§ 10.14 p.m.
§ Colonel Crosthwaite-Eyre (New Forest and Christchurch)
I beg to move,That an humble Address be presented to His Majesty, praying that the Order, dated 9th February, 1948, entitled the Exchange Control (Payments) (Japan) Order, 1948 (S.I., 1948, No. 220), a copy of which was presented on 10th February, be annulled.I would ask that, with your permission, Mr. Speaker, the other two Motions on the Order Paper should be taken at the same time. I think that it would be for the convenience of the House if that were done. They are:That an humble Address be presented to His Majesty, praying that the Order, dated 9th February, 1948, entitled the Exchange 1368 Control (Payments) (China and Formosa) Order, 1948 (S.I, 1948, No. 221), a copy of which was presented on 10th February, be annulled.That an humble Address be presented to His Majesty, praying that the Order, dated 2nd February, 1948, entitled the Exchange Control (Payments) (French Franc Area) Order, 1948 (S.I., 1948, No. 90), a copy of which was presented on 3rd February, be annulled.
§ Mr. Speaker
There are three Prayers on the Order Paper, and it seems to me that the same point runs through all three. I am sure it would be for the convenience of the House if they were taken together. If necessary, of course, if the hon. and gallant Gentleman wishes, they could be called separately for a Division.
§ Colonel Crosthwaite-Eyre
I am much obliged, Mr. Speaker.
I think this Motion comes at an appropriate time, because yesterday we received from the Government their Economic Survey, and it appears from that Survey that one of the things that must count most in the coming year is how far we can restore the classical balance of payments, particularly as related to Far Eastern areas. I would remind the House that, for a long time, we in this country have depended very largely for our hard currency, and certainly Western hemisphere currency, on the fact that we were able to export to the Far East, and that raw materials bought by the Western hemisphere from the Far East gave us the currency needed for our purchases from America. Therefore, these orders must have a vital bearing upon whether, in fact, those statements made in the Economic White Paper, and those aspirations set forth by the Government, can be brought to fruition during the coming year. I wish to quote to the House three very short statements from the Economic White Paper. The first two are in paragraph 67, in which it is said, first:A third aim must, therefore, be to do all possible to expand production and sales of those things which can be sold in the United States, Canada or the Argentine, and other hard currency markets. …Secondly, in the same paragraph, it is said:The other Sterling Area countries are being invited to exercise similar measures of economy in the use of dollars.1369 Thirdly, in paragraph 78, where it talks about the overall situation, it is said:In this situation our policy must be to maintain as high a level of trade as we can without"—and I stress the word "without"—a net expenditure of gold or dollars.Paragraph 2 (1) of each Order, respectively, permits from China, from Japan and from the French franc area a payment to be made to the account of a person resident in the scheduled territories. We are raising this matter tonight purely for the purpose of finding out what will happen if that provision is allowed to go through as it now stands. I think it is fair to say that, for practical purposes, in the Far East the territories can be reduced to Hong Kong which, very rightly, has been called our "shop window" in the Far East. It is the centre, not only of our trade there, but of our trade with China, both internally and, through her, with the rest of the world. It is of vital importance, if we are to have any real control over our trade in the Far East, and if we are to try to get back to the classical system of payments, that what happens in Hong Kong should be in accordance with our general scheme of payments.
First of all—and I think it may come as a surprise to some hon. Members—there is a free market in gold and dollars in Hong Kong. Whereas, as far as I know, throughout most of the scheduled territories, those regulations and rules of exchange control are in force, that is not the case in Hong Kong. With a very limited number of exceptions, traders who secure dollars or gold, or other hard currency, are allowed to keep it, and are not forced to surrender it to the central authority. In all fairness, I will mention what are the exceptions. In the first case, those who export desiccated coconut, raw rubber, peppers, and diamonds have, at the moment, to surrender the whole of the exchange they may receive. That order has only come into force in the last eight weeks; before that, it was not necessary for those exporting such goods so to surrender that which they received.
