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‘Plucking the China Brand from the Burning‘: Britain's Economic Assistance to China and Sir Otto Niemeyer's Mission, 1940–42

Published online by Cambridge University Press:  12 February 2009

Philip Richardson
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Extract

For over four years from the Marco Polo Bridge incident to Pearl Harbour China fought alone against Japanese military expansionism in the Far East. Both Britain and the United States recognized China's strategic importance but gave relatively little in the way of material help. On the one hand sufficient aid had to be given to ensure that China continued to act as a bulwark against Japanese imperialism and to keep China from gravitating to the Soviet Union (whose aid programme was more immediate, more generous and took the form of military supplies). On the other hand assistance was limited by British resource constraints, by American isolationist public opinion and by the fear, on both sides of the Atlantic, that overt military aid would provoke Japan into widening the conflict into their own respective spheres of interest.

Type
Research Article
Information
The China Quarterly , Volume 125 , March 1991 , pp. 86 - 108
Copyright
Copyright © The China Quarterly 1991

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References

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32. Leith-Ross to Foreign Office, 6 November 1940, FO 371/24691, P.R.O. Waley to Leith-Ross, 14 November 1940; Leith-Ross to Waley 12 October 1940 and 12 November 1940, T160/1033/F15194/026/1, P.R.O. Leith-Ross thought an economic mission might provide cover for a military mission which was desirable. He also supported Clark-Kerr's suggestion that Morgenthau be consulted.

33. Waley to Phillips, 8 November 1940, T160/1033/F15194/026/1, P.R.O.

34. Foreign Office to Clark-Kerr, 3 December 1940, T160/1033/F15194/026/2, P.R.O.

35. Ibid.

36. Leith-Ross to Waley, 12 November 1940 and 21 November 1940; Waley to Leith-Ross, 14 November 1940, T160/1033/F15194/026/1, P.R.O.

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38. Leith-Ross to Waley, 21 November 1940, loc. cit.

39. Assistance to China, Foreign Office memorandum to the War Cabinet, 10 November 1940; Clark-Kerr to Foreign Office, 22 November 1940; Hall-Patch to Leith-Ross, 24 November 1940, T160/1033/F15194/026/1, P.R.O. Hall-Patch referred to King as the “High Priest” and drew attention to the speculative activities of his son (who had been “run out of Hong Kong in disgraceful circumstances”) and daughter. Hall-Patch wanted Leith-Ross to lead the mission.

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51. Memorandum of Morgenthau-Currie conversation, 16 January 1941 Morgenthau Diaries, I, p. 348.

52. The Chinese were pressing for a further $50m credit and the delivery of a modern airforce. Schaller, , U.S. Crusade p. 48Google Scholar. For Roosevelt's use of private lines of communication see ibid. p. 19.

53. Clark-Kerr to Foreign Office, 3 February 1941, T160/1033/F15194/026/3, P.R.O.

54. Leith-Ross to Rogers, 17 February 1941, ibid.

55. Rogers to Leith-Ross, 17 February 1941, ibid.

56. Waley to Leith-Ross, 18 February 1941, ibid.

57. Leith-Ross to Sterndale-Bennett (Foreign Office), 22 February 1941, ibid.

58. Ibid.

59. Hall-Patch to Leith-Ross, 8 March 1941, ibid.

60. Handwritten comment on Leith-Ross to Sterndale-Bennett, ibid.

61. Clark-Kerr to Foreign Office, 25 February 1941, ibid.

62. Clark-Kerr to Foreign Office, 4 March 1941, ibid.; Hall-Patch to Young (Treasury), 2 February 1941, T160/1033/F15194/026/4, P.R.O.; Morgenthau Diaries, I, p. 523.

63. Clark-Kerr to Foreign Office, 25 February 1941, 4 March 1941, T160/1033/F15194/026/3. Currie had Hansen from Harvard in mind.

64. Thorne, , Allies of a Kind, p. 81Google Scholar ; Morgenthau Diaries, I, p. 441. Young thought his most important recommendation was that America and Britain should freeze Chinese assets abroad, Young, , Helping Hand, p. 187Google Scholar.

65. Foreign Relations of the United States, Diplomatic Papers, 1941, Vol. 4, pp. 88–85Google Scholar.

66. Schaller, , U.S. Crusade, p. 48–49Google Scholar.

67. Clark-Kerr to Foreign Office, 4 March 1941 and Hall-Patch to Young, 2 March 1941, T160/1033/F15194/026/3 and 4, P.R.O.

