Foreign Relations of the United States Diplomatic Papers, 1934, The Far East, Volume III

893.5151/361: Telegram

The Counselor of Legation in China (Peck) to the Secretary of State

Nanking, February 21, 1934—2 p.m.
[Received February 21—10 a.m.]

19. Following supplements my February 21, 9 a.m. to the Legation.⁷ Arnold, Commercial Attaché, and I held conversation today with two Chinese bankers and we present following synopsis of their remarks:

(1) Chinese bankers and merchants are almost in a panic because of their apprehension that the American Government will take some measure to stabilize silver at a high level. The Chinese believe that if this were done it would result in draining silver from China causing restriction in credit, receding of loans, depressing of commodity prices and in short a financial panic.

(2) The Chinese Government is already giving serious consideration to a silver export embargo or at least to the imposing of an export duty on silver sufficient to correct the difference between the silver price in China and the price as may be determined by the American Government. Many Chinese fear, however, that such an export duty could not be made effective for the purpose in view as against all nationalities.

(3) The fear of the Chinese public opinion that the measures taken by the American Government may create an artificial value for silver is based on the belief that commodity values would not correspondingly rise and the net result would be draining of silver from China for export to the United States and possible investment there, without any stimulus to export trade and correcting of the present unusually unfavorable balance of China’s trade. The net result would be a general depression of commodity prices further accentuating the economic crisis.

(4) Chinese bankers and merchants fear that if this situation arose the Chinese Government would feel driven to follow the example set by other countries and attempt to “manage” the currency and commerce and they are fearful of disastrous results therefrom.

(5) The Central Political Council is now giving consideration to the ratification of the London silver agreement and while public opinion is divided the general consensus seems to be that the Chinese Government should not ratify this agreement but should retain liberty of action to take any measures which may be necessary to protect the interests of China in whatever silver situation may arise.

Arnold requests that copy of this be sent to Commerce.

Repeated to the Legation.

Peck

7. See telegram No. 96, February 22, 11 a.m., from the Minister in China, infra.