936) and suid that a very vague ÷ vague general message of good-will in the form of an aide memoire had been given the Japanese Am- bassador, in accordance with his desire. However, Mr. Yoshida had not up to the present time obtained leave to enable him to return to his country, nor, in the eyes of the Foreign Office, did he seem to have weight with ..is Government. In forwarding this memorandum on the China Consortium, I venture two personal observations: First, that it is only one measure in developing British policy to increase their export trade; and, secondly, that this country is becoming sware of the great potentiality of China as & market for Britis: coods, and, from ever) Indication, the British Government is anxious to uphold and sus- tein and increase their position in that country. I near Sir Prederick Leith-Ross continues to urge such policy. Res ectrylly ours, 10m 803 Atherton. d'Affaires EG Interin. Enclosure: 1.0 orendum on 4 China Consortium. 1 RA/HII strengthen OPY No 1 despatch No of Feby 11-1937 from at London, England, Memorandum The China Consortium The Consortium in its present form, applying both to dministrative and to Industrial loans to China, was formed in 1920 = inly on American initiative with strong British support fter prolon ed negotistions lasting 80110 eighteen months. Its purpose Visa the sale as that which animated the signatories of the Nine Power Treaty, namely to provide the fairest possible conditions for the political and economic development of China by substituting cooperation for competition in the field of international action. N During the far and post-War period the economic develop- ment of China had been brought to a standstill by prolonged political confusion. But China has now reached a degree of political stability which makes further foreign borrowing both justifiable and expedient. During the past few years the National Government of China has been carrying through a large programe of internal development including not only many improvements and extensions of her existing railway system but also the construction of a number of new railway lines, bridges and road communications. Upon the achievement of this programe will largely depend the political and economic progress of the country. The cost is being met, in the main, by the issue of domestic loans. But it appears that the capacity of the internal market has been strained by the loans so raised and the financial structure in China would be greatly stren thened if & part, at any rate, of the capital required could be raised abroad. With this in view, the Chinose Government have recently negotiated settlements of existing defaults. Thus for the first time there is a reasonable basis for new development loans which would both strengthen -2- strengthen the position of the Nanking Government and promote the prosperity of the country. But under existing conditions the Consortium in its present form, instead of promoting the economic progress of China, as its authors intended, is an obstacle which stands in the way of such action. The Chinese have always regarded the Consortium with dislike anc suspicion. The terms of any loan made by the Consortium would, it was well know., include provisions for adequate security and proper conditions as regards the purposes to which the funds were to be applied ano the methods of applying t e... Each of the countries, members of the Consortium, including Japan, thou 1. it is not a lending country, ould have at voice in the settling of these conditions. The Chinese Government appare. tly feured that this power 111 1st be used to impose olitical conditions and in any case, theyobjecte to such "group treat ent" which, 11:1e the unequal treatics, scenoc to them to touch the independence of Chinnes = soverei 11 State. The have therefore consistently refused to lave in, declings 14th the Consortiwi or to recomise its existence injury may. more- over, the Consortium itself, with its arran ements for join ne otistions, rotation of engineers, partici tion in the supply of interials, etc., WAS as excocditi 1; cumbrous machine sither for negotistin, with the Chinese or for the practical xecution 1 industrial undertakin 8. mis and been found to be the se with the Consurtium. ($ it existed, say, in 1010, before Chinese national fuelin Red risen to its present height; and in the postener period the same obstacle revented oven the-be Initin of segotiations for tho.reibilitation the cl. British interests intemestod. This ⑉3⑉ This explains the situation which during the last twelve months has actually arisen in China. A number of agreements for finencing the import of materials for the construction of new railways have been si ned with German, French and Belgian groups; but China has consi tently re- fused to borrow from the Consortium. AS the United States Government are aware, some special loans have been negotiated 1th the Trustees for the British Indemnity Funds (in particular, for the completion of the Centon-Mankow Railway). But as regards and ordinary Market loan towerds the rehabilitation of China, lis Rajesty's Government felt that it was incumbent upon them to ensure that a genuine effort should be date tosube tife machinery of the Consortium, ou brous though It WES. ..1th this one fligview Sir C. mádis, the British ne resen stive of the Conso titu group, after consult tion with .1s imjosty's Government se- dressed to the other nembers of e Consortium 11 October 1 last a letter roposini the rescission of the open tender resolution adopted by the Consortium Council n 13th any 1923. The rinciple that all orders for <0002 supplied in execution of Consortium contracts shoule To put Ap to to der open to Ell the world formed no the of Cons rtium ree ent itself of 1970 the ter S of which Lau boon so fully discussed betw en the moreign Office the the State Depart out, The principle of open tondor BOW confulcted the oxi the restrictions on Coroly Tanding in the Cubted co. .0000 restrictions were do eú jest: :- Got in order to revent To sign loans baing 100000 in London which oble detice CLV, tr ofers Very 't... timeriby rejudice their onetery plicy 62 suching filter to avoid under fluctuations : storling. moir -4- T..e.r olicy In t is matter was endorsed in the Three rower Declaration of last September end they mould therefore expect that these restrictions would meet with the understanding and support of the United States Administratio The principle of open tender is believed Also to conflict with the policy which other Consortium govermeents linve adopted, for similar reasons, 85 regards foreign lending in their markets. Therefore it seemed to his mejesty's Government that 11 the Consortium were to be free to negotiate loans with China en essential preliminory must be the re- scission of the Resolution relating to open tender. The other groups have either not yet replied to Sir 0. Addis' pr posal or have refused to accept it. While this point yet remained unsettled the Chinese Covernment put the whole quest on of the Con- sortium in issue by making an offer to British in- terests of a contract for the construction of a rail- way line from Canton to Meihsien, & town near the Fukien border not for from Swatow. On being informed that the British group would have to offer a share of t.is contract to its Consortium partners the Chinese authorities expressed strong objection to any dealings