68. Rogers reported Currie as privately agreeing with him that the Ministry of Finance was “the central problem of China's war effort” and that Kung's removal would be the real purpose of any mission, Rogers to Leith-Ross, 15 April 1941, T160/1098/F16829/1, P.R.O.

69. The following paragraphs are based on Roger's own account of the proceedings, “Dispute with Chiang Kai-shek,” T188/284, P.R.O.

70. Young, , Helping Hand, p. 175Google Scholar.

71. Young makes it clear that the breakdown in co-operation over the stabilization agreements was the fault of the U.S. Treasury. Paradoxically the wording of the British document was more liberal than that of the U.S. which “smacked of a colonial agreement.” He thought the sophisticated political justification for currency support was not understood by some high circles in both China and Washington. Young, , Helping Hand, pp. 175–184Google Scholar.

72. In November 1940 the Treasury and the State Department were agreed that an American should control the stabilization credits. Currie brought back with him a letter from Kung to Morgenthau confirming that Chen would be the chairman. Chen himself oonfirmed the appointment on 8 March. Morgenthau Diaries, I, 30 November 1940, p. 270, Kung to Morgenthau, 26 February 1941, p. 361: Chen to Morgenthau, 8 March 1941, p. 360. Morgenthau clearly trusted Chen and welcomed the move. Young, , Helping Hand, p. 168Google Scholar; Schaller, , U.S. Crusade, p. 37Google Scholar.

73. Chiang told Clark-Kerr that Rogers had “failed to endear himself to the Chinese and with the exception of T.V. Soong, no Chinese banker had any confidence in his judgement.” The ambassador insisted that Rogers was a good friend of China to which the Generalissimo replied “you mean a good friend of Soong.” These were views which Currie had apparently expressed to Chiang in February. Clark-Kerr to Foreign Office, 5 May 1941, 21 May 1941, T160/1098/F16829/1, P.R.O.

74. Clark-Kerr to Foreign Office, 21 May and 22 May 1941. Rogers was backed in London by the Treasury, the Foreign Office and Leith-Ross: Foreign Office to Washington, 5 May 1941 and Leith-Ross to Sterndale-Bennett, 7 May 1941, T160/1098/F16829/1, P.R.O. Later in May Henry Luce told Madame Chiang that the U.S. ambassador had a low opinion of Kung and that a change in the ministry would be in China's interest. Madame passionately defended her brother-in-law and made it clear that there was no question of him being released, Clark-Kerr to Foreign Office, 22 May 1941, T160/1248/17733/1, P.R.O.

75. Young, , Helping Hand, p. 189Google Scholar.

76. Rogers, “Dispute with Chiang Kai-shek,” T188/284, P.R.O.

77. Wilson to Waley, 19 June 1941, T160/1098/F16829/1, P.R.O.

78. Dobson, , U.S. Wartime Aid, pp. 38, 128Google Scholar.

79. Foreign Office to Washington, 5 May 1941, T160/1098/F16829/1, P.R.O. As late as September Hall-Patch was still hoping that the mission would secure Rogers’ permanent appointment on the board. Hall-Patch and Rogers to Treasury, 24 September 1941, T160/1248/17733/2, P.R.O.

80. Phillips to Treasury, 16 May 1941, Gl 301, Bank Archives.

81. Clark-Kerr to Foreign Office, 13 May 1941, Gl 301, Bank Archives, Eden to Wood, 24 May 1941, T160/1098/F16829/1, P.R.O.

82. Waley to Hopkins, 21 May 1941, T160/1098/F16829/1, P.R.O.

83. Waley to Hopkins, 26 March 1941, ibid.

84. Waley to Hopkins, 17 May 1941, ibid.; Hall-Patch to Waley, 19 May 1941, Gl 301, Bank Archives.

85. Phillips to Wilson, 24 May 1941, T160/1098/F16829/1, P.R.O.

86. Wilson to Chancellor, 10 June 1941, ibid.

87. Wilson to Waley 19 June 1941, ibid.

88. Niemeyer to Butler, 17 June 1941, Gl 301, Bank Archives. The letter was not sent but reported verbally to Butler.

89. Niemeyer to Wilson, 18 June 1941, ibid.

90. Niemeyer to Wood, 19 June 1941, ibid.

91. Wilson to Wood, 10 June 1941, T160/1098/F16829/l, P.R.O.; Addis to Norman, 18 June 1941, Gl 301, Bank Archives.

92. Niemeyer found himself “getting more and more sick of this damned place and of this damned job,” Niemeyer to Catterns (Bank), 27 August 1941; and Niemeyer to Norman, 11 September 1941, Gl 301; Bank Archives.

