THIS DOCUMENT IS THE PROPERTY OF HIS BRITANNIC MAJESTY'S GOVERNMENT
68
FAR EASTERN (CHINA).
CONFIDENTIAL.
October 17, 1938.
SECTION 1.
[F 10937/78/10]
(No. 734.) Sir,
Viscount Halifax to Sir A. Clark Kerr (Shanghai).
Copy No. 65
Foreign Office, October 17, 1938. THE Chinese Ambassador asked to see me this morning and left with me the annexed memorandum, marked (1), drawn up by the Chinese Government. He also left a further memorandum. which I have marked (2), repeating the strong personal expression of opinion by Chiang Kai-shek, which he wished to be also placed before His Majesty's Government.
2. In development of these papers his Excellency expressed the view that the invocation of article 16 in the case of Abyssinia had been unfortunate, inasmuch as there was no prospect of the Abyssinian resistance being sufficiently prolonged to permit the operation of sanctions to exercise its full effect. In the Chinese case it was, however, to be anticipated that the war would continue for a very long time, even after the prospective fall of Hankow. There was, therefore, ground for expecting that the measures suggested in the memorandum of the Chinese Government, though not likely to be immediately effective, would exercise a growing and cumulative effect.
3. The Ambassador emphasised the significance of the steps recently taken by the United States Government. Mr. Cordell Hull had taken action discouraging the United States aeroplane manufacturers from sending aeroplanes to Japan, and the Department of Commerce had also discouraged American traders from giving any kind of credit to Japan. These two things had had considerable value in assisting towards what the President of the United States had privately described to a Chinese visitor as to the end for which we all had to work, namely, an effective stalemate. If this could be achieved it would, in his view, be possible to place sufficient pressure upon Japan to make her accept a just settlement. According to the Ambassador, the President had supported this opinion by saying that at the beginning of the struggle Japan had found herself in possession of a gold reserve of 800 million yen. A month ago this had fallen to 300 million; and at the end of this year it was expected to be in the neighbourhood of 100 million.
4. The Ambassador understood that the United States had in contemplation further administrative steps, and he expressed the strong hope that His Majesty's Government might find it possible, in consultation with the United States, to take parallel action with the same purpose. Apart from the desirability of shortening the war and minimising its horrors, the Ambassador felt sure that we here should not be blind to the direct, even if still prospective, challenge to British interests involved in Japanese action. The new thrust of Japan in the south with the object of cutting the Hong Kong-Canton Railway was bound to prejudice British interests at Hong Kong, and there was no doubt that we must have this fully in mind. The general feeling of his Government, vigorously expressed by Chiang Kai-shek in his personal memorandum, was that Japan had been emboldened by recent events to base her own policy upon the assumption that in no circumstances would His Majesty's Government do more than protest against it, whereas if we were only prepared to react vigorously where our interests were endangered, we should both ourselves reap direct advantage and also contribute to the general weight of influence that, if supported, would ultimately compel Japan to pursue a more reasonable policy.
5. The Ambassador then said that, once the Hong Kong-Canton Railway was cut, the only means of entry for supplies into China would be by road and, in this connexion, he expressed the earnest hope that we would do everything we could to facilitate the completion of the road from Burma and be as liberal as we could in the matter of export credits for lorries and the like.
6. I told his Excellency that I should have both his papers carefully examined and that, as he well knew, we should wish to do whatever we rightly
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