whatever with the Consortium and, after hearing from Japanese sources that the Japanese wished to partici- pate, refused to continue discussions on these lines. They acve 1 dicuted that if the British interests ap- prosched are not willing to negotiate & purely British loan to Crina, they will open negotiations with German or French groups. / It would seen therefore that the continued exist- ence ⑉0⑉ ence of the Consortium in its resent form is, in fact, defeating Its own object. It is reventing the members of the Consortium from participating in the economic remobilitation of China and it is impod- ing instead of assisting such red Ilitation. In these circumstances His ajesty's Covernment desire to consult frankly with the United States Government in order to ascertain their views on the whole sub- ject and discover whether there is any method by which, while restoring to its ingivioual members the required liberty of sction QS ree rus industrial enterprises, the mejor objects of the Consortium could be attained by kee ine in being CO-O eration between the governments concerned (including the Chinese Government). An additional reason for entering u on a full consideration of, and frank consultat on as ree rús, the policy which the United St: tes Covernment and His Majesty's Covernment should now pursue*in regard to the Co sortium is to be found in the rect the t', as His majesty's Government understand, the American group, at any rate as st present constituted, could not in fact take any sctive share in & Co sortium operation. His Majesty's Covernment, fór their ert, would have been willing to co-operate in attempting to re- vise the existing Consortium agreement, to take 80- count of the actual conditions that prevail today, if there were any prospect pros of obtaining the Loodwill of the Chinese Government for such a revised arrang e- ment. Having regard however to the attitude of the Chindse : Coinese Government it a cars to: transthat no good up 0,80 rowd be served by ttempting to roceed on these lines and in Cheir opinion the greement should HOW se dissolved by nutual consent. They understand that In the view of the bahining groups the initiative in this ttep should dute from the Covernments con- corned include injesty's paverment hope to tist they 200 00 able to octoin the ree ent of the Government of the mitea States. Ms. jesty's Sovernment lisve to cucht it desir ble to sit it the whole position to the with $ States overnment before 70.0 inc the Other Governments contration hirtkey lope to be it is ression of the vists of the United States doverment. ...... 105 137. / A trae copy of the - origin mail Hm 1 June 22, 1937. Letter to Pres. from Sumner Welles Encloses copy of telegram from Bingham in re- recent Chinese loan negotiations with Great Britain conducted by Kung during visit to London and in re-conversations had by Sir Alexander Cadogan with the Japanese Ambassador at London concerning China. See--Great Britain --drawer 2--1937 aluma [august 2 ? 1937] My dear Dr. Kungt I appreciate very much your letter of July 13th, which has given me much pleasure. I am happy to learn of the agreeable impressions which you take with you of your stay in the United States, and I may assure you that this Government fully shares the satisfaction you have been good enough to express with regard to the arrangements for economic cooperation between our two countries entered into as a result of your visit to Washington. Friend- ship between China and the United States is a well established tradition in our two coun- tries. It will be the policy of my Adminis- tration to strengthen that enduring anity in every appropriate and practicable manner. I have received with much gratification the photograph of President Chiang Kai-shek, as well as your own photograph, which you were good enough to send to me. I take much pleas- ure in sending to you, through my Ambassador to China, my own photograph, and I am likewise asking the Ambassador to deliver to President Chieng Kai-shek an additional photograph of myself as an evidence of my high esteem. His Excellency Dr. H. H. Kung, Vice President of the Executive Yuan and Minister of Finance. Mrs. Roosevelt joins me in extending kind regards to yourself. Believe me Yours very sincerely, fellowed DEPARTMENT OF STATE WASHINGTON August 2, 1937. My dear Mr. President: With reference to your memorandum of August 2nd, neither the Secretary nor I see any reason why you should not send photographs to President Chiang Kai- shek and to Dr. Kung. In fact, I think it would be a particularly desirable thing for you to do at this time. I am enclosing herewith a suggested letter for you to send to Dr. Kung in acknowledgment of his let- ter to you of July 13th. If this letter is satisfactory to you and you sign it, I would suggest that you have it sent to me, together with the two photographs, so that I may send them to Ambassador Johnson in Nanking for transmission to their respective destinations. Believe me Faithfully A yours, halls The President The White House. MINISTRY OF FINANCE The Waldorf Astoria New York City. July 13, 1937. Mr. Franklin D. Roosevelt President of the United States of America The White House Washington, D. C. Dear Mr. President, On the eve of my departure from your great country, permit me to thank you for the hospitality which you were good enough to extend to me during my recent visits in Washington. It was a great privilege and pleasure to see you again and to be entertained at the delightful luncheon which you so kindly gave me. I was particularly glad for the rare opportunity of exchanging views with you personally on matters concerning the common interests of our two countries, and I shall carry back with me the spirit of the "Good Neighbor Policy" which you so wisely and nobly advocate. I take this opportunity to assure you, on behalf of my Government and people, of our sincere appreciation for the sympathetic attitude and friendly cooperation which your Government has in the past extended to us in our task of achieving political stability and economic progress. The recent decision of your Export-Import Bank to participate in extending credit to the Chinese Railways and the new monetary arrangement which I had the satisfaction to make with Secretary Morgenthau mark further progress in our economic cooperation, which, I am sure, will tighten the bonds of friendship between us. We believe that the development of a strong, united, peaceful and progressive China is for the best interests of both of our nations. It is therefore our sincere hope, as I am sure it is also yours, that our two sister Republics will join hands and cooperate in all practical ways 80 that we may become truly custodians of peace in the Pacific and contribute our full share to the promotion of world stability and human progress. Five years ago when I visited your country last, your people were in the throes of economic depression. Today I find the nation has regained its prosperity. The achieve- ments which your country, under your courageous and statesmanlike leadership, has made in the various phases of its national life are most instructive and inspiring to us. MINISTRY OF FINANCE - 2 - I assure you, Mr. President, that we in China watch with great joy and admiration the remarkable progress of your nation and wish you every success. Under separate cover, I take pleasure in sending you