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China (Currency Stabilisation) Bill

Volume 345: debated on Monday 20 March 1939

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Order for Second Reading read.

10.5 p.m.

I beg to move, "That the Bill be now read a Second time."

As the House knows, this is a Bill to facilitate the establishment of a fund to check undue fluctuations in the sterling value of the Chinese dollar. The reasons for the Bill are very shortly stated in the Preamble. The Preamble states, first, that it is proposed that there should be a fund for the purpose of checking undue fluctuations in the sterling value of the Chinese dollar, and it goes on to say that it is expedient, for the protection of British commercial and financial interests, to facilitate the establishment of the fund. The House will not need to be reminded at any length of the great importance and long standing of the part played by British commerce and finance in this immense country of China. If I give the House two illustrative figures, they will be sufficient for the purpose. If one goes back to about 1875, over 90 per cent. of the total imports passing into China came either direct from the United Kingdom or from India or Hong Kong; and, at the same sort of date, over 60 per cent. of the Chinese exports passed to one or other of these destinations. That, of course, was due to the enterprise of individual British merchants and commercial houses, and is undoubtedly a most important chapter in the history of our overseas commerce. Large indeed has been the extent to which industry in many parts of this country in the past has worked for the Chinese market. If one passes right on to the year before the outbreak of the present hostilities in China in 1937, and takes the year 1936, it is true to say that in 1936 the British Empire still held the first place both in the figures of imports and in the export trade figures of China.

Shortly before these hostilities began the Chinese Government was engaged in a unification of its currency, which was very successfully carried through, and a reorganisation of its central banking system, and there is no doubt at all that these improvements in technical arrangements would have further assisted British trade with China. I do not say that our total trade with China is a very large percentage of our total world trade; it is not; but it is a very important trade, well worth preserving and assisting, the more so, of course, because China is a country with an immense population, and, if there were but a small increase in the purchases per head of the population of China, that would make an enormous difference in the size of her external purchases.

I do not think there will be any difference of opinion as to the importance and value to this country of our trade with China, and there can be no doubt, of course, that if that trade is to be promoted a sound Chinese currency is a very material element. I would remind the House of one or two facts in connection with the recent development in the currency system of China. At the end of 1935, China gave up the silver standard, and made arrangements for supporting her currency by being ready to buy Chinese dollars for sterling at the ratio of about 1s. 2½d., and for United States dollars at a corresponding rate. At the same time she arranged to hold her monetary reserves in currencies such as sterling and United States dollars. That was a technical operation which required to be very skilfully handled, and, in the light of what followed this effort, I do not think opinion will differ that China would certainly have reaped her reward from these currency and other reforms had it not been for the intervention of war or some other great calamity. The outbreak of hostilities in July, 1937, has been, of course, a very severe test for this new currency system, as severe a test as any to which a new currency system could be exposed.

The first result, inevitably, was a heavy drain on the foreign exchange resources of the Chinese Government; and, while the Chinese authorities again adopted very well devised technical measures, which I will not spend time in describing, and while Chinese outside China patriotically supported their country by continuing to send their normal remittances and subscribing to Chinese War Loans—it is very remarkable how that has persisted—the strain was so great that, as I dare say the House will recall, about a year ago the Chinese authorities decided that they would reduce the value of the Chinese dollar from 1s. 2½d. to about 8½d. That change was carried through in an orderly manner and with a minimum of disturbance or undermining of confidence, and since then, considering the trials of recent months, it is very remarkable how China has found it possible to maintain her dollar at a fairly steady level. All this shows that, if the House is prepared to join in assisting and backing the exchange equalisation fund which is now proposed, it will be doing so, as far as the reputation and position of China are concerned, in relation to a currency which has passed through very difficult trials with very remarkable success.

The scheme in which we now invite the House to authorise us to join is a scheme for the purpose of supporting the Chinese currency, and our contribution, or rather, our guarantee, will not be available for any other purpose whatever. The scheme is that there should be a fund which altogether would amount to £10,000,000. Of this amount, £5,000,000 will be contributed by the two Chinese Government banks, the Bank of China and the Bank of Communications. The other £5,000,000 will be contributed in part by the Hong Kong and Shanghai Banking Corporation, which is a British Bank registered in Hong Kong, and in part by the Chartered Bank of India, Australia and China, which has its head office in London. As I have said, the fund will be used solely for exchange operations—for the purchase or sale of Chinese dollars. If there occurred an undue fall, or the prospect of an undue fall, in the dollar, the fund, of course, would purchase dollars for sterling. If the operation went the other way, it would make a reciprocal transaction.

It is not altogether unlike our own Exchange Equalisation Fund, but, of course, there is this obvious difference, that our Exchange Equalisation Fund holds gold. There will be none of that in this fund. Here the contributions are in the form of sterling, and the stabilisation fund will be used, as I have said, for the converting of sterling into dollars and dollars into sterling.

The fund will be managed, as is stated in the White Paper, by a committee of five members: two appointed by the Chinese Government banks, one by the Hong Kong Bank, one by the Chartered Bank, and the remaining member will be a British expert appointed by the Chinese Government in agreement with the Treasury, with the approval of the Hong Kong Bank and the Chartered Bank. I have no doubt that a committee so constituted will conduct these operations as skilfully as they can be conducted. The contributions made by the Hong Kong Bank and the Chartered Bank will receive interest every six months at the rate of 2½ per cent. per annum. That rate of interest, which, of course, the British banks are entitled to receive because they are providing this large fund, will be due to them from the Chinese banks. The Chinese banks have undertaken to pay it, and, having regard to the high reputation which the Chinese financial institutions justly enjoy, I feel no doubt that we may expect that interest to be duly paid. If the fund itself does not earn that amount of interest, the sterling portion of the fund being invested in Treasury Bills or something of the kind, the difference will be made up by the Chinese banks. If, for any reason, the Chinese banks fail to pay this interest to the British banks, the Treasury, by the terms of the Bill, will guarantee payment of what is short in that interest to the British banks. I hope I have made plain to the House that that ought not to occur, and that we do not anticipate that it will occur. It is only a further protection to the British banks.

The Treasury has no further liability as regards interest, but a liability might arise if the fund is wound up. It is proposed that the fund shall continue for a year, but there is a provision that it might continue beyond that if the persons concerned all agree, and if and when the fund is wound up the question will be: On the sum total of its operations, has the fund been preserved intact, or has the fund swollen, so that the capital content becomes larger, or has the fund lost? The provision is that when the fund is wound up the capital assets, whatever they are, sterling or dollars, are to be distributed, in the same proportion as their respective contributions, to the banks concerned. If that amount is exactly equal to the amount which the British banks contribute, the thing will balance itself out, and there will be nothing further for anybody to do or to find. If when the fund is wound up, it has gained some further assets, half of the addition will go to the British banks, and the British banks will transfer it to the Treasury. We shall get in return for our guarantee, our share of whatever profit is made.

If, on the other hand, when the account is wound up, the capital account of the fund shows that there has been a loss, that loss has to be met, and it is part of that loss, the share of the British banks, that we shall in that event have to find. It is impossible to say in advance which of these things will happen. I only observe that in operating an exchange fund of considerable magnitude like this, the extent of the amount and the knowledge that it is being skilfully, promptly, and impartially used, is in itself an influence which has a great effect in controlling undue fluctuations. Because this account exists and is in charge of a committee of management, it may maintain the currency of China without its registering any considerable loss. These are the provisions of the Bill, and I think, with that explanation and with the contents of the White Paper, the House will be able to judge whether it is not a Measure to which we ought to give our general support. I hope that it may be so.

It is, I believe, in the interests of the British export trade, and is in that way quite directly connected with the interests of a great mass of working people in this country who are working for a foreign market: it is a very desirable effort to maintain a connection with the Far East which has been of old standing and of very great advantage to this country. I trust that the House will think that the arrangements which we have been able to make have been skilful and prudently made and that they are such as the House will approve.

Does not the right hon. Gentleman remember that I put a question to him on a certain aspect of this Fund, and he asked me to wait for an answer until he moved the Second Reading of this Bill. The question was as to whether the operations of this Fund would be conducted in co-operation with the United States of America and France in a somewhat similar manner to the tripartite agreement of the present time?

I ask the hon. Gentleman to accept my apology. I remember his question perfectly well. I did not deliberately omit it, and I will add a word about it. We are making the efforts which I have explained. It is right to say that, in a different form, efforts to assist the financial situation in China have been made by other governments. The American Government, for example, have been purchasing silver for some time in very considerable quantities, and that all helps, but it helps by another route. So far as this particular proposal is concerned, I must ask the House, if they are prepared to accept it, to accept it as our contribution to this matter, and I am not concealing from hon. Gentlemen or from the House any international arrangements. As far as I know, there are no international arrangements in this connection.

10.29 p.m.

