CO129-560-15 Traffic of arms to China 18-2-1937 - 15-11-1937 — Page 255

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He said that the Chinese were no doubt

They

getting a lot of arms from the Continent.

had, he believed, placed large orders in Belgium

and Germany last year completed a barter arrangement by which they exchanged out of date armaments to the

value of 100 million marks, say £10 million sterling for Chinese goods (presumably wolfram amongst them).

The recent orders placed with Skoda would take a

long time to fill.

Mr. Bernard said that the goodwill of his

firm with the Chinese Government was very valuable

to them and for this reason alone they would like to

be able to accept the orders for armaments from them

if they could. Also they did not want to refuse

orders if they were going to their competitors.

On the other hand they did not want to accept orders

They were afraid that the

if they could not carry them out or if it was

contrary to the policy of His Majesty's Government

for them to do so.

Japanese might start exercising belligerent rights

and then say to the British Government "We will not

exercise the right of search provided that Hong Kong

will impose an embargo; and of course you must

realise that if Hong Kong does not impose the embargo,

besides exercising the right of search which will be

very awkward for you, we can very easily cut the

railway which links Hong Kong with Canton and the rest

of China and so completely dislocate her trade not

only in contraband, but in all other goods.

(3gd.) C.G. EASTWOOD.

1/9/37.