China: Credits.
686/ f /40
No. 429.
BRITISH 3KBA.SSY,
WASHINGTON, D.C.
10th Kay 1940.
m Lord,
I have the honour to acknowledge
the receipt of your despatch ffe. 167 19 1057/230/-
10) of February 19th, and to inform you that
enquiries have been made of various officials at
the State Department and of Vr. 7/arren J'ierson,
President of the Import-Import Bank, regarding
the negotiations conducted by the Chinese Govern-
ment in connexion with the grant of a further
export credit from the United States.
2.
*77 A-
The original credit granted by the
Sxport-Import Bank to the Universal Trading
Corporation, which is in fact the agent for the
Chinese Government, was for the sum of $25
million.       Very widely distributed purchases
have been made by means of this credit and up to
..larch 31st last some C-17& million of the total
oredit had been disbursed.       Of this $17£ million
some $2| million had been repaid, this sum
representing half the proceeds of the sale of tung
oil imported into this country from China.
3.
As reported in my despatch No. 275
of i arch 20th, a Bill was passed by Congress on
i/arch 1st increasing the lending authority of the
Export-Import Bank from $100 million to 200
The rtight Honourable
The Viscount Halifax, K.G.,
etc.,   etc., etc.
\i
/million
HI.'B: GHSP: R0: m: FRH1.<: KIP
million, end permitting fresh credits up to the amount
of $20 million - in addition to any credits in exis-
tence before the passage of the Act - to be made to
any one foreign country.     In accordance with this
authority the Export-Import Bank granted a further
oradit of 520 million to the Universal Trading
Corporation early in March.      The total credits
granted to China by the Kxport-Import Dank therefore
amount to *45 million.      The Chinese Government have
expressed their intention of endeavouring if possible
to amortize the new loan of $20 million by deliveries
of tin over the next seven years.        No arrangements
have been made for the delivery of any other commodi-
ties such as wolfram, copper or bristles in
connexion with this new loan,
4. Tbere is no evidence of any other
negotiations on the part of the Chinese Government to
obtain additional credits in this country. The
Sxport-Import Bank is debarred by the recent A.ct from
granting any further loan beyond the $20 million
credit, and officials of the 3tete Department have
disclaimed any knowledge of loans or projected loans
to the Universal Trading Corporation from sources
other than the Export-Import Bank.
5. Nor have the State Department been
able to oonfirm the report from the French Ambassador
in China that the Chinese Government were negotiating
for the purchase of $20 million worth of war material
In the United States.      The credits granted to China
/by
- 3 -
by the Export-Import Bank may not be used for the pur-
chase of war material, though, as has been pointed out
by officials of the State Department, there is nothing
to prevent these credits being substituted for other
available funds which in turn could be used for the
purchase of arms in this country, while the definition
war material does not, of course, include articles
such as trucks and lorries.      It is the fact, accord-
ing to the State Department, that the issue of licences
for the export of war material from this country to
China has increased appreciably during the first three
months of 1940.       During this period licences up to
the amount of 37.3 million have been issued as compared
with a total of $5 million for th* whole of 1935. The
State Department do not however think that any special
significance need bo attached to this increase sinoe
there is normally a lag of anything up to twelve nonths
between the issue of licences and exports.       In the
first three months of 1940 the exportsonly amounted to
$900,000.      The State Department do not appear to think
that there is eny reason to believe that the Chinese
Government are accelerating their purchases of arms in
this country more rapidly than is indicated by the
increase in the licences issued.
I have the honour to be,
with the highest respect,
My Lord,
Your Lordship's most obedient,
humble servant,
(3gd.) L0THI>N.