FO371-24687 — Page 224

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F 5752

:

27

Dec 1940

DEPARJUAL No. 2.

The Governor (Hong Kong)

144

15701/230/10

Decypher.

26th December, 1940.

D.

9. 58 a.m.

27th December, 1940,

R. 5. 35 a.m.

27th December, 1940.

No: 157.

ム

MOST IMMEDIATE.

1111111

maths they

F5679/176/10

Following for Treasury from Hall Patch and Rogers.

Telegram No. 803.

We think that this whole question cannot be satisfactorily clarified without examination with you. Meanwhile following are some of our provisional comments.

2. No reasons for paragraphs three and four. It is still our considered opinion that political reaction to your proposals will be unfavourable. Although the Chinese regard your offer of fresh assistance as mainly political (your paragraph 4) and have been inclined to take small account of the [2 grps. undec.] to be placed on your offer nevertheless their reactions will be less sober when they realise that a condition, of this assistance is that their existing sterling resources (including present stabilisation fund) as well as current receipts of foreign exchange from sterling area are to be limited in use.

3. Your suggestion would amount to using new United States dollar credit to support [grp. undec.] United States dollar exchange rate for the time as current demand for goods from America were to be replaced by increased demand for goods from sterling area. China would in effect be asked to accept continuous drain on her United States dollar resources in order to check inflation prefatory to rise in prices. Such a policy would not have commended itself to China and grp. undec.] not to regard their assistance less as a credit for currency stabilisation than as a buffer against economic effects arising from restrictions upon China's normal inflow of sterling exchange.

4. This question bristles with so many difficulties that we suggest there might be advantage in the ground being cleared by preliminary confidential exchange of views in Washington between Phillips T.V. Soong and [grp. undec.] before the opening of formal discussions in London. place of approach to Chinese Embassy in London (your telegram

We suggest this in No. 792) to which we saw objections (vide Hong Kong telegram No.156) on account of danger of leakage back to Chungking.

27

Same felt

Repeated to Chungking telegram No. 207 Washington.

[Copies sent to Mr. Waley].

Copy

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10. PEQIPTA.

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