93. One reason for American hesitancy was that ambassador Gauss felt that the mission would prove to be another British attempt to embarrass Kung and that whilst it might have a good psychological effect, it would simply lead to a renewed request for loans with the U.S. expected to furnish the larger part, Morgenthau Diaries, I, 15 08 1941, p. 455Google Scholar.

94. Niemeyer, Report, T160/1098/F16829/1, P.R.O.

95. The China Handbook recorded the arrival of a British economic mission, China Handbook 1937–1943 (Chungking: Chinese Ministry of Information, 1943)Google Scholar. Hall-Patch warned that in view of the hostile attitude of the U.S. Treasury and the atmosphere of distrust in Washington it would be optimistic to count on a successful outcome for Sir Otto's visit, Hall-Patch to Treasury, 25 July 1941, T160/1248/17733/2, P.R.O.

96. Niemeyer to Bank and Treasury, 13 November and 26 November 1941, OV 104/85, Bank Archives.

97. Niemeyer to Bank and Treasury, 13 November 1941, ibid.

98. Young, , Helping Hand, p. 218Google Scholar.

99. Waley to Cobbold, 17 November 1941; Kershaw (Bank) Memorandum, 17 November 1941; Cobbold to Waley, 18 November 1941; Keynes to Waley, 22 November 1941; Young to Waley, 28 November 1941; Waley to Keynes, 28 November 1941; Clay to Kershaw, 29 November 1941, OV 104/85, Bank Archives.

100. Treasury to Niemeyer, 5 December 1941, ibid.

101. Niemeyer to Bank and Treasury, 5 December 1941, ibid. Young “found the idea of a large loan engaging the active consideration of the highest Chinese leadership” when he returned to Chongqing late in November and thought that Kung broached the subject to Cochran in their last meeting, Young, , Helping Hand, pp. 218, 236Google Scholar. Cochran, mentioned Kung's request for a new U.S. loan to provide a reserve fund for the Chinese currency in his report but gave no figure, Morgenthau Diaries, I, pp. 507, 529Google Scholar. The formal request for a loan was not made until 29 December, Clark-Kerr to Foreign Office, 29 December 1941, OV 104/85, Bank Archives; Gauss, to Washington 29 December 1941, Morgenthau Diaries, I, pp. 545, 599Google Scholar.

102. Niemeyer, Report, T160/1098/F16829/1, P.R.O.

103. Litvinoff, the Russian ambassador in Washington, thought the loan demand “blackmail” and warned that the funds could not be used. This view was shared by Morgenthau, , at least in January, Morgenthau Diaries, I, 29 01 1942, pp. 634–35Google Scholar.

104. Clark-Kerr to Foreign Office, 29 December 1941, OV 104/185, Bank Archives.

105. Brenan Memorandum, 6 April 1942, FO 371/31618, P.R.O.

106. Churchill seems to have been unaware of Niemeyer's mission and in January in conversation with Morgenthau, referred to him disparagingly as a “penny-pinching tool of the Treasury” and agreed to send cables to recall him, Morgenthau Diaries, I, pp. 596–97. The threat was never carried throughGoogle Scholar.

107. Niemeyer to Foreign Office and Bank, 4 December 1941, OV 104/85, Bank Archives.

108. Niemeyer to Chiang Kai-shek, 17 December 1941, OV 104/85, Bank Archives. There is a series of further memoranda in OV 9/10, Bank Archives. See also Young, , Helping Hand, p. 237Google Scholar.

109. According to Niemeyer Young “carried no guns in Washington and had been ousted (as a nominally ‘Soong’ man) by the Chinese in favour of the more showy and vapid Fox who was not an economic expert anyway,” Niemeyer, Report, T160/1098/F16820/1, P.R.O.

110. Hall-Patch to Niemeyer, 20 August 1942, Fl 301.

111. Niemeyer's scheme was for a £20m loan which at the prevailing exchange rate equalled Ch. $1,600m. Of this it is unlikely that more than two thirds (Ch. $1,000m) would have been taken up. The budget deficit for 1941 was just under Ch. $10,000m and the forecast for 1942 was much higher. The note issue began the year at about Ch. $8,000m and ended it at Ch. $15,000m. At most the loan would have absorbed 15% of the note increase and 10% of the deficit. It would simply not have been large enough to have had a significant impact on the price level, and this takes no account of subscriptions drawn from idle balances. The subsequent, much larger, U.S.-backed loans were heavily undersubscribed and Young admitted that they had a minimal effect on prices. Niemeyer to Treasury and Bank, 26 November 1941, OV 104/85, Bank Archives; Young, , Helping Hand, pp. 234–240Google Scholar.

112. Morgenthau Diaries, I, pp. 616–17.