a copy of my photograph and, on behalf of President Chiang Kai-shek, a copy of his photograph, which I hope will serve as momentos of my enjoyable visits with you. With these tokens of remembrance, please accept my highest respects and best wishes for you and Mrs. Roosevelt. I shall be much obliged if you will convey to Mrs. Roosevelt my appreciation for her kind letter. I remain, Mr. President, Sincerely yours, H. M. H. Kung. PSF: China O 3aaΓaM 3 ТИЗМТЯАЧЕС ОЗИЗОВЯ ///// NPG 6356 FROM; CINCAR ACTION; AMERICAN AMBASSADOR CHINA INFO; AMERICAN CONSUL TSINGTAO CHINA STATE DEPT OPNAV C STRONGLY RECOMMEND PROPOSAL OF MAINI MAKING ANY OR ALL OF TSINGTAO A QUOTE SANCTUARY UNQUOTE FOR THE SAFETY OF THE MANY EUROPEANS AND AMERICAN NOW RESIDING HERE TO YOUR EARNEST CONSIDERATION AT PRESENT BOTH CHINESE AND JAPANESE AUTHORITIES IN TSINGTAO ARE EARNESTLY STRIVING TO SOLVE PRESENT DIFFERENCE PERIOD IF THE NATIONS MOST INTERESTED COULD UNITE IN SECURING AGREEMENT TO SUCH MM A PLAN BY THE CHINESE AND JAPANESE GOVERNMENTS IT SHOULD BE A GODSEND TO SEVERAL THOUSAND AMERICANS AND EUROPEANS NOW HERE 1905 13 ACTION(4) 05 10A 11 16 19 20 MARCORPS STATE (2) 0924 MB BAMX 21 AUG/1042 - CWO 38 PX Capt. Bastedor DEPARTMENT OF STATE file DIVISION OF CURRENT INFORMATION chung August 20, 1937 Mr. Early - White House Dear Steve: Attached is a copy of my memorandum of the Secretary's press conference in which he announced the decision to send Marines from San Diego to Shanghai. You might want to glance over it in anti- cipation of the President's press conference. M. J. McDermott. Ickes-Susan Jckes Susan 01:MJM:VN CAUTION! The following is the record of the press conforence of the Secretary of State on August 17, 1937. It has been mineographed for the convenience of the correspondonts. THE SECRETARY OF STATE IS NOT TO BE QUOTED DIRECTLY, THAT IS NO QUOTATION MARKS, but the substance can be attributed to him exactly as though this were written in the third per- son instead of the first. PLEASE OBSERVE THE RULE CAREFULLY M. J. McDernott. *** Department of State Division of Current Information MEMORANDUM OF THE PRESS CONFERENCE, TUESDAY, AUGUST 17, 1937 At the press conference this afternoon Sccretary Hull said: I have here a list of Americans who have been brought out from Santander, Spain. I an also giving you Departmental Orders making Dr. Hornbeck an Advisor and making Mr. Hamilton Chief of the Far Eastern Division. It is very difficult to appreciate the need for more time to work out and develop questions of policy instead of having very little time for that on the part of a few of us and the balance of the time consumed in detailed routine things. Dr. Hornbeck has really been almost overwhelmed with the routino phases for sorio time and this is a peculiar situation where they need some additional help and with some time on the part of somebody to work on questions of policy. If we make any kind of a nistake on a question of policy, we expect to be raw- hided next morning, and I hope we won't be raw-hided when we seek a most necessary organization to cuard as much as possible against mistakos and to assure accuracy of conclusions as to foreign policy. FAR EAST In the Far Eastern situation there do not appear to be any particular military activities this morning except in the Shanghai area. At least that is the area that is attracting all the atten- tion. We are asking for an appropriation of $500,000 by Congress for all of the necessary relief and evacuation expenses that ener- gency phases may call for. -2- Now what I am about to comment on is something Ithink I should troat 0.8 OFF THE RECORD until it is written down and then pro- bably we can give it all or virtually all to you FOR BACKGROUND. But in order to avoid misinterpretations and mistakos I think it is better for you and for me also to approach the matter in that fashion. I may say in the first place that this Govern- ment repeatedly has been urging the Governments of Japan and China not to conduct military operations or establish military bases in the Shanghai area, Furthermore since some outbreaks have occurred, the Government of the United States and some other Governments I happen to know of have very earnestly ex- pressed the opinion to both of the Governments involved that both alike would be considered responsible by the nations of the world for any hurtful or destructive or serious military acti- vities that take place in the Shanghai area, that this is in some respects an unusual locality, a great city of three million population in and about it built up more or less by the nationals of many countries of the world, as well as by China, and that for destructive or major or serious military activities to be instituted there or carried on would be calculated to result in unthinkable injuries and dangers both to persons and property, and that there can not be any justification for military acti- vities there. On yesterday Admiral Yarnell, in charge of the Pacific flect, requested that the 1200 marines located at San Diego be sent over to Shanghai. It will require perhaps ten days for the pre- liminary preparation and about five weeks before they can reach Shanghai. Of course we are hopeful that by that time there will be no real need for these marines at Shanghai. They may be needed for relief and replacements of those located there at present, because of the strain of keeping guard over an indofinite period of time. The question might, in the judgment of some, come up as to why we should have any guards over there, or why we should send additional forces over there at this time. I think you will recall that for some time past the Great China area has not had in parts of the country that full measure of political stability that it once had and that it is steadily approaching now. The result was the Boxer attack on the Legations in 1900. I think it was in 1912 that another outbreak occurred and all the Governments having nationals over there sent additional guards. We then sent the regiment to Tientsin. In 1927 there was an extreme nationalistic movement, and we chartered a ship and sent from San Diego to Shanghai a regiment of marines. In 1932 we had some similar experiences over there, as did other governments and other nations, Several countries had substantial numbers of nationals in this area. The question of what degree of protection, if any, this Government, as a policy, pro- poses to give its nationals abroad under given circumstances one that is more or less misunderstood and perhaps one about which some people may differ, at least in degree or in toto. I may say that BO far as this Government is concerned, the general and very definite principles governing normal and ordinary inter- national relationships were embodied in a statement I gave out to the press here about a month ago (July 16) and I think more than fifty governments definitely and in writing expressed their appro- val of those principles. We, of course, stand on them so far as our general relationships with other nations are concerned. In this connection we seek at all timesto promote and safeguard our standing and our influence from every standpoint of human progress and -3- and human welfare, and to promote desirable relations - economic, educational, social, cultural, political - with all other nations. Whenever our nationals in any part of the world are be- ing denied equal protection of