The right hon. Gentleman, in moving the Second Reading of this Bill, has made a resumé of trade relationships between this country and China over some little period of history. For my part, I like to think that the great and important trade which has taken place for so many years between this country and China has been due to in part, at any rate, to similarity between the British and Chinese characteristics in the sanctity of the spoken bond. Anybody who knows China, knows the great reliability that can be put on what the Chinese undertake. I hope and believe that they have found the same with regard to their opposite numbers in this country. In these days, when promises are not always kept in the letter or in the spirit, the fact that these two great countries have found this common ground, is something of which we can both be proud, and I believe that it has played a large part in the great trade which has been carried on between our two countries.

The Bill can be looked at from a number of different points of view, and I want to say a few words first on the financial aspect. The House and those in the country who have some little knowledge of finance are beginning to understand something of the meaning of Exchange Equalisation Accounts. We have a very large one in this country, running to some £550,000,000. Compared with that large sum, this £10,000,000 to us may seem a small amount, but it would be wrong to think that this £10,000,000 will be ineffective or will not last a considerable time in stabilising the pound and the dollar. It is only necessary to remember that £10,000,000 represents at present something like 300,000,000 Chinese dollars, to realise that this sum covers a very considerable amount of Chinese currency.

I can substantiate what the Chancellor of the Exchequer has pointed out, namely, that this is not a case of the British Treasury being asked to come in to support a currency which is going downhill fast. The Chinese currency has been and, I believe, will be supported by very strong forces from within and without China, and all that we are doing in giving it this additional support is to add one more buttress to a system which has already very considerable strength from its own resources. We can, therefore, look on this fund as being a very considerable help. The particular arrangements contemplated are set out in the White Paper, and the House broadly understands what is proposed. It is a very peculiar arrangement, and in parts the White Paper does not very lucidly or even grammatically explain it.

What happens is that. in the first place, two British banks will supply half the money. Until there is a drain upon the sterling resources that are being subscribed this sterling will be able to be invested. Therefore, while it is in that form it will itself be earning interest. In so far as it falls short of earning 2¾ per cent., that is to be met by a payment every six months by the Chinese banks. Further, as the sterling is absorbed in the exchange and earns no interest, the Chinese banks will have to find the full money. I do not think there is any great risk about that, but if the Chinese banks were to fail to find their balance of the 2¾ per cent., it is not unreasonable that the British Exchequer should be called upon to reimburse our banks.

If and when the fund is wound up there must be, as the Chancellor says, a settlement. The British Treasury is bearing the racket of the loss, and, therefore, if there should prove to be a profit on the working of the fund—we all hope that the tragedy which has afflicted China will be brought to an end—then the British Treasury which has borne the loss ought naturally to obtain the profit. That is the question which I put to the Chancellor of the Exchequer the other day, and I find it answered in the White Paper. But it is there in rather a curious form. I should have thought the undertaking that any profit should come to the Treasury would be an undertaking given by the banks, but, according to the White Paper, it is an undertaking given by the Treasury. I think the meaning is clear, although the words are both ungrammatical and obscure, but I presume that the Chancellor of the Exchequer and the Treasury have satisfied themselves that the meaning is embodied in the agreement they have with the banks.

It is, in fact, an undertaking given by the Chinese banks to His Majesty's Treasury.

It is, in fact, an undertaking given by the British banks to transfer what they receive in excess of their capital subscription.

That is what I should expect, and I am glad to have a confirmation that I am right. I pass to the commercial aspect of this matter. The effect of this transaction, in so far as it operates, will be to assist in keeping up the dollar in terms of the pound. The effect of that will be to make it possible for the Chinese to continue to purchase British articles at a reasonable price, and it will also have the effect of preventing the value of Chinese articles in this country falling to so low a figure as unfairly to compete with articles made here. In so far as it does either or both, it is providing an incentive, in a sense an indirect subsidy, to British trade, and this encouragement to greater trade is just that kind of assistance which the party on these benches have always supported, particularly in a case where it is a friendly country with whom we are dealing. Therefore, I have no hesitation in supporting the principle of the Bill.

Lastly, I come to the political aspect. In so far as the Bill goes, it is like the money which may be given under Part II of the Export Credits Guarantee Act, a definite support to China in its struggle against Japan, and any action, whether parallel or allied, which effects the same purpose which may be taken by the United States and France will be welcomed in this country and also in China. Apart from the direct support which this Bill gives, it is, of course, a gesture, and whether or not the Government care to admit it, it is a gesture definitely in favour of China during her struggle. As such, we on these benches welcome it as support for a peace-loving nation against an aggressive Power.

On this point, I cannot refrain from making two passing remarks, the first relating to the past and the second to the future. While the Chancellor of the Exchequer was speaking friendly words about China's relations with this country, I could not help wondering whether there was not a little remorse in his heart for the part which the Government played during the recent unpleasantnesses, or whatever they are called, between China and Japan, and the part which he himself played some years back; because it is clear that the cruel, aggressive war which the Japanese are waging with China at the present time has not only brought misery, suffering, destitution, and death to a large section of the Chinese people, but is the fundamental cause which has been destroying so large a part of the trade between China and this country and which makes this Bill necessary. We on these benches—and I believe the judgment of history—will not acquit the Government of part responsibility for allowing that war to go forward to its present stage.

With regard to the future, this Bill is, as I have said, a gesture, and it gives some tangible support to the Chinese. Of course, it does not go very far in that direction, and I do not suppose that any hon. Member on this side or on the benches opposite would say that it does. Personally, I am a little doubtful whether it goes far enough, even when one adds the support which I hope the Government will give China under the second Part of the Export Credits Guarantee Act, to which I have already referred. I think therefore that the Government would do well to consider now how far they can take any other action which will strengthen the Chinese and prevent the Japanese from attempting to obtain a stranglehold upon China. For instance, there is the present Anglo-Japanese trade treaty. It is important that we should trade with all countries, but I am not sure that it is important that we should trade with an aggressor so as to enable that aggressor more easily to prosecute a war against a peace-loving State. I hope the Government will consider seriously this question of trade relations with Japan. After all, important as trade with Japan is, the friendship of a great Empire such as China and trade with that great country are more important to us, even from the narrow point of view, than the friendship and trade of Japan, particularly when she is an aggressor State. Though I shall ask my hon. Friends to allow the Bill to have a Second Reading, I hope that the Government will stiffen their opposition to the aggression of Japan, as they are being driven by the logic of events to do in another case elsewhere. It is only through world peace and when the relations between nations exist upon a civilised basis of law, that the life of the world can recover and that trade and prosperity and the liberties of people can be preserved.

I wish to ask my right hon. Friend the Chancellor of the Exchequer one question. In the event of the Treasury incurring any loss, it will be made a charge upon the Consolidated Fund. Will that, in any way, come under the audit of the Comptroller and Auditor-General, and, as a result, will any report thereon be made to the Public Accounts Committee?

10.41 p.m.

We desire to support the Second Reading of this Measure in the belief that it will be a gesture of good will, and of more than that, to China in the grave troubles in which she is involved and for which we ourselves have had so great a responsibility in the past. It is interesting to find that there is, apparently, a certain amount of support, even in Japan, for the Measure. I noticed in the "Times" the other day the following:

"Chugai Shogyo,' the leading Japanese financial daily newspaper, discusses the British decision to establish a stabilisation fund for the support of Chinese currency in terms which, considering the atmosphere, may be regarded as support. The article is interlarded with Sharp reproofs for the British attitude to Japan, but those are customary at present, and the substance of the article suggests that in financial circles in Tokyo the British action is understood and even approved."
That really makes one wonder. I cannot help feeling that we shall have to do a great deal more to secure a free entry for British trade in that part of the world than we are doing at present. I do not know whether it would be possible for the Chancellor of the Exchequer to say anything about the freedom of British trade in the neighbourhood of Hong Kong at the present time, for we all know that it is becoming increasingly difficult for British interests to escape the stranglehold which Japan is deliberately placing upon all British trade in that part of the world. It may be that the Japanese are not displeased to see a Measure of this kind which they think is not going to do any harm to them. I regret that the Government, in their usual way, are bringing forward this Measure in far too narrow a spirit. The Preamble says:
"Whereas it is expedient, for the protection of British commercial and financial interests, to facilitate the establishment of the said fund."
That is one way of putting it, but the real object of the Measure is something infinitely bigger than that. It is intended, I take it, as some contribution to the pacification of the world, certainly to the pacification of that part of the world, and in order to assist China in her terrible and, as I believe, growingly successful struggle against the might of Japan. The Government are in fact, although perhaps it does not represent itself to them in this light, carrying out one of the Resolutions of the Council of the League of Nations. I know that until recently the League of Nations has not interested them very much, but I was very glad to hear in another place to-day that their policy now is "Back to the League." They are going back to the policy on which they won the General Election. The tragedy is that so much should have had to happen in the meantime.

