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DEPARTMENTAL No. 2.
Decypher.
The Governor (Hong Kong).
18th December, 1940.
D.
R.
1.30 p.m. 5.25 p.m.
19th December, 1940. 19th December, 1940.
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No. 139.
IMPORTANT.
*******
5?
1
Paragraphs [?Grp. omitted] and 6 your telegram No. 3144, to Washington.
Following for Treasury from Rogers.
As I see them, your proposals mean that:-
(a) In return *for* five million pounds currency loan and
five million pounds export credit action approved.
(b) China's receipts of sterling from Empire are to be blocked and only available to buyers of goods from Empire.
In other words, in spite of export and scrap difficulties of Empire, China's markets and sources of supply are to seek a new equilibrium at which goods become available to take care [sic] of 5 million pounds export credit and to absorb [?Empire] balance under (b). Unless this point is reached, currency will have no meaning for stabilisation purposes and China moreover will be asked to lend her foreign exchange under (b) to Empire.
Even
2. You may feel it possible to make arrangements with Dominions which would overcome present export difficulties and make necessary volume of goods available to China. should this be accomplished, I do not as yet see that the effect from the point of view of the Empire war effort would be other than unfavourable, on account of adverse developments of barter terms of trade resulting from necessary conditions of depreciation of sterling against Chinese currency.
3. Effect on China on the other hand, of an unnatural change in direction of her foreign trade, is likely to be further undesirable disturbance to price situation accentuated by a severe fall in United States dollar rate in face [Grp. omitted: ?of] inelastic demand for current imports from United States. Such a development can only have most serious consequences in the present uncontrolled inflationary situation which is my constant anxiety. Application of *your** *?arrangement] for tying up China's sterling *cannot* but *be* particularly severe shock to present delicately poised economic and financial situation and expose China to uncertainties of
periodical/
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