CO129-582-22 Visit of Sir Stafford Cripps to China 13-12-1939 - 4-7-1940 — Page 50

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are obvious tendencies which are likely to affect the exchange rate. Speculation is very rife and it is a pity that so far it has been impossible to catch these speculators so as to land them with heavy losses and so encourage them to desist. Speculation has so far been too easy and profitable.

57. The state of the Stabilisation Fund is now such that it is doubtful if it will be in a position to maintain the exchange value of the dollar at or above 4d. for any long period of time, and certainly it is in no condition to withstand any major shock. Not only is it important that for sentimental as well as com- mercial reasons the dollar rate should not go below 4d., but it is equally important, in view of the setting up of the puppet Central Government and bank, that the national currency should not at this moment lose its value.

58. The one steady and reliable cash resource from outside China upon which the Central Government can rely is the remittance money from overseas Chinese. One of the remarkable incidents of the war has been the maintenance of this continual stream of money from all over the world, but particularly from the South Seas and Malaya. It speaks well for the loyalty and patriotism of the overseas Chinese that there should be no falling off in these remittances. It is not possible to arrive at any very accurate estimate of their amount, as they are not only transmitted through various banking and other channels, which can be checked, especially now that there is exchange control in so many countries, but no doubt the many returning Chinese bring foreign exchange with them in varying amounts. There are still quite large movements of population from and to China, even through the Japanese-occupied ports. For instance, the American Consul at Amoy, where we stopped to put off some 200 Chinese who had come from the South Seas back to China, told us that great numbers still returned, not, as formerly, for two years at a time, but for a few months. If something could be done inmmediately to capitalise or anticipate this fund in the form of an immediate sterling advance to the Stabilisation Fund, it might, probably, make all the difference to the currency situation, and it would be a very large factor, not only in winning the friendship of the Chinese, but also in saving China.

59. It is difficult to estimate the sort of sum that is needed for this purpose, and it depends, of course, on the period over which it is required. Judging by the experience with the first £10 million with which the fund was constituted, I should personally estimate, after discussing the matter with a number of people, including Dr. Kung, Mr. Arthur Young (the American financial adviser), Mr. C. H. Hsia (the secretary of the Central Bank of China) and Mr. Rogers, that at least £15 million would be needed to make the position safe for two years. I understand that the remittances from Malaya alone, whence they can easily be controlled, amount to £5 million a year, and, in view of this fact, it ought not to be difficult to arrange with the British Government or banks to anticipate these receipts for two years at least. This would provide a sum of £10 million, and a further sum of £5 million in respect of remittances from elsewhere would be an extremely conservative estimate for two years. Personally, I regard the need for this support for the currency as extremely urgent and also of first-class importance. However successful the Chinese may be on the military side, they cannot get through unless they can maintain their currency and their internal political unity. If either of these two latter factors go against them, disaster will overcome them. So far as the latter is concerned, that is an internal matter in which outside Governments can only give advice and encouragement for sound policies. So far as the currency question is concerned, this is a matter in which the Chinese cannot help themselves decisively, and unless Great Britain is prepared to give them at once the very moderate assistance that is required, there is a grave danger of currency collapse and the consequent collapse of their resistance.(*)

60. I have no doubt myself as to the capacity of China to repay these moneys, either out of the hypothecated remittances or out of her future exports, since the effect of the war, when it is over, will have been to increase very much the productivity and wealth of the western provinces in particular. I would, therefore, urge most strongly that, as an immediate measure, further advances be made to the Stabilisation Fund of the amount suggested.

(4) I discussed this matter both with the State Department and Treasury officials at Washington, and believe that, if Great Britain were to ask America to assist in this fund, it might result in the United States coming in to assist; in any event, the suggestion would receive the most careful consideration.

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