I will call the attention of the Chancellor of the Exchequer to what the Government are, in fact, doing. I am delighted that they are doing it. The text of the Resolution on China adopted by the 104th Session of the League of Nations Council on 20th January this year invited the members of the League, particularly those concerned in the Far East, to examine, in consultation with other similarly interested Powers, the proposal made in the statement of the Chinese representative for the taking of effective measures especially to aid China. Dr. Wellington Koo's proposals appear in the statement which he made to the League Council, which was as follows:
"The Chinese Government desires also that the Council invite the Member States to carry out the terms of the resolutions adopted by the Assembly and the Council of the League, particularly that of the Assembly of 6th October, 1937, providing for the grant of aid to China and for abstention from taking any action which may render China's resistance more difficult. To be more specific the Chinese Government desires that the Council recommend that the Member States should extend financial and economic assistance to China."
Just what the Government are now doing:
"among other purposes for the development and reconstruction of China's South-Western Provinces and for the relief of the civilian refugees."
I think the Chancellor of the Exchequer is much too modest in coming to the House as he has to-night—too humble. He is doing something on a much bigger scale, on a world scale, which he is trying to hide from the eyes of his neighbours. I am very glad to be able to lift this transaction on to a higher level, and to make the House, and perhaps the Chancellor, realise the really fine work that he is attempting to do. At any rate the fact remains that, apart from all the British interests involved, the Government are playing their part, willingly or otherwise, in carrying out one of the Resolutions of the Assembly and Council of the League of Nations on this subject, and on that ground alone I most wholeheartedly support the Bill.

10.47 p.m.

It is very generous indeed of the hon. Member for East Wolverhampton (Mr. Mander) to say that he is delighted to hear that the Government, having won the last General Election on a policy of collective security, are now about to win the next General Election on the same policy.

That is certainly what I hope and believe is going to happen, and I am bound to say that it is extremely generous of the hon. Member sitting where he does, and after all that he has said in the last two years, to say that he is delighted. I think the hon. Member carries his suspicion of certain actions a little too far, because he tried to prove that the Japanese were very pleased about the proposals which are now before us, and yet he almost immediately afterwards admitted that they were designed to assist the Chinese, and I am sure he will equally admit that the Chinese are very pleased too. If His Majesty's Government have succeeded in pleasing both the Japanese and the Chinese at this juncture, then we should congratulate the Government. The right hon. Member for East Edinburgh (Mr. Pethick-Lawrence) accused the Government of failing to stand up to aggression in the Far East and thereby being to some extent responsible for the present situation. I would only say that the Government, as we all admit, have not been able very effectively to stand up to aggression much nearer home, and that being the case, I think it is too much to expect that they should extend their activities to the Japanese Ocean at the present time. At the same time, as the hon. Member for East Wolverhampton said, they are coming on.

I think hon. Members on all sides of the House welcome what many of us regard as this tardy assistance given to the Chinese Republic in its great battle against the Japanese. The details of the working out of this Bill, the method by which this Exchange Equalisation Fund will be operated, are ingenious and satisfactory. I think the Committee of Management, in particular, is one which will give confidence to the House as a whole and also give confidence in the Far East and in China. I would only express a little regret that the assistance did not come sooner and is not of a rather more substantial character. The right hon. Gentleman the Member for East Edinburgh said it was very similar to Part II of the Export Credits Bill. That statement, if I understood him aright, implied that he would rather like to see more assistance given to China than is given under this Bill. If that is the case, I entirely agree, because if we examine the situation carefully from the purely economic point of view, we shall see that we have in fact given practically no assistance whatever to China during the past three or four years. Whether you look at the Purchasing Commission or the Export Credits Guarantee Department, we have given no more to China up to date than we have got out of China, and I feel that, when it comes to the general question of stimulating the export trade and helping foreign countries, particularly those that are the victims of aggression, the Treasury ought to take a more generous view than it has done hitherto. If the Bill indicates a change of heart in that matter on the part of. the Government, they will receive the support of the whole House, and I cannot imagine that anyone would wish to divide against it.

10.52 p.m.

I beg to move, to leave out the word "now," and at the end of the Question to add the words "upon this day six months."

It is very ironical that it should fall to the lot of the Chancellor of the Exchequer to introduce the Bill. I have here a cutting from a book called "Inquest on Peace," written by"Vigilante." It states that the Chancellor of the Exchequer, at a private Press Club luncheon at Geneva, stated that Japan needed to expand, that she was doing for herself what Great Britain had done in the past, and that the trouble was that the Covenant did not allow for the dynamic forces which had carried us into India and were carrying Japan into Manchuria. An indignant American journalist turned to his neighbour and said, "This fellow seems to be stating the Japanese case better than the Japs can do it themselves."

Perhaps the hon. Member will allow me to say that those statements, as far as I am concerned, are untrue, and no doubt he will observe that the authority that he quotes apparently admits that he is attempting to reproduce some private conversation. I have hitherto supposed that when journalists invite people to a luncheon on the undertaking that the conversation is private, privacy is observed. The statement is untrue in any case.

It goes on to state— [Interruption.] That is so. We live in very serious times. It is because there has been too much of this kind of thing going on in the past few years that the relations between this country and other countries are not as good as they used to be. I hope to produce evidence to show that that is not the only illustration of the conduct of the Chancellor of the Exchequer in this matter of the Far Eastern situation. The Bill has for its object to facilitate the establishment of a fund to check undue fluctuations in the sterling value of the Chinese dollar. It will be impossible to check these fluctuations unless a different political and economic policy in the Far East is pursued by the Government. My hon. Friends and I are not raising this issue in any hostility towards the Chinese Government or the Chinese people. We are raising it in this way in order to express our hostility towards the Government's policy in general and, in particular, towards the policy pursued by the Chancellor of the Exchequer at Geneva, by the Minister of Health, the right hon. Gentleman the Member for Warwick and Leamington (Mr. Eden), and Sir John Pratt, whom the Chancellor of the Exchequer knew very well in 1932 and 1933.

Some people say that this Bill is not a controversial issue. A proposal to prop up private banks in this way is bound to be a controversial issue from our point of view. The Bill raises questions of what are British issues. The right hon. Member for Warwick and Leamington made a speech, which was afterwards endorsed by the Prime Minister and the Chancellor of the Exchequer. In that speech he stated that there would be no indifference where it was clear that vital British interests were concerned. What are vital British interests? Are they security of the people, justice to the people? Are they freedom, peace, and social justice? Or are vital British interests the interests of certain capital investments? Up to now —and this is where the Chancellor of the Exchequer comes in—the policy in the Far East has been one of expediency, and it is this policy which is losing us friends throughout the world and the respect which this country used to command. Just as current events in Europe are making the Government re-examine their European policy, so, if we are to gather round us friends of peace throughout the world and to command the respect and confidence which this country used to command prior to 1932, they must reconsider their policy with regard to the Far East.

We nearly lost the loan we made to Czechoslovakia, and if there is any money to be lost, the unemployed and the old age pensioners in this country could do with some money. Before we support this proposal the House has a right to know, when it is to run the risk of using £10,000,000 of the British taxpayers' money in the way proposed, what is to be the Government's policy in the Far East. Above all, I and my hon. Friends who are associated with me would like to ask the Chancellor a number of specific questions. We would like to know why the following policy was pursued at Geneva during the past few years. A proposal was made at the Assembly of the League to carry out anti-epidemic and medical aid for the Chinese people. The Chinese delegate made an offer to place £10,000 at the disposal of the League to carry out that objective, and the right hon. Member for Warwick and Leamington and the present Minister of Health expressed their sympathy, publicly and privately, for this proposal. Afterwards Sir John Pratt got into touch with the Japanese permanent delegate at Geneva. The Japanese delegate objected to any medical assistance being given to the Chinese population. It then became Sir John Pratt's policy that the League must refuse medical assistance and confine itself to anti-epidemic work. The right hon. Member for Warwick and Leamington was suddenly called home, and he left the present Minister of Health in charge of our policy at Geneva.

The Minister of Health's policy then became that for Treasury reasons he could not support such a policy, and later on he stated, both privately and publicly, "I have now received fresh instructions from the Prime Minister instructing me not to take a lead in this matter." Later the Minister of Health stated, and he let it be known, both privately and publicly, that his Government did not want to risk offending Japan by taking the lead in any humanitarian assistance to the Chinese people. There was no move to assist the ordinary Chinese people, but now there is to be a loan to prop up British capitalist interests in China. I want to ask if this is not a controversial issue when you have on the one hand a niggardly policy towards humanitarian proposals and on the other hand, as the result of pressure brought on the Government by vested interests, they now come forward with a proposal of this character. The moral aspects of this matter are serious, but at this late hour I do not want to take up too much time over this matter. But I want the House to note the political significance of this policy which has been pursued.