laws in countries where they are, or are being unfairly treated, this Government comes to their assistance by making earnest representations under interstional law as it is universally recognized and in sup- port of the reasonable and rightful claims of our nationals. This applies to every square foot of the world's surface. But, as I said, we always undertake to carry forward this policy of cooperative international relations peacefully and in a manner mutually acceptable and mutually advantagoous. The question of force is entirely out of mind, In the case of Spain we sent our vessels to any and every port and go out into the seaport towns, if necessary, and assemble our nation- als who desire to escape from danger and carry them to places of safety, or at least away from immediate danger zonos. In countries where mob violence or violence of other disordered and unorganized groups, constituting no part of any organized military force of any government, are likely to sweep across thickly populated localities, we have mado it our policy to send vessels to remove them from danger zones. For the purpose of dealing with special conditions such as I have referred to, we have had guards at three points in China, as you may know, just as several other governments have guards in those places, to protect nationals against mob movements or from the violence on the part of any other disorganized group or groups of persons. There is nothing better understood than that. All the nations having nationals in that area are in harmony with each other so far as protect- ing international areas allotted to the nationals of other countries as a place of safety is concerned, especially at time of throatened violence, They undorstand perfectly. There is no occasion for any clash between organized mili- tary forces of any country. Military forces are so instruc- ted repeatedly and constantly. Any difference that might arise would be referred back to the capitals of their respec- tive governments. It is solely to protect nationals against the kind of disorders that I have referred to that this and other countries have had guards stationed at three points. We find ourselves naturally in between two extreme views. One is the view of extreme internationalism which rests upon an idea of political commitments. We keep entirely away from that in our thoughts and views and policies, just as we seck, on the other hand to keep entirely away from the extrome nationalists who would tell all Americans they must stay here at home; that if they go abroad anywhore for any purpose- tourist, urgent business, or otherwise, and trouble overtakes them and violence throatens, they must not expect any protec- tion from thoir government. We could today order our guards to walk out of Shanghai and leave our 3,000 and more nationals who have not yet escaped to the mercy of a mob that was actually reported as threatening there there today. And we would leave the British guards and the French guards and the guards of other nationals who were there as are ours on logitimate business in this great metropolitan city to protect their nationals and ours while we move out lock, stock and barrel and haston back to within the waters edge of this country. Now that viewpoint implies in the first place that we can very easily, by our action, just now create the definite 1m- pression in the mind of every other government in the world that we will got out gradually from this time forward in toto, and then you would find our Americans who were left behind there, as well as Americans in every part of the world, would probably be insulted with impunity by any and every nation. The apprehension arises that somebody may get hurt if they don't get right out and stay out. Of course, something like that may occur, as, in fact, it has occurred within the last forty- eight hours. We are a nation of 130,000,000 people. We have nationals in every part of the world, as you know, living out their lives and at the same time proud of their home country and keeping up, mainly, their contacts with it. It is not our pur- pose in any sense, as we seck to protect our nationals against mob and other similar kinds of violence, to overlook a single thing that would contribute to the fullost undorstanding with every other government and between all the diplomatic and con- sular representatives of each government on the ground, as well as the various commandants. We in no sense contemplate any belligerent attitudo toward anybody so far as the orderly function- ing of the diplomatic and consular services of all governments interested are concerned or BO far as organized troops or cuards of any government are concerned. On the other hand, we fronkly do not feel disposed, by leaning back too far the other way, to give other countries a chance to suppose or to suggest that we are cowardly. If we wanted to be insulted fifty times a week we only need to let the impressicnbe gained that we do not protect anybody, in these perfectly legitimate ways I have spoken of and to that extent that in no circumstances would we be disposed to protect anybody. Now I am trying to avoid both of these ex- tremos. And these policies are intended to reduce to the very minimum the happening of undesirable experiences on the part of this Government in its foreign affairs or of any experiences that would in the least be calculated to lead to misunderstanding or ill feeling as between us and other governments. Whether this middle course is the wisest and most practical is for the country to judge. We at least stand for these policies and for their application in the manner I have briefly indicated and for protec- tion of our nationals under the circumstances and to the specific extent that I have indicated. Therefore, this Government is, as a matter of pre- caution, ordering 1,200 marines to make proparations to sail for Shanghai. Of course, at any time if the threatened danger or real occasion for assistance there should disappear they can be noti- fied on the high scas by wircless to turn back. Q. Did you say at Santiago? A. I meant San Diego. Q. You also said that wouldn't be for five weeks - A. It will take about five weeks for them to make preparations and get ovor there. -5- Q. I am raw at this conference. Am I to understand the United States intends to keep our guard over there under all circum- stances? That isn't a trick question, but I am very much sur- prised at what you said, A. About the guard being there to protect our nationals? Q. Under all circumstances. A. I described specifically the circumstances. That is against mob violonce or similar disorders that may break out and where organized military groups of China or other governments are not able to cope with them. Q. I mean is the United States guard to remain there in case of an embargo, if we doclare a state of war exists? I preface this question by saying I am not used to State Department procedure. A. I an just loarning it myself. The sole question that we have in mind there and I think it is a duty we cannot shirk is the question of reasonable protection to our 3800 nationals while mob violence or similar disorders, as I say, can be reasonably anticipated and guarded against. Q. Mr. Secretary, I understand that most of the nationals in Shanghai have been asked or requested to leave Shanghai at the earliest possible moment. Do you contemplate that all