-2-
36
again I am not clear that after prominent part I played in getting Corps Diplomatique to acquiesce in increase of Washington Surtax it would be particularly opportune for that surtax to be used as security for a
British loan.
Whilst realising the force of some of your argu-
ments and mentioning those above I would sum up my
advice as follows:- until Nanking government agree
to honour reorganisation loan it would be folly to
issue any further loan to any part of China nominally
under their control. Damage to China's future credit
is the only lever we have and it is to some extent effective. But once she agrees to honour her bond I believe advantages of financing Li Chai-sum would out-
weigh disadvantage.
Li Chai-sum is said to be due at Peking shortly
and I shall then take any opportunity that offers to
try to drive the moral home.
Addressed to Foreign Office, repeated to Canton
and Hongkong.