Here is another example of it. The Chinese delegate, Mr. Wellington Koo, who is acknowledged to be a fine type of man and a very generous man, suggested a resolution at Geneva which declared Japan the aggressor and called for economic sanctions. The right hon. Gentleman the Member for Warwick and Leamington, the present Minister of Health and Sir John Pratt told the Chinese that if they condemned Japan as the aggressor and called for economic sanctions, the United States of America would apply the Neutrality Act. If we are going to try to rally round us the whole of the peace-loving countries in the world in order to deal with a serious international situation, it is this kind of policy which will prevent us from doing it. What applies to individuals applies equally to nations. If a group of men over a long period of years play the game with one another it commands respect and confidence. But if individuals let first one down and then another, as a result confidence is undermined. And the same thing applies to nations as to individuals. The Chinese delegate moved this resolution, and that was the policy of Britain at Geneva. But the Chinese delegate, much to his credit, saw the American representative and asked him what was their policy, was this true what the British representative, Sir John Pratt, was saying? The American delegate stated that there was not a word of truth in it, and he told the Chinese delegate that the statement made by Britain in regard to America was false.

The present Minister of Health then stated to the Chinese delegate, "Britain are not prepared to apply sanctions." This matter was then referred to a committee of 23. When you know that this kind of thing is going on behind the scenes, you are bound to be concerned about the policy at Geneva.

This matter having been referred to the committee of 23 the committee appointed a sub-committee of 10, and on this committee it was left to M. Litvinoff to nominate the New Zealand people's representative to serve on the sub-committee of 10. In the proceedings of the sub-committee a resolution was proposed condemning air bombing by the Japanese army. The representative of this Government, the representative of my country, moved the omission of any reference to any bombing by the Japanese. Much to the credit of the New Zealand people's Government, their representative banged the table with indignation at that proposal and said that it was monstrous and iniquitous. The British representative then withdrew his proposed Amendment, and the proceedings went on.

All this proves that the policy of this Government during the last eight years has been to do a deal with the aggressor at the expense of the victim. The people of this country have more and more seen through that policy. The current of events has made the Government change their policy, just as they have abandoned their European policy. If we are to command the respect of Australia, New Zealand, America, and other countries which have interests in the Far East, we shall have to examine our policy with regard to the Far Eastern situation.

Here is a point regarding America which is most important. I remember when Lord Baldwin was Prime Minister a few years ago putting a question to him suggesting that we should adopt a policy of improving relations between this country and America. I knew that it was most important that all English-speaking peoples throughout the world should be welded together to defend their common interests, but I saw hon. Members over there who represent vested interests jeering and sneering at the proposal which was made at that time. We have had to carry on negotiations with America, despite the statements and manifestos issued by the Federation of British Industries, and it is to the credit of the President of the Board of Trade that he paid no regard to those statements and manifestos but put the interests of the country before those of any specific vested interest. If we are to be worthy of the support of the American people, we have to do the same thing in relation to the Far Eastern situation. Here are two extracts from American newspapers, the first from the "New York Herald-Tribune" of 6th October, and hon. Members should remember who was the representative at Geneva at that time:
"After this country's experience of 1932, it does not devolve upon the United States to take the initiative in such action, but if Great Britain is now ready, as reports from Geneva would indicate, to organise such a protest, American opinion would certainly support it."
Mr. Stimson, who was the Republican Secretary of State, stated at the time of the Manchurian affair—it is most important that the people of this country should know the truth about this matter and about who was responsible for what took place—in a letter to the ''New York Times" on 7th October, that the British and United States Governments should stop shipments of all goods to Japan. The "New York Times" also supported that suggestion.

The year 1932. I had a number of relatives in Australia at that time. They were forced to go out there for economic reasons during the slump of 1911. Those relatives sent me a number of letters asking me to draw the attention of the House to what was taking place in Australia. The hour is late, Mr. Speaker, or I should like to quote from the "Times" and to produce other documentary evidence to prove what I am saying. In certain parts of Australia, and in certain islands off Australia, there are some of the richest iron ore and other mineral deposits in the world. Two fairly large islands are practically composed of iron ore. There is a State regulation that none of this iron ore shall be shipped to any country not approved by the State Government, and one of the countries which have not been approved is Japan. But along comes a London finance company and gets round this by financing the exportation through London of this iron ore to Japan. This is the kind of thing, in addition to the policy that has been pursued at Geneva, that is undermining confidence and preventing us from securing the support of America to the extent that we should.

The paramount question at this stage in our history is, What can be done to save the people from irretrievable disaster? I hope the Government will say to the world, "We have made mistakes in the past; we admit that we have adopted a policy of expediency; but from now onwards our policy is going to be based upon a plan, based upon principles that everyone can understand. We are prepared to get round a table in order to consider what is our common objective and our common interest, and in that way to build up mutual confidence between all nations that are prepared to support a policy of that kind." As a result of this, we might develop a policy of economic co-operation and a policy of diplomatic and military co-operation, and in that way build up a collective peace system, through our resources, commanding respect and confidence. But we are not going to do it by adopting a policy of expediency. The Chancellor of the Exchequer, in particular, has been responsible for that policy at Geneva, and thus for the chaos that exists very largely in the Far Eastern situation.

11.13 p.m.

I beg to second the Amendment.

The Financial Memorandum states that we stand to guarantee £5,000,000 under certain conditions. It may be that we shall not be called upon for this sum, but we are liable, and, because of that, we have felt it necessary to draw the attention of the House to what was taking place. Many of these Bills are brought on late at night, sometimes, as we think, for the purpose of getting them through without much discussion. When the hour is late, everyone seems to be anxious to get away, and consequently speeches are curtailed; and the Government, knowing that, bring forward matters which, if brought on earlier, would have had a more thorough examination. We want this question to receive a better examination than has been given in many cases, because we believe it is the policy of the Government that has brought us to this point. It is rather unfortunate that the Chancellor of the Exchequer should be the man to bring this matter forward. I remember four or five years ago, when he was Foreign Secretary, getting up in my place and challenging his policy over Japan and China, and when I put the question to him, the cry went up from the opposite benches, "Do you want war?" I did not want war, but I wanted a stand to be made when Japan invaded China. At that time the Government of the day looked quietly on at what was taking place, and paid no regard to the plight of China.

Now we recognise what is happening. Our trade is in danger, and something must be done to save it. One cannot object to that, but one must draw attention to what has happened in the past. The Government ought not to get away with this every time. It would be far better, when the Government find themselves in a difficulty caused by their own neglect, for them to have the courage to say quite frankly that they had made a mistake—that would be an honourable thing to do—and that they were asking the House to get them out of the difficulty. When we speak about changing the system we are told that it cannot come to pass. Hon. Members will remember a famous Debate that took place here in 1923, when Mr. Snowden and Sir Alfred Mond debated Socialism and private enterprise. Sir Alfred Mond, as he then was, said:
"What is the value of private enterprise? It is this. When it fails it has got to go. That is the value of private enterprise."
To-day we find that private enterprise cannot stand up to its responsibilities. Here we have private banks, and we have to guarantee their safety. That Government have to stand behind them to the extent of £5,000,000. Probably we shall lose that; I do not know whether we shall or not. But the reason we have put down this Amendment is that the question would probably not have been examined so thoroughly if we had not done so. When he saw this Amendment on the Paper, the Chancellor would probably say, "What are these men up to? I shall have to examine my case thoroughly." And also this Amendment might arouse a little feeling among Members of our own party, who perhaps would not have anticipated that there would be any opposition. If the House decides to grant this money, all right; but we wanted to let hon. Members know what we feel about the policy of the Government which has led us to this impasse. I hope that this will be a lesson to the Government, and that when the time comes again for courage to be shown at the outset they will show it, and not let us drift into such a position as this.

11.19 p.m.

I sincerely hope that the hon. Gentleman who moved the Amendment will not press it to a Division. There is nothing that would hearten the Chinese Government and the Chinese people more than for this House to pass this Bill by a unanimous vote. I do not want to follow the hon. Gentlemen opposite in their historical discursions; I am sure my right hon. Friend the Chancellor can well defend himself. But I would like to say a word in defence and protest against the attack of the hon. Member for Stoke (Mr. E. Smith) upon a most distinguished civil servant, who, by reason of his office, cannot defend himself in this House. Sir John Pratt is one of the most distinguished and liberal-minded and sympathetic officials ever associated with British policy in the Far East. Any views he expressed at Geneva must have been expressed on instructions from the Government. Surely, the attack should be made on the Government, who are here to respond, and not on a most distinguished and liberal-minded civil servant.

Sir John Pratt is a member of the staff of the Foreign Office, and for everything he does or says, as in the case of any other civil servant, responsibility must be taken by the Government. I deprecate this attack upon a very distinguished civil servant who has rendered great service to England in connection with Far Eastern affairs. The hon. Member for Stoke-on-Trent said something about capital investment. British in- terests in the Far East are as much an interest of the working classes as of anybody else. He has only to ask his friends on that side of the House who sit for Lancashire constituencies about the cotton trade. Does he want a currency in which that trade is conducted to collapse? When anything comes to be done with regard to the cotton trade in the Far East hon. Gentlemen opposite who represent Lancashire constituencies are foremost in their demands that action should be taken, and it is rather ungenerous when action is being taken to pretend that it is some form of capitalist ramp. When the hon. Member asks why strong decisions were not taken before, it is well worth remembering that the Singapore Base has only recently been completed. If it had not been for delays when hon. Gentlemen opposite were in office, it might have been completed before and have enabled the British Government to look on the Far Eastern situation with rather a different eye.

