The Ambassador in China ( Johnson ) to the Secretary of State
[Received 1:20 p.m.]
179. Tokyo’s 207, March 26, noon. Craigie’s statement regarding seriousness of threat to foreign business in parts of China occupied by the Japanese through activities of so-called Joint Reserve Bank is confirmed by messages which Embassy has sent from Peiping and which Consulate has sent from Tientsin over the past 3 months that the Joint Reserve Bank using silver stocks remaining in North China (Peiping’s 47, January 21, 6 p.m.14) and presumably backed by a considerable yen credit (see Peiping’s 161, March 10, 5 p.m.; Tientsin’s 60, March 12, 2 p.m.; and Peiping’s 169, March 15, 1 p.m.15) would appear to be issuing a new currency linked with the yen which will be declared legal tender in areas occupied by the Japanese. To prevent a flight from the yen through this new currency, Japanese Government will in my opinion be compelled to compose a very tight exchange order system throughout areas of its occupation, and it may [Page 8] confidently be expected that this system of license will be manipulated strictly in the interest of Japanese business (see Peiping’s 176, March 18, noon16) and the Japanese yen.
Such conversation as I have had with business men and others, and an examination of messages outlining efforts of British Government to work out an amelioration of the situation, as for instance the preservation of the Customs and Salt Administrations,17 and the preservation of the exchange position vis-à-vis foreign banks and foreign trade, seems to me to indicate a failure to appreciate the fact that, whatever the outcome, conditions in China promise to be profoundly different from those which existed prior to July 7, 1937. If Japan succeeds, Japan will interpret its declared intention of maintaining the Open Door and its desire to respect it as not including steps necessary to enable foreign business and foreign interests to continue to function in China as they have done in the past. The Japanese Government will, I foresee, welcome foreign cooperation in the rehabilitation and future development of this country, but that cooperation will be limited to the supply of funds, as Japan will be able to supply ample personnel at a low cost, and will endeavor to supply material at an equally low cost to meet the requirements. The door will be open to the investment of foreign funds in Japanese enterprises.
And the respect extended to foreign interests will be the respect which is given to exhibits in a museum retained because of their historic value.
It may be that through our control over silver prices we may be able to compel Japanese to set aside a share of exchange for American banks. A problem of prime importance is going to arise when Chinese Government will be asked to furnish gold exchange for American share of their funds collected in areas occupied by the Japanese in the inconvertible paper of the so-called Joint Reserve Bank.
Repeated to Peiping and Shanghai. Shanghai please repeat to Tokyo.