of them will leave or the great majority will leave? A. That is something that is difficult to forecast. I have the improssion that beginning with women and childron and aged persons generally about twelve or fourteen hundred will get out this week, leaving around 2500 there. Then as I say - I want to make this clear. Wo could get out post haste and leave that situation and say "To the devil with it"; "We won't have any- thing to do with it." Or we could take such other steps 0.8 would leave the definite impression which it would take us a time to overcome that we were practically scutting for all purposes and whereas all these basic principles that govern international relations from our viewpoint are applicable to every square foot. Q. What I an driving at, in the evont all our nationals leave Shanghai, or the great majority, the Marine will remain in Shanghai. A. That is another matter entiroly. China has been coming for- ward in development of political and económic stability, as you know, and making real progress, and every phase-of that is being watched with eager interest on our part with a view of having warrant for bringing our guards out. That has beon on our minds for some time and we have given it constant attention. Q. This spocific situation, Mr. Secretary, is not a question of China regressing, the situation in Shanghai is due to warfare which tho Chinese have not brought on thomselves. What I have in mind, if the continuance of the war in Shanchai should make Shanghai a real theater of war and force our nationals to leave, like other nationals, we would still maintain those guards in the Bund? A. As I have said, unfortunately for us you are not in a position to attend our neetings regularly - -6- Q. Sorry, Mr. Secretary, I will be in more frequently now. A. We charge it up to you when you don't. Now I have said many times to our friends who are able to come in here that during the years several nations have felt obliged to keep guards for the protection of their nationals in such times as we have been pass- ing through. By the way, there could never be a much more perfect illustration of the need for guards than the situation we are now passing through. If anyone has any doubt his mind should be cleared of it in view of the recent and present patent need for guards. The most exhaustive plan in every detail isworked out by the combined ambassadors, consular officers, trade commissioners, naval attaches, along with the commandants of the guards of each nation, designed to protect, to give the maximum protection, against whatever disorders may arise. Then when uprising and mob violence is apparent, just ahead, special instructions are sent from this Department about every phase of the precautions and every possible method or step that would be in the least help- ful in perfecting all proper means of protoction for our nationals. That includes warning in advance to our nationals to get out, get out of the way, keep out of the way until they get further notice. It includes every kind of advice for protection by the guards when they are going to ports, as from Tientsin or Shanghai, and from day to day, almost hour to hour, those people - the ambassadors, consuls, naval attaches, commandante of the guards and others who have had most experience in the Far East and in dealing with these conditions, are in conference with a view to meeting every emer- gency as it arises from hour to hour, and, of course, we can't give them instructions about those things at this distance. They know exactly when to send a group down. They know exactly from which direction threatened danger is coming. They know BO much better than we do - outside the general zone, as we are - when to get out, when to order them out, BO we leave the immediate thing to them while the emergency exists, I am glad you brought up the subject. R. Mr. Secretary, in view of the fact that some of the things you told us, Might I ask one or two specific questions? Can you tell us the regiment of Marines? What the name is? A. I forget the name of it. Q. I will find that out. Can you tell UB whether there in any specific sailing date, sir? A. As I say, they will get roady in perhaps ten days to sail, Q. Can you tell us who will administer the fund of half a million dollars? The Red Cross? A. We will have the responsibility perhaps. That is left to Congress and I would rather not take it up until Congress has made disposition of the matter. Q. May we get this straight as to the category of this. You said at the start it would be treated OFF THE RECORD. A. Yes, I made the special request because there might be some- thing here and there I had not stated clearly. Mr. McDermott: I would like to make a suggestion. The correspon- dents -7- donts have to get on the wire with a cortain amount they have. I suggest that only two points: the request for $500, and the Marinos. I think they can uso that as announced. Just the facts. The rest please treat as background, not to be attributed to officials. Write all on your own until the Secretary has a chance to 50 over it and see what you can attribute to him. A. Thore is this phase. I am a pacifist myself, 80 far 0.0 I am aware, but I try to deal as practically as I can with concroto conditions whon they present themselves to me. Somo persons with- out a little background relating to this Marino situation might draw an ontiroly too narrow conclusion about it. Q. Mr. Secretary, wouldn't it be quite logical to interprot this 0.8 a rolief for the Fourth Regiment? A. A possible replacoment. That is truc. Q. Mr. Secretary, thore is one point that wasn't clear in my mind. There has been the urging of the Stato Department to ovacuate nationals in Shanghai. A. Yes. Q. Is this a fair impression? On the one hand now WO are urging womon, children, tourists and aged to got out swiftly as possible, giving them all aid, and on the other hand no pressure is being brought on Americans whose life and business are in China. He is going to be given protection and not going to be abandoned. A. It will be suggested to all that they get out, you understand, but asking them to do it and their actually doing it is another proposition. Q. I meant the mon who lived thore, with money and proporty there. A. I just gave a list of refugees taken from Santander in Spain. They were warned more than eight or ten months ago to get out. Q. Those business nen will be told it is not our intention to abandon them. A. Of course, they take considerable risk there. Our guards are not there to insure their safety by any means, but are there to do the best they can whon nob violence or somothing olse flares up and disease and hunger. There are two big factors that make their appearance in the wake of those conditions. Another roason why we want to get then out. Q. Mr. Secretary, just what is the procodure when you ask Congross for the sum of money? A. We first present it to Mr. Bell, of the Budget organization, and thon we depend on hin to aid in accolerating it. Q. Mr. Secretary, how will the Marines be transported? A. On a transport. 