Will the hon. Gentleman tell the House which representatives of Lancashire constituencies have made the allegations which he has suggested?

I said that hon. Members for Lancashire constituencies are always extremely keen to defend with courage the sale of English cotton goods in the Far East. This Bill provides for a very practical form of assistance to the Chinese Government who, by the loss of their coastal ports, have now lost the revenue from the maritime Customs, which was the basis of their financial structure. They have now to build up their economic life on a new foundation in the interior, and there could be no form of help more welcome to the Chinese Government than that which is now proposed.

His Majesty's Government have played their part by opening the road through Burma. We only hope that that road will be widened, extended and defended. Surely, it is right at this time that we should assist China; which, under the leadership of Marshal Chiang-Kai-Shek, has at last achieved a really united resistance. I was employed by the League of Nations in the Far East during the Manchurian dispute, and at that time the trouble was the disunity among the Chinese. None of the Chinese forces were backing up each other at all. One side or the other was constantly being let down. But now the situation in China is completely changed. Formerly irreconcilable forces of the extreme right and of the extreme left are now welded into unity, and it makes it far more easy for His Majesty's Government to extend their help. The American Government have played their part by the purchase of Chinese silver, which was the best form in which they could assist, and we are helping in this way. I ask hon. Gentlemen opposite most sincerely to allow the Chinese nation to see that this House is giving this Bill a unanimous Second Reading.

11.25 p.m.

I should not have spoken had it not been for the remarks of the hon. Member for East Fulham (Mr. Astor). All that has been said from this side of the House—with which the hon. Member did not agree—on the historical survey is founded on facts. There is no doubt that the present trouble in the Far East dates from 1931, when the present Chancellor of the Exchequer was our representative at the Foreign Office. The statement of the Japanese delegate at the League of Nations that the Chancellor of the Exchequer had made the Japanese case better than Japan could have made it herself, ought to be remembered. That is the kind of thing which has led us to where we are at the present time. Unfortunately, as far as Lancashire is concerned the small amount of cotton trade which belongs to her has been diminished even further as a result of the disastrous war which is now taking place, and as a result of exchange fluctuations and changes in the price of silver. We have therefore to be very thankful, however belated it may be and however small, for any concession which may come along to help us to maintain the markets we have got.

No matter how long the war in China lasts, and it looks like going on for a considerable time, the Japanese troubles will really begin when the war is over. If in the meantime anything can be done to maintain our markets, we must be thankful for it, and it is worth while doing. I am very loth to find myself in company with hon. Members opposite in the Lobby, but if this Vote goes to a Division, I shall, for the sake of what little Lancashire trade we have got, find myself, however reluctant, in the same Lobby as the Chancellor of the Exchequer.

11.28 p.m.

I rise merely to try and get a little more information from the Treasury. As the Chancellor of the Exchequer knows, I have taken some interest in this matter, even before it came before the House in the form of a Bill. I can assure the hon. Member for East Fulham (Mr. Astor) that if we were convinced that this Bill is for the purpose of ensuring that Lancashire should get a little more trade, it would have a warm welcome from these benches. I should be interested to hear from the right hon. Gentleman whether the Bill will bring one pennyworth of extra trade to Lancashire. Like my hon. Friend the Member for Stoke (Mr. E. Smith), I am concerned about the purpose of the Bill. If the purpose really is to foster trade between this country and China, then I say at the outset I give it my complete support; but I have my doubts. There are other British interests in China. The Chancellor of the Exchequer knows that the British bondholders have considerable interests there, and I have a suspicion that one of the purposes of the Bill is to ensure that the British bondholders shall receive their interest in so far as keeping up the exchange value of the Chinese dollar will contribute to that. I ask the right hon. Gentleman to give us an assurance, if he can, that the main purpose of the Bill is to foster Chinese-British trade.

I can give the hon. Member the assurance that that is the purpose of the Bill.

The right hon. Member for East Edinburgh (Mr. Pethick-Lawrence) mentioned the Export Credits Guarantee Fund. If we want to increase and foster Chinese-British trade I think that would have been the best way to have done it, not by creating another little equalisation fund similar to our own very large one. As to the effect of the Bill on British trade, the right hon. Gentleman gave us some figures, but he did not complete them. He told us that in 1875, 90 per cent. of the imports into China went through Hong Kong and British possessions; that 60 per cent. of Chinese exports went through the same door, and that in 1936 a substantial amount of British trade, imports and exports, followed the same avenue. But he did not tell us the percentage. It would have been possible to see how far this £5,000,000 guarantee, which the Treasury may be called upon to implement, will affect our trade at the present time, if he had done so.

I want to ask, what is going to be the position with regard to the North China area, which I imagine is capable of supplying a large volume of Chinese-British trade? I believe it is common knowledge that in that large area the Japanese Government have instituted through their puppet Government a federal Chinese dollar which has a value of 1s. 2d. or thereabouts. The trade which is being done in that area with foreign firms is done on the basis of the present currency value of the Chinese dollar— namely, 8d. or 8½d., but as all trade is going through Japanese sources in North China, not at an exchange value of 8d. or 8½d. but at a value of 1s. 2d., how is that going to affect British trade?

Will the Bill have any influence whatever on the volume of trade going through North China? It would have been interesting to have heard what is the balance of interest between the bonds outstanding and the volume of trade which even now is going on between China and this country. I do not think we can assess the position until we know the volume of this trade. I asked a question about the Tripartite Agreement. Do I understand that the purpose of the Bill is to keep the exchange value of the Chinese dollar at 8 of 8½d.? Is it to work in the same manner as our own Equalisation Account, which is for the purpose of levelling out fluctuations in the value of sterling? Will this amount of £10,000,000 operate in a similar manner, and as regards the Tripartite Agreement between France, America and this country regarding our own currency, is there to be any consultation with America and France as to the exchange value of the Chinese dollar, because they also are interested, perhaps as much, or nearly as much, as we are in that question? It is interesting to note that the United States have made their contribution by way of purchasing silver in China; at any rate, they do get some substantial commodity for the United States dollars that they advance to purchase the silver. All we shall get will be Chinese currency.

There are one or two questions on the Bill that I should like to ask, and I hope the right hon. Gentleman, if he is not able to answer them to-night, will take another opportunity of giving an answer. From where will the committee operate? Is the committee which is to be set up going to have headquarters in London and to operate mainly from London? I notice in the White Paper that the Chinese dollars purchased with sterling belonging to the fund will be held in Chinese legal tender in Shanghai or Hong Kong, of course for the account of the fund. Will the whole of the £10,000,000 be subscribed immediately after the passing of the Bill, or will certain sums of money be provided as they are required to purchase Chinese dollars? If so—if, in other words, only a portion of the £10,000,000 will be subscribed immediately—will interest at 2¾ per cent. be paid on the amount, as it were, of paid-up capital?

What is to be the control of the costs of operating this fund? Is the Treasury to have any control other than reports which will be given to them by the British expert who is to be appointed with their approval? After all, British taxpayers' money may be required in certain cases to pay for any losses which accrue in this fund. Therefore, it is only reasonable— I believe the hon. Member for Gravesend (Sir I. Albery) mentioned this point, although perhaps in a different way—that the British taxpayers should know something about the operations of this account. Perhaps the right hon. Gentleman will say whether any direct Treasury control is going to be exercised and whether the accounts are going to be lodged with the Treasury either on winding up the account or earlier. I submit that the House ought not to allow matters of this nature, and a comparatively new principle, even at this late hour of the night, merely to pass with little discussion because one Front Bench agrees with the other Front Bench that this is a perfectly legitimate Bill. I think that hon. Members, on whatever side of the House they may sit, ought to remember that they are responsible, although naturally in a smaller degree than the Treasury, for the manner in which the taxpayers' funds are disposed of.

The hon. Member for East Aberdeen (Mr. Boothby) may take that remark of mine in a cynical manner. I mean it sincerely. The hon. Member, during his period in this House, has probably given expression to the same views on various occasions. Therefore, it ill becomes him to suggest, because those views come from these benches, that they are not just as sincere as similar views which probably he has expressed on previous occasions.

It was only the hon. Member's reluctance to break with precedent, and his terror of doing anything which is out of the ordinary, that amused me.

I do not know what justification the hon. Member has for that remark. I do not think that I have ever given any indication that I am afraid to break with precedent, or, if necesary, to observe it on occasions when I think it should be observed. A truism is still a truism, from whatever quarter of the House it comes. I hope the hon. Gentleman will agree with me in that remark at any rate. I am sorry to keep the House so long at this late hour, but the right hon. Gentleman has a disarming manner in presenting this and other issues relating to foreign affairs, and perhaps that is a reason why we should be all the more suspicious when he is presenting legislation of this kind to the House. I hope the Financial Secretary will be able to answer our questions.

11.41 p.m.

Before proceeding to certain criticisms of the Bill there is one point which I would like the Chancellor of the Exchequer to explain to the House. Clause 1 says that the Treasury may guarantee the payment to any bank of interest on the amount of the contribution made by the bank to the fund but there is no definition in the Bill of what the interest is to be. It is mentioned in the White Paper but we are not passing the White Paper. We are supposed to pass the Bill and I cannot understand how such an omission from the Bill could have taken place accidentally. I do not think any hon. Member could conscientiously support a Bill which guarantees interest without any definition or limitation. We cannot subscribe to that which we are unable to describe and we cannot guarantee what has not been denned. This omission is so serious that I suggest that the Bill should be withdrawn and redrafted and submitted to the House at another time if it must be submitted at all.

I wish the right hon. Gentleman to treat this matter seriously. I am sure that the hon. Member for East Aberdeen (Mr. Boothby) as an Aberdonian would be very careful himself and I must say that I have admired the generosity shown to-night not only by the hon. Member as an Aberdonian, but by other hon. Members opposite. At the same time I have a feeling that that generosity would not have been forthcoming for even better causes than this, when the hon. Member himself shared a certain amount of responsibility in connection with the Treasury. The only other support for the Bill from hon. Members opposite came from the hon. Member for East Fulham (Mr. Astor), who expressed some noble sentiments about the working man. I take it that he was considering the interests of the black-coated working men opposite, or the black-coated opposites of working men whom he represents.

Apart from the important objection to the drafting of the Bill which I have mentioned and which may not be merely an accident, there are other objections. I object to the Government doing for private interests what they would not do in the cause of the Chinese people and of humanity and of preventing Japanese aggression; I object to the Bill because this money is very much needed here in many good causes—causes just as good as the promotion of better trade relations with China, if that is the real reason for the Bill. I object to it because I believe it is not founded on any basis of ethical principle and because it involves the risk of a loss of at least £5,000,000 to the State, while any gain from it is hypothetical. I object to it because I regard it as a patch upon the effects of a disastrous policy initiated and to a large extent, certainly, carried out by the right hon. Gentleman himself. I object to risking the loss of £5,000,000 and giving a loan of £10,000,000 in order to soothe the conscience of the right hon. Gentleman, and I cannot help feeling that to a large extent that is one purpose of it.

These objections are fundamental ones, but the Bill itself is loose in important parts. It does nothing to get rid of the causes of the very thing it is supposed to do—to check undue fluctuations in the sterling value of the Chinese dollar. We have been discussing the effects of the policy which made this Bill necessary. These undue fluctuations are caused by a deliberate attack by the Japanese Government upon the Chinese dollar. Our Government know that perfectly well, and should make representations to those who are causing the situation which this Bill, at the expense of the British taxpayer, is allegedly designed to mend. Then the committee which is to administer this money is almost entirely made up of what I should call bank nominees. The Chinese bank is to appoint two members, other banks will appoint one each, and one member, a suitably qualified British expert, will be appointed by the Chinese Government in agreement with the Treasury and with the approval of the British banks. No direct authority to any one of them comes from the Treasury; they must have the approval of these private banks, and all the administration is being done by the nominees of these banks. The committee will determine the "day to day policy" to be pursued. I should have thought that the Government would have found from among their own supporters plenty of representatives accustomed to a day to day policy. Certainly the Government ought to have better representation in the administration of State funds.

From Clause 5, studied in conjunction with the White Paper, we find that either party may determine the arrangement at any time by giving seven days' notice to the other parties. Apparently this power is unrelated to the state of the fund at any time. That is rather a dangerous Clause, and surely there ought to be some limitation there. In essence it amounts to this, that if there is a profit the Treasury may get a hypothetical and doubtful amount of it, but that if there is a loss the State must make it good to the tune of £5,000,000. As I have said these fluctuations of currency are taking place because of the war and the Japanese policy of a deliberate attack upon the stability of the Chinese currency, and the way to stop them is to make representations to those who are causing them. We have paid very dearly because we did not attempt to stop the damage, which later we spent millions of pounds to mend, in Czecho-Slovakia. Are we being asked to do the same thing in Japan? Our foreign policy has led us into the position of having to loosen the purse-strings of the British Treasury. For these reasons, and because of the fact that there are many good causes to which we could apply the money more usefully in this country, I believe we should oppose the Bill and, if it is taken to a Division, I shall vote against it.

11.51 p.m.

While this sum is very large in some ways, in relation to some things, it is a very small figure in the world of what I might call currency wars. If, as many people suspect, the fluctuations of the dollar are part of ordinary Japanese manoeuvres and machinery—it certainly would not be the worst or most striking thing the Japanese have done if it were —if we inform the Japanese that should they attempt to carry on a further currency war we will spend £5,000,000 in trying to stop them, and if they are really desirous of wasting £5,000,000 of our money, firstly how long will it take the Japanese to smash this quite tiny effort and, secondly, is any precaution being taken in the way of preparation for a counter-offensive in seeing that the Japanese do not succeed in reproducing the situation that exists already, with the difference that we shall look fools and be £5,000,000 poorer?

We on this side naturally suspect most Bills brought in by this Government and the fact that they are to support someone's currency does not make us any less suspicious. The fact that on the rare occasions when we have not suspected their legislation we have discovered in a short time what childish fools we were not to suspect it, because there was some dirty trick at the back of it, makes us still further suspicious. We are made suspicious again by the fact that the Chancellor of the Exchequer assures us that the Bill is designed simply to support British trade. It has, unfortunately, become in the last year or two the ordinary commonplace of politics that, whereas Governments used in the past to lie a little, and take the trouble to conceal the lie, the ordinary method of this Government in foreign and home policy is to lie with a sort of blatent inefficiency which does not even take the trouble to conceal the tact that it is a lie. The only statesman who has boasted of his efficiency in this respect in this Chamber is Lord Baldwin. Like other statesmen and politicians, they have employed the same technique with such regularity that they have almost become efficient in the inefficiency of it.

Therefore some of us feel very anxious as to what the real game is. We do not feel any the less anxious because there is almost a sort of Greek tragedy of appropriateness in having British trade with China supported from the mouth of the right hon. Gentleman. I suppose, whatever he did or did not say, publicly or privately, at Geneva, and whether or not the Japanese were right in saying, as they are reported to have said, that he had put their case better than they could have put it themselves—he has built up a considerable reputation for putting other people's cases better than they could themselves—it is a notorious fact that one of the reasons why the right hon. Gentleman committed this country to support Japanese aggression in Manchuria in 1932 is that the Japanese gave the assurance that they would preserve the open door to British trade when they had duly swallowed Manchuria.

One was confronted then, as one is confronted almost every day nowadays, with the old problem. Here is an assertion, say, by the Japanese that they do not intend to injure British interests. Any person who really believed that assertion and attempted to take part in public life would in any intelligent community be removed to a mental home. There is the Government solemnly asserting that they believe init and committing the country to losses of hundreds of millions of trade by so doing. One indeed wonders whether they were simple enough to believe it or whether they were agreeing to believe it because it saved them from opposing a reactionary Power by some course which was repugnant to their own interests and instincts. Whatever it is, one naturally suspects it very readily. We have from the hon. Member for East Fulham (Mr. W. Astor), carrying the authority of the reflected glory of the newspaper of one of the Government Departments, an explanation of the Government's behaviour in Manchuria.

Always hitherto, supporters of the Government have explained that really every- thing that they did in Manchuria and in lots of other places beginning with "M," was, of course, the best possible thing they could do in the best of all possible worlds, and "there was no ulterior motive. Now in steps the hon. Gentleman and says," If only the Singapore Base had been ready we should have behaved entirely differently. "What does that mean? It means that all the declarations of 1931, 1932 and 1933 were a pack of falsehoods and that we were not refraining from supporting China and opposing Japan in the interests of British trade. The Government case put by this very distinguished representative, or half-representative, of the Government is simply this —because we had not got ourselves in a proper position to be able to fight we did not fight, and we were covering it up by—

I did not try to make a case on those lines. I was merely saying that that was perhaps a contributory factor for which the hon. Gentlemen opposite when they were in the Government might have had some responsibility.