8-8- Q. Will the transport be accompanied by further warships? A. I haven't gone into th matter. The only thing I did 60 into was the question of a transport to tako those 1200 Marines. Q. There is no plan at present to increase the Asiatic squadron? A. No, nothing of any consequence, Q. Mr. Secretary, is there anything you could say about the Neutrality Act? A. I said yestorday we were giving that matter most careful atten- tion and consideration from day to day. Q. In other words, the situation remains the same until the Administration is satisfied an actual stato of war exists. A. As I say, that is all I can say. Otherwise, I would discuss overy phase of those questions in the circumstances. I would cause you people to niss lunch and I do not want to do that. 2. Mr. Scoretary, you have told us hore something that will be regarded as important, and I night say even a historical onuncia- tion of American policy. In going over the remarks it would be approciated if you would let us use what you can and take it out of the realn of OFF THE RECORD or BACKGROUND because you are the authority from whom it must come. A. I hope you folks realize I told you very little new, mercly repeated what our government and most civili zed governments have done in the past in the way of protection of their nationals. Q. It does clear the air at this point. A. I just wanted you not to forget that I haven't told you any- thing new, M. J. McDernott. PF THE SECRETARY OF STATE WASHINGTON August 27, 1937. The Secretary of State encloses copies of the telegrams and despatches indicated below. Since some of this material was transmitted in one of the Department's confidential codes, it would be appreciated if the enclosures could be returned to the Department as soon as convenient for appropriate disposition. Enclosures: Telegrams Nos. 184, August 26, to Nanking; 169, August 26, to Tokyo; 185, August 26, to Nanking; 86, August 26, 5 p.m., Caracas; 234, August 26, 10 p.m., Moscow; 561, August 27, 2 p.m., London; 26, August 26, 9 p.m., Hong Kong; 158, August 26, 6 p.m., Buenos Aires; 1203, August 26, 4 p.m., Paris; - , August 27 to Secretary from Congressman Celler; 322, August 27, 7 p.m., Tokyo; 203, August 27, 3 p.m., Berlin. TELEGRAM SENT RB GRAY August 26, 1937 7 p. m. AMEMBASSY NANKING (CHINA) VIA N. R. 184. In VIEW of the present Sino-Japanese distrubances in China it would SEEM to bE desirable that notification bE sent to American nationals and concerns in China in relation to steps to bE taken by them to obtain and put on record EVIDENCE of losses and damages suffered during the distrubances. It is suggested that such notification should bE substantially as follows: While the American Government cannot in advance and without Examination of their respective merits under- take to ESPOUSE or to present claims against the Chinese and Jamanese Governments which may bE presented to the American Government by its nationals for losses, damages, or injuriss to life or property resulting from present military operations in China, nevertheless, with a VIEW to making clear the Essential requirements of the procedure for and the steps which claimants would bE WELL advised to take with a VIEW to possible Eventual presentation of such claims, suggestions are offered as follows: Evacuated RB -2-4184, August 26, 7 p. m. to Amembassy Nanking Evacuated Americans should file with the Consulate inventories of property and best possible EVIDENCE as to Exact location, quantity, and value of destroyed, looted, abandoned, or occupied property for which they may desire indemnity. In the CASE of those nationals and concerns who EXPECT to remain on the ground unlEss forced to abandon their properties, it is of Essential importance that they take impediate steps to make a careful inventory of their properties and that this inventory bE supported by competent corroborative EVIDENCE, if procurable, and sworn to before the American Consulate. Where possible, corroborative EVICENCE of Eyewitnesses as to the destruction, looting, or forced abandonment, or occupation of property should bE obtained and Especially should effort bE made to identify the persons or forces occupying or responsible for the losses or damages. Bills of sale, receipts, or other docu- ments tending to Establish the quantity and value of the property should bE obtained or if already in the possession of claimants should bE retained for future reference. Particular stress should bE laid upon the necessity for first-hand EVIDENCE to Establish the identity of the force or forces or individuals who caused the losses, and the Extent RB -3-#184, August 26, 7 p. m. to Amembassy Nanking Extent of the losses. Where any goods or properties are taken over under requisition by either Japanese or Chinese authorities, requisition receipts should bE obtained wherever possible. In personal injury or death cases, EVIDENCE should bE obtained whenever possible as to the identity of the persons or forces that caused the injury or death, and the sworn statements of persons, including attending physicians, who can testify of their. own knowledge as to the injuries or their Effects, or as to the death and its causes, should bE obtained. Please inform Peiping and consular offices in China, Exclusive of Manchuria. HULL LE:HBC:FEH:SS PA/H S TELEGRAM SENT RB GRAY August 26, 1937 7 p. m. AMEMBASSY TOKYO (JAPAN) 169. The Department desires that you present a note to the Minister for Forzign Affairs reading as follows: "Acting under instructions, I have the honor to inform Your Excellency that my Government reserves all rights on its behalf and on behalf of American nationals in respect of damages to or loss of American property or on account of death or injuries sustained by American nationals as a result of the activities of Japanese armed forces in the course of or incident to military operations now in progress in China." Similar instruction to Nanking. HULL LE:HBC:FEH:SS FE PA/H TELEGRAM SENT RB GRAY August 26, 1937 8 p. m. AMEMBASSY NANKING (CHINA) VIA N. R. 185. The Department desires that you present a note to the Minister for Foreign Affairs reading as follows: "Acting under instructions, I have the honor to inform Your Excellency that my Government reserves all rights on its behalf and on behalf of American nationals in respect of damages to or loss of American property or on account of death or injuries sustained by American nationals as a result of the activities of Chinese armed forces in the course of or incident to military operations now in progress in China." Similar instruction to Tokyo. HULL LE:HBC:FEH:SS FE PA/H JR This telegram must bE Caracas clostly paraphrased bE- fore being communicated Dated August 26, 1937 to anyone. (A) Rec'd 6:54 p.m. Secretary of State, Washington. 86, August 26, 5 p.m. The Charge d'Affaires of Brazil called at the Legation today and stated that he had received telegraphic instructions from his Government yesterday to try and obtain a more positively favorable reaction from the Venezuelan Government to the projected leasing of destroyers to Brazil than the indifferent attitude thus far Evidenced and to enlist if possible the cooperation of the American Legation to the same End. HE also stated that he had received from reliable sources close to the President confidential information that VENEZUELA was quistly negotiating the purchase of one or more warships from Italy. Shortly afterwards the French Minister called by appointment and asked if WE were informed that Venezuela was treating secretly with Italy for the purchase of warships. HE said that his Government would VIEW such a transaction unfavorably, and he gave the impression that he hoped for some manifestation of disapproval from the American Government. Rumors -2- JR 386, August 26, 5 p.m., from Caracas. Rumors of these negotiations have bEEn reaching the Legation for some time, but without confirmation, and I am inclined to discount them in VIEW of the Foreign Minister's open and very friendly relations with this Mission. The source of these reports may bE the actual negotiations, confirmed by Captain Larrazabal, Director of the Venczuelan Marine, for the purchase in Italy of a small transport, of light draft to cross the Maracaibo Bar, to carry troops from one part of the country to another to strengthen the Government's police arm. NICHOLSON SMS:NPL JR This telegram must bE Moscow closely paraphrased bE- fore being communicated Dated August 26, 1937 to anyone. (D) Rec'd 7:30 p.m. Secretary of State, Washington. 