If the hon. Gentleman gets somebody to read the OFFICIAL REPORT to him he will not find the words "perhaps," "contributory" or "factor" in his speech. All he is doing, even if he does succeed in finding those words, is to alter his first explanation, which is that the Government did the wrong thing because they were not strong enough to do the right thing. I am sure that with these two explanations to choose from the Government will be grateful to the hon. Member and will in due course put him on the Front Bench side by side with the gentlemen who get into trouble for saying that the Government feel morally bound to stand by their word when everybody knows that the Government do not feel morally bound to do anything of the kind. I would like to see this Bill pass because one is often confronted with a Bill that comes too late and is too small and is introduced with some thoroughly bad motive, but which does good by accident. While deeply suspicious of it, I feel compelled to support it.

11.59 p m.

I regret having to make what remarks I have to make on this question at such a late hour. I do not participate in this discussion either as a financial expert or as an expert on foreign policy. Therefore, unlike the Chancellor of the Exchequer, I cannot claim to be bringing in a generous Measure in order to make up for a bad foreign policy in the past. I therefore think that those who are criticising Opposition Members for criticising this Bill should try to realise that it is the duty of the Opposition to do all they possibly can to point out the faults and the failings of any Government and to bring forward constructive proposals in order to strengthen any legislation that the Government bring in. I think the speech of my hon. Friend the Member for Stoke (Mr. E. Smith) was a remarkable speech inasmuch as it fully examined the past faults of the Government's policy from which this particular Bill emanates. I know that the right hon. and gallant Gentleman who is to reply has no objection to giving the House a very full and unqualified reply no matter what hour it may be. He has had considerable experience in dealing with these important Government matters at very late hours of the night and very early hours of the morning—questions that ought to be given ample scope for discussion at a reasonable hour. I was interested in hearing the pleas put before the Committee by Government spokes men. The hon. Member for Fulham, East (Mr. Astor) in a nice, quite maiden speech—

I wanted the hon. Member to interrupt me so that I could explain to the House that if it was not a maiden speech it was delivered in a very maidenly manner. The hon. Gentleman stated that this was a Bill to help the Chinese people. In 1939 the British Government are bringing in a £5,000,000 Bill to help the Chinese people because the Chinese people are being tramped on, mutilated and murdered by Japanese oppressors. The hon. Gentleman should have finished his statement and appealed to our sentiments on this side, saying that this was a great humanitarian act. But in the next sentence he said it would also help British industry, and so hon. Members on this side of the House should not criticise the Bill or vote against it. I am definitely sure the hon. Member and his friends are much more interested in British industry than in the suffering of the Chinese people.

The hon. Member must realise that we have a right, as representatives. of the people, to criticise and examine very carefully any expenditure that may be made. We also have that right as an Opposition, in view of the fact that we have asked the Government for years to undertake some measure of support to the stricken people. The hon. Member and his friends have said that if you assist any oppressed people, and give those who are being hurt by dictators financial assistance, if you do not adopt a policy of non-intervention, then you are warmongers. The Fascist states may say they do not like your policy and will go to war with Great Britain and we will be involved in a horrible world catastrophe. Those are the continual arguments when we ask for something to be done to assist the stricken Chinese people after bombing raids, and when we said the fight of the Chinese was as much a fight for British interests as Chinese interests we were described as sentimentalists.

Now the Chancellor of the Exchequer and his followers come forward and say: "Please pass this Bill. This is a good Government in assisting oppressed people. We are assisting Chinese industry. Do recognise our great generosity; pass this Bill and forget that it was the same Chancellor of the Exchequer who, as Foreign Secretary, initiated these atrocities in China. He gave Japanese aggression the support it desired." Because of the folly of the present Chancellor of the Exchequer we are now asked to assist the Chinese people by this Measure.

I would refer the right hon. Gentleman to an article in "The Sunday Express," of 15th August, dealing with his attitude to the Chinese situation. It was sent to the paper by the right hon. Member for Carnarvon Boroughs (Mr. Lloyd George), who used to be more closely associated with the Chancellor of the Exchequer before one of them stood by his principles and the other went for power and position. The right hon. Gentleman finishes the article by saying:
"When one bears in mind that Britain was also afflicted with the most ineffective Foreign Secretary that has ever paralysed its influence, it is easy to understand that Japan paid no heed to pious admonitions, whether they emanated from London or elsewhere."
He went on to refer to the American Secretary of State. I would like to know whether the Bill has been placed before us with the knowledge of our American and French friends, whether some general action has been taken and whether the right hon. Gentleman can assure the House that we shall be willing not only to do something for the Chinese people and industry but something to hamper Fascist aggression by Japan. The Government ought to come right out and say so. They ought to have got over their scare of the Fascist dictators.

I understand that the Government have a new policy now, and that the Labour Opposition are going to be asked to rally behind the Government in a Council of State to show firmness to the dictators. Now that the War Secretary has provided us with ample means in the shape of guns, the Royal Air Force is of good standing and the British Navy is an impregnable and undefeatable force, we are to be rallied to make a firm stand. I ask the Government's spokesmen to state candidly that they are now taking steps against aggression in China. It will assist the Chinese people and the British nation if he will give us a definite statement.

With regard to collaboration in 1932, the article to which I have referred states that the American Secretary of State suggested joint action, and goes on
"For this the right hon. Gentleman "—
who is now Chancellor of the Exchequer—
"was not ready. In fact, he was never ready."
That extract deals with collaboration with America. Is the Government's present step being taken in collaboration with France and America, whose interests are affected materially by Japanese aggression in China? No matter how generously or smoothly—I think that word is more appropriate to the Chancellor of the Exchequer than any other word in the dictionary—they may put their proposals, they must realise that their proposals carry out a policy that we have advocated for years, and they ought at least to have the manliness to admit that they are at last recognising that the Opposition were right in their criticisms and suggestions, and to extend some thanks to the Opposition for having guided them, even after many years, on to the right track in foreign policy and humanitarian principles.

12.11 a.m.

I should like to begin by apologising to the right hon. Gentleman the Member for East Edinburgh (Mr. Pethick-Lawrence) for any defects in the grammar of the White Paper, and to tell him that the passage to which he took exception was put in by me and not by a civil servant. I hope the House will permit my right hon. Friend and myself to derive rather more satisfaction from the adherence of the right hon. Gentleman, of the representative of the Liberal party, and of hon. Members on our own side of the House, to the terms of the Bill, than will be necessary to offset any chagrin we may feel at the very enjoyable filibuster which has been carried on by hon. Members on the back benches opposite. If it is their pleasure, I shall be delighted to sit up as long as they desire and answer their questions as well as I can.

The right hon. Gentleman the Member for East Edinburgh, in his otherwise admirable speech, made one contradiction to which I should like to call attention. While he ended his speech by saying that the Measure, excellent as it was, did not go far enough, he began with the generous and sensible admission that a sum of £10,000,000 would be extremely effective for the purpose we have in mind; and he did a sum, perhaps on paper beforehand, which I had not time to do, and said that this meant the equivalent of 300,000,000 Chinese dollars. He drew attention also to the fact that the Chinese currency is not tottering; it has been stable for some time, and has been very well supported by the Chinese Government. I shall return to the right hon. Gentleman later, but now, without attempting to confute the wild allegations which have been made by some hon. Members with regard to past history, I will answer as shortly as I can the specific questions which have been very properly addressed to the Treasury Bench from all parts of the House.

My hon. Friend the Member for Gravesend (Sir I. Albery) asked whether we should get full information with regard to possible losses on the fund, and whether, if there were a loss, the whole of the circumstances leading up to it would eventually be passed in review by the Comptroller and Auditor-General. The answer is in the affirmative. We have the right to get all the information, and it will be supplied in such a form that if, unfortunately, we make a loss, it can be examined by the Comptroller and Auditor-General and reported upon in the normal manner.

I think the hon. Member asked a little more than that. I do not think he said only "at the end, when it is being wound up." He asked whether the fund itself will be audited annually by the Comptroller and Auditor-General.

There certainly will be periodic reports. I would not like to commit myself by saying that the accounts of the fund would be made public annually. I think they would be presented in much the same way as our Exchange Equalisation Fund is presented to the Comptroller and Auditor-General.

The right hon. Gentleman first gave an undertaking that it would be done every year, and then that it would be done in the same way as our Exchange Equalisation Fund. Those statements cannot both be correct. Our Exchange Equalisation Fund is audited by the Comptroller and Auditor-General, and is brought in retrospect before the Public Accounts Committee. We are entitled to know whether that is really done in regard to this fund or not.

It will be audited every year. I apologise if I have misled hon. Members, but I am very anxious they should not get mixed up on the question of the fund being audited and of its being made public. The hon. Member for East Wolverhampton (Mr. Mander), on behalf of the Liberal Opposition, welcomed the Measure, but was rather inclined, as is the custom with him and his hon. Friends, to look a gift horse in the mouth. Actually he was effectively demolished by my hon. Friend the Member for East Aberdeen (Mr. Boothby), who pointed out that, as a result of the passing of this Bill, all parties concerned would derive benefit; and he paid the arrangements the tribute of describing them as being both ingenious and satisfactory.