234, August 26, 10 p.m. I am setting forth herewith certain impressions obtained by this Mission of present Soviet policies and tactics with respect to the Far East. These impressions have been gained from a study of the Soviet press and from conversations with Soviet officials, members of the local diplomatic corps including Japanese and Chinese Ambassadors and other qualified observers. One. The Kremlin is pleased that the Central Govern- ment has finally begun to offer armed resistance to Japan and is hoping that with the development of hostilities Japan will become so deeply ENMESHED in Central China that it will not bE able to pursue an agressive policy to the North. Two. Although Soviet press and spokesmen intimate the desirability of collective action on the part of Western powers in order to prevent spread of hostilities, it is believed that they would have little real sympathy for any movement which might promise peace unless such movement -2- JR #234, August 26, 10 p.m., from Moscow. movement would bE of a kind likely seriously to weaken the military power of Japan. Three. The Kremlin is determined that the Soviet Union should not become Embroiled, nevertheless, it does not desire for reasons of prestige that Japan or China should gain the impression that it will tolerate affronts. It is therefore, protesting such provocations as the recent raids on the Consulate at Tientsin and Shanghai vigorously but at the same time in such a manner that disputes arising therefrom are not likely to develop into issues solvable only by armed conflict. Four. Soviet press and officials make no secret of Soviet sympathy for China. They are careful, however, to Express this sympathy in a manner which would not give Japan ground to charge active intervention. Five. Kremlin apparently has directed its adherents in China to support the Central Government so long as that Government follows policy of resistance to Japan. It is believed, however, that Moscow would USE such influence as it has over Communist and LEft Ving Elements in China to prevail upon them to work for the overthrow of Chicng Kai Shek in CASE he should Embark on policy of temperization or mediation with Japan. Six. -3- JR #234, August 26, 10 p.m., from Moscow. Six. GENERAL impression is that Soviet Union has not as yet begun to furnish military supplies to China. Whether it will do so in the future depends almost entirely upon general international situation, direction of development of hostilities, policies of Chinese Government, and so forth. Difficulties of transportation are such that supplies in any event would probably bE limited largely to certain types of aircraft. Seven. Soviet Government is apparently Extremely anxious that the route from outer Mongalia to China through Kalgan should not fall into Japanese hands. There is even a possibility that Soviet Union would take active steps to assist Chinese in defense of route in CASE Japanese should seriously threaten it. HENDERSON SMS:RGC MG GRAY Hong Kong via N.R. Dated August 26, 1937. REc'd 6:45 a.m. 27th. Secretary of State, Washington. August 26, 9 p.m. Hong Kong British press continues to bE violently anti-Japanese to a degree remarkable for British news- papers. British civilian opinion is anti-Japanese but lESS outspoken than the press. British military headquarters informed mc yesterday that while they personally bELIEVE MOrE to oops should bE sent to Shanghai the War Office is not in full and complete sympathy with them however, one battalion of the Middle- SEX Regiment which arrived herEAugust 24th is prepared to proceed Shanghai upon 12 hours notice. Comment on the attitude of the United States has been practically nil until today when the HONG KONG TELEGRAPH in answering Editorial dealing with the Secretary of State's appeal to Japan and China to "refrain from resort- ing to war" said that "with the facts as they are, however" the time has arrived for something more definite and pointed by foreign spokesman than a uniform appeal to both sides. MG Page 2, From Hong Kong August 26, 9 p.m. sides. Japan is the guilty party, not China, and should bE plainly warned that this is the view which other nations take of her actions." Nanking informed by radio, Shanghai by mail. DONOVAN WWC DDM lw Buenos Aires A portion of this telegram must bE closely paraphrased Dated August 26, 1937 before being communicated to anyone. (A & B) Rec'd 7:15 p.m. Secretary of State Washington 158, August 26, 6 p.m. (GRAY) LA PRENSA today carries special press despatch by Heath indicating the possibility that negotiations may begin soon on a commercial agreement with Argentina. (END GRAY) The Argentine attitude of the moment seems more fav- orable toward giving us better treatment than it has bEEn for some time and I note signs of a willingness to do more provided they have some assurances of a trade agree- ment being negotiated in the near future. A few days ago the Under Secretary of Finance and the head of the Exchange Control Board suggested to the Embassy that it might bE possible to come to some verbal arrangement whereby Argentina would in fact--if not (?) grant official Exchange to (?) our Exports to Argentina for a period of say six months with the understanding that trade treaty negotiations begin before that time had slapsed. In case negotiations should not begin then the Argentines lw 2, No. 158, August 26, 6 p.m., from Buenos Aires. Argentines would revert to the status quo ante. A sug- gestion along similar lines was made on June 15 also by the Under Secretary, and formed a part of the Embassy's telegram 88, June 16, 3 p.m. I should appreciate any comment from the Department particularly on the likelihood of negotiations beginning. WERE the Embassy accordingly to assure the Argentines that trade negotiations would begin shortly or within SOME specific period, I feel that WE should bE able to secure better Exchange treatment, if not Entire relief from the present discrimination, And if possible a strong intimation of our hope would bE helpful. WEDDELL KLP WWC RB CODAT Paris Dated August 26, 1937 REC'd 4:51 p. m. SECRETARY of State Washington. 1203, August 26, 4 p. m. FROM COCHRAN. Trading still very light on Paris Exchange. Forward franc continues to bE wanted and rentes better. Bank of France statement as of August 19 showed no new advances to Government but Treasury account down to 72,000,000 francs; with circulation lower coverage was 53.14 versus 52.78. Market found nothing particularly disturbing in new series of decrees mentioned below but inclined to con- sider them artificial rather than productive. Under the special authority accorded the Government by the law of June 30, 1937 a further series of financial decrees was promulgated in today's Journal Official providing chiefly for the following: One. An immediate inquiry into production Embracing 13 branches of industry. The Inquiry Committee will include in addition to officials of Government departments, representatives of Employers and of labor. Its task will bE to propose such measures as may bE necessary to improve production RB -2-#1203, August 26, 4 p. m. from Paris production and in a general manner the situation of agriculture, industry, and commerce. Two. Improvement of commerical and industrial Equipment of commercial and industrial Equipment for the rapid increase of production through Government aid. This includes technical assistance from the Credit National by means of the allotment preferably to smaller trade and industry of interest rebates for a period of four years at most and to a maximum annual amount of 35,000,000 francs not to EXCEED 4 percent nor bE more than 50 per- cEnt of the interest actually paid on the mortgage. The rebates will bE turned OVER to a special account opEnEd with the Credit National in the name of the firm concerned and which can only bE debited for the payment of the interest due. Three. Promotion of the building industry through lower monty rates, interest rebates as above with assistance of Cradit Foncier to a maximum of 40,000,000 francs and certain tax Exemptions; Four. Easier formalities for mobilization of Government securities to permit quicker obtaining of advances from the Bank of Prance on registered state securities. Other decrees RB -3-#1203, August 26, 4 p. m. from Paris decrees relate to various branches of state credit price control, reenforcement of supervision over insurance and investment companies, pensions, price of wheat. The decree relating to the suppression of the ten percent lEVY on rentes coupons though approved is held over perhaps to include other securities such as those of the Credit National and railways. BULLITT SMS NPL MG GRAY London Dated August 27, 1957 Rec'd 9:05 a.m. Secretary of State, Washington. 561, August 27, 2 p.m. Article in the DAILY EXPRESS today from corres- pondent at Shanghai states inter alia "American Con- sular officials are surprised at Sir Hugh E. Knatch- bull-Hugeooen'o failure to warn the Japanese that hE intended driving through dangerous territory" Van- sittart sent for 11E this morning and pointed this out to IIE. HE said hE hoped it was not true that any American Consular officer at Shanghai had made such a statement and Expressed the vish that it night bE brought to the attantion of the Department as it is bound to create JOME difficulty for the Foreign Office and to be the occasion for questions. Hio observations were made very mildly and I gather that hE regards the matter as not necessarily serious but to bE regretted and as not helpful in the present difficult situation. JOHNSON PEG WWC JR This telegram must bE Berlin closely paraphrased bE- fore being communicated Dated August 27, 1937 to anyone. (C) Rec'd 11:54 a.m. Secretary of State, Washington. 203, August 27, 3 p.m. I learn indirectly through German police sources customarily reliable that orders have been issued to the secret police to begin preparations for a probable visit of Mussolini to Berlin on September 26. Copies by mail in code to Rome, Paris, London. GILBERT KLP FS GRAY Tokyo Dated August 27,1937 Rec'd 12:21 p.m. Secretary of State, Washington. 322, August 27, 7 p.m. Senior aide to Navy Minister stated this afternoon to Naval Attache as follows: Question. What was meant when you stated "blockade aims principally at destroying the fighting power of the Chinese and will not unnecessarily SEIZE Chinese VESSELS and confiscate the cargoes abourd them" and "Japanese will duly respect peaceful commerce being carried on by the third powers and will never interfere with it". Answer. The purpose of the blockade is to prevent war supplies getting to the Chinese forces. As no war Exists Japan will not interfere with the commerce of any nation other than China. Interference with Chinese trade only to the Extent of confiscating war supplies on Chinese ships. By "peaceful commerce of third powers" is meant ordinary commerce which now might include cargo of a warlike nature. A FS 2-No. 322, August 27, 7 p.m. from Tokyo A hypothatical question was asked as to what would happen to a Canadian Pacific or Dollar Line VESSEL bound for Shanghai with war material known to bE destined for Chinese forces. The answer was "No interference would bE made with that VESSEl". When asked as to the "status of Chinese VESSELS owned wholly or in part by third party" the answer was "war supplies, if on board would bE confiscated, VESSEL and remainder of cargo would bE sub- sequently freed". Armies in Shanghai are consolidating positions while awaiting the arrival of supplies such as ammunition and, probably, artillery. Army transports were said to bE used for this purpose. No offensive has been undertaken as yet, EXCEPT as necessary to gain and maintain posi- tions. Combined fleet has retired. They have had their inning and will undoubtedly not bE used for this purpose again. No army aircraft are operating in Shanghai area yet, fields in that vicinity not having bEEn completely prepared. When asked whether the army EXPECTED to move against Hangchow, the reply was that such was a general staff matter. When asked at the purpose of landing troops in Hangchow Bay, Senior aide stated landing there was only a rumor. Situation in Tsingtao quiet, has not changed in the last FS 3-No. 322, August 27, 7 p.m. from Tokyo last 48 hours. Japanese nationals, however, are being Evacuated. REPEATED to Shanghai for relay to Nanking. PEG:WWC GREW FS Washington, D. C. August 27, 1937 REc'd 1:34 p.m. Honorable Cordell Hull, The Secretary of State, Washington, D. C. I respectfully yet vehemently protest acceptance by Mr. Prentiss Gilbert, our Charge d'Affaires in Germany acting for Ambassador Dodd, now absent, of an invitation Extended by Fushrer Hitler to attend the purely political National Socialist Party Congress in Nuremberg in September. Heretofore such invitations to a purely political party convention have bEEn firmly yet politely refused by United States, by England and Franct. At such a congress republics and all forms of democratic government are Excoriated and the Nazi form of government Extolled. It is like hurling insult at invited guests. Acceptance brands us as imbeciles. HERETOFORE the spurned invita- tion annually came from the Chief of the National Socialist Party. The invitation should not bE accepted this year because Hitler personally makes the request. The drug is still poisonous despite the label. Honest dealing, regard for our national honor, protection of our Government from insult and our officials from castigation, demand refusal, otherwise you, as Secretary of State, will bE FS 2- from CELLER, August 27 bE subject to SEVERE criticism. Such an invitation is Equivalent to your requesting the German Ambassador to attend the Republican or Democratic National Convention there to bE told that the Nazi regime is a fraud on its people. Such an invitation would bE flung in your face. It is hoped you will issue appropriate instructions to prevent appEarancE of our representatives at such a gathering. CONGRESSMAN EMANUEL CELLER