Now we come to the hon. Member for Stoke (Mr. E. Smith) and the hon. Member for Leigh (Mr. Tinker). I have,' if I may say so, very seldom come across a more suspicious Member of this House than the hon. member for Stoke. The hon. Member for Leigh (Mr. Tinker) made a gallant effort to follow him in being equally suspicious, but, before the end of his speech, his good nature got the better of him. He could not himself believe that this was such a Machiavellian design as he wanted us to think. This is not a proposal to prop up private banks, as the hon. Member for Stoke suggested, and the reason we are associating these banks in the management of this fund is that, between them, they are able to provide an immense amount of ability and experience, and they have the extra merit of being on the spot. Whatever we may or may not have done in the past to help the Chinese, there is no doubt that this Bill will be a distinct help to them.

The hon. Member for Leigh referred to a very famous Debate between the late Sir Alfred Mond and the late Lord Snowden on the question of Socialism and private enterprise. I think he rather twisted the argument of the late Sir Alfred Mond, because what Sir Alfred said, if I remember rightly, was that, if you nationalise all kinds of enterprise and it goes wrong, the taxpayer has to stand the racket, but if, on the other hand, you leave enterprise to function by itself and it goes wrong, the investor has to stand the racket. I should also like to assure the hon. Member for Leigh (Mr. Tinker) that he is quite wrong in thinking that we deliberately bring this kind of Measure on late at night. My right hon. Friend and I had every hope that we should have got this Measure on about nine o'clock and have had it finished by ten o'clock.

As far as I can speak for members of the Opposition, we do not blame the responsible Minister for the bad arrangement but the Chief Whip.

In that case the hon. Member is barking up the wrong tree. In no Government Department are we so unwise as to take the chance of a Measure coming on late at night and not prepare our case. We have to know our case anyway whether the Opposition intend to probe it to the very bottom or not.

I should like to congratulate my hon. Friend the Member for East Fulham (Mr. Astor) on a speech which came in very well after the two speeches which preceded it, and to echo his hope that this Bill will, in spite of the Amendment on the Paper, get a unanimous Second Reading. He was perfectly right in saying that it would have a considerable psychological effect in China, and I was particularly glad that my hon. Friend took up the cudgels on behalf of a very distinguished civil servant, who was mentioned by name. It would be a great pity if we in this House got into the habit of bringing into the Debates here the names of civil servants who cannot defend themselves. The hon. Member who attacked Sir John Pratt really could not have chosen a worse man to attack, for, if the situation had been such that Sir John Pratt could have replied, I think the hon. Member would have caught a tartar. As I expected, the hon. Gentleman the Member for Burnley (Mr. Burke), speaking with full knowledge of what this Bill is intended to do and what it is likely to do, came out in support of it along with his own Front Bench.

That brings me now to the hon. Gentleman the Member for Bassetlaw (Mr. Bellenger), who was the most persistent and inquisitive of my questioners. His first question, Will this Bill bring trade to Lancashire? was very completely and precisely answered by the hon. Gentleman who followed him. If he really wants to be assured that the object of the Bill is what it says and not some mysterious and sinister design to assist bondholders, and if these are the conditions on which alone he is willing to support it, I give him my word that he can support it with a perfectly clear conscience. The fact that this Bill was not introduced to help the bondholders is shown, if evidence were needed, by the fact that we did not, before making these arrangements, first ask the Chinese to come to some agreement with the bondholders.

Is it expected that one of the effects will be some arrangement being come to by them, with the bondholders?

Obviously anything that increases or promotes trade between the two countries may make it easier for the Chinese Government to fulfil their obligations. [Interruption.] The hon. Member says "Ah."

One might imagine from that expression that the hon. Member would really prefer a default on the obligations to the bondholders. Does he realise that the only effect would be to reduce the purchasing power of these people, perhaps in this country, and possibly for them to dismiss people from their employment. The hon. Member asked me why our percentage of trade with China had gone down. The answer is that we had a long start there, and that a great many other nations, since 1875, came and took their share of that trade.

I cannot give the percentage, but if the hon. Member wants it I expect I can let him have it. He referred also to North China, where it is true that the Japanese have attempted, since 10th March, to introduce in certain towns an arrangement by which the legal tender money of China is declared to be worthless and all foreign exchange derived from exports has to be surrendered, in return for Japanese notes sponsored by the Japanese Federated Reserve Bank, of which the official rate of exchange is 1s. 2d. for the dollar. His Majesty's Government have already protested that such arrangements are entirely inconsistent with the Japanese promise to respect British interests in North China. It is perhaps rather more comforting to know that those best qualified to judge are inclined to think that this Japanese arrangement will in practice break down. If an attempt is made to alter the rate of the Chinese dollar from 8½d. to 1s. 2d. the immediate result seems certain to be a complete cessation of export trade. The Chinese legal tender currency will continue to circulate, except in those towns and along those railways where the Japanese have made their control effective. The Japanese plan relates to North China only, and not to the whole country occupied by Japanese troops, and not to Central China at all.

As regards the place of operation of this fund it will be Hong Kong. The £10,000,000 will be subscribed at once, and that answers the point about interest. So far as the money is not required for the purchase of Chinese dollars and is invested in sterling here, the interest will be available, and will go some part of the way towards helping the Chinese banks to pay the interest due to the British banks. The hon. Member for the Western Isles (Mr. M. MacMillan) asked me why the rate of interest had been omitted from the Bill and put only into the White Paper. The answer is that the interest is at the rate of 2¾ per cent. at the present moment. If the agreement were renewed after a year or more the rate of interest might be altered; it might go up or it might go down. That is why we have followed the normal practice of simply giving the Treasury authority to fix the interest. If the hon. Gentleman knew as much about the Treasury as I do I think he could rest assured that they would not pay more interest than they have to do.

But does it not remain a fact that there is no limit to the amount which can be paid at the end of 12 months? We have a right to be suspicious.

I suppose that if the Treasury went absolutely mad they could pay 20 per cent. But we have conducted our business fairly successfully for hundreds of years on the supposition that the Treasury will not go mad.

But is there any reason why the amount of interest to be paid should be left absolutely at large? Is there any particular reason why some upward limit should not be inserted in the Bill?

This agreement may go on for a number of years and we do not want to have to come back to the House every time. The hon. Gentleman also asked about the seven days' notice. There again there seems to be some suspicion that because seven days' notice only was required to terminate the agreement, somebody—I suppose the two Chinese banks—were going to steal a march on the simple British. Perhaps the hon. Member has not appreciated that all the four banks and the British Treasury are out to help each other and are all in the same boat, and therefore that one side has no special motive to denounce the agreement at any particular moment. The hon. Member for Hammersmith, North (Mr. Pritt) asked me, in effect, how long this fund would last. As his right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence) said, this fund is a very substantial one. It is by no means a small sum. It is not being pushed into the breach to buttress a tottering currency. The Chinese have managed to keep their dollar stable for a number of months past, and I think that the whole House will appreciate that it is just as much, if not more to the interest of the Chinese themselves to keep their currency stable as it is for us.

I asked how long would it last if the Japanese chose to make an attack on it, and whether precautions are being thought out and taken to rebut a determined Japanese assault.

That is no reason why I should not be told what is to be done. There is first an attempt to stop normal fluctuations without hostile attack, and, secondly, precautions which may have to be taken if a deliberately hostile attack is launched.

I do not agree with the hon. and learned Member. I always understood that the object of an exchange fund was to counteract hostile attack, and that, I imagine, is what this fund is for. But I do not think there is any sense in making advance plans for various hypothetical circumstances. The hon. Member for Maryhill (Mr. Davidson) referred again to a question which, if I may say so with respect, had been raised before he came into the House. It is the question as to whether this particular agreement was similar to the Tri-partite Agreement between ourselves, the United States of America, and France, about which the House has often heard so much, and the Chancellor of the Exchequer replied that that was not the case. This particular operation which we are asking the House to approve in the Second Reading of this Bill is our contribution to help Chinese currency. The United States of America have made their contribution and have been making it by the purchase of silver. That is not to say that we do not keep the United States of America and France closely informed as to what we intend to do, and the House will be able to deduce from recent statements of policy that our objects are the same. As the right hon. Gentleman the Member for East Edinburgh (Mr. Pethick-Lawrence) said in asking his own followers to give a Second Reading to the Bill, the object of this Bill is to keep up the Chinese dollar in terms of the £ and to prevent those fluctuations which are so disastrous to trade. It will, of course, have the merit of enabling the Chinese people to buy more in this country, which will help them and will help us. I do not think it would be fair to describe this Bill as an anti-Japanese Bill. This Bill is a pro-Chinese Bill and a pro-British Bill. I believe that when all is said and done the greatest beneficiaries of this Measure, if the House passes it, will be the ordinary people of China themselves in their millions.

Question, "That the word 'now' stand part of the Question," put, and agreed to.

Bill read a Second time.

Bill committed to a Committee of the Whole House for To-morrow — [ Captain Water house.]