In addition, those who export tung oil, silver and tin have to surrender one-quarter of what they may receive in foreign exchange. This can only mean that there is a great deal of foreign exchange available on the free market in 1370 Hong Kong, and that there is always a chance for anybody who has currency there to dispose of it, not to the sterling area pool for the benefit of those partners who, at the moment, are striving to make sterling acceptable, but for their own personal profit. I am certain the House will be interested to know that the rate at which the pound is exchangeable for the dollar in Hong Kong is at 3 dollars as against the official figure of 4.03. That means, in effect, that sterling can be exchanged there at something like 75 per cent. of its real value.
If we pass these orders tonight I think this leak of which I have spoken will be very largely increased. The House should be aware of the size of this leak. In 1947 the direct dollar adverse balance between Hong Kong and the dollar area was £10 million. It may be said that this was partly due to the Japanese trade agreements. As I am informed, it was necessary for trade between japan and the sterling area to be settled every six months on a dollar basis which, so far as we were concerned, would naturally result in a deficit and a drain on our dollar resources. We are told that under this Japanese Payments Order it is possible for these accounts to be settled in sterling, but I hope the Financial Secretary will be able to contradict what I am now told and that is that in the latest agreement between Japan and the sterling area Hong Kong has been specifically excluded, and that no matter what may be stated in the order against which I am moving this Motion, it may well be necessary, in so far as trade between Japan and Hong Kong is concerned, for settlement to be made in dollars and not in sterling as is laid down in the order. I hope the right hon. Gentleman will give me an answer to that point.
If one looks at the overall trade figures for 1947, it will be seen that we have a favourable balance with China of £5,500,000 and with Hong Kong of £10,750,000—a sum of just over 116 million. From what source is this payment being made to us for these exports? I am afraid that, in fact, payment has come from unfunded sterling balances, that these balances amounting to some £2,000 million, as the Chancellor of the Exchequer admitted, are finding their way through these markets in Hong Kong and back into this country against our exports. 1371 I hope the right hon. Gentleman will have something to say on that point.
There is an even wider aspect—that of unrequited exports. I was interested to see in the "Daily Telegraph" of 10th February a statement by Mr. Malcolm Muggeridge, who I think in most parts of the House will be accepted as an informed critic on foreign affairs. He wrote about Hong Kong:Even American-occupied Japan finds in Hong Kong the most convenient outlet for its slowly reviving production, as well as a useful market for the purchase of essential raw materials imported into the Colony from other sterling areas.That is the real danger, and it is the situation which we may augment tonight if these orders go through.
I have taken extracts from the Trade and Navigation returns concerning four of our main exports upon which I think we must rely to a large extent for hard currency which we need in order to meet our present adverse balance of payments. If one takes, for instance, iron and steel —and I am taking in each case 1946 as the datum year, and comparing it with last year—in 1946 China imported £840,000 worth, and in 1947 it rose to £1,350,000. The amount of iron and steel imported into Hong Kong in 1946 was £315,000, and in 1947, £560,000. The figures for cutlery were: China, in 1946, £77,000; 1947, £175,000. In Hong Kong it was £38,000 in 1946, and £120,000 in 1947. If one takes machinery, something on which continual stress is being laid, and rightly so, in order to redress the balance of trade, the figures in 1946 for China were £240,000 and in 1947 £1,370,000. In Hong Kong, the figures were £115,000 and £285,000 respectively. Finally, which I think is the most conclusive figure if one takes woven piece-goods, woollen yarns and manufactures, the figures in 1946 for China were £620,000 and in 1947 were £1,425,000. In Hong Kong the figures were £190,000 and £1,200,000 respectively.
I suggest that these figures can only show one thing, and that is that these exports to Hong Kong and China respectively, through Hong Kong, are not in fact going to these destinations, but that Hong Kong and China are being used for re-routing to hard currency areas.—[An 1372 HON. MEMBER: "Where is the evidence."]—I will submit it, if I may. It seems to me that what is happening is that it is possible for somebody who is an exporter in Hong Kong to make arrangements for a shipment, and for that shipment to be routed out, but when it sails past Singapore and is approaching Hong Kong being directed, shall we say, to America—San Francisco—sold there for dollars and, because of the available rate of exchange for free currency in Hong Kong, for that exporter to sell his goods below the market price and still be able to recoup himself on the free market in Hong Kong.
I was asked for evidence. I will quote only one thing. I will admit quite frankly that this is a difficult thing to prove, but it is a fact that at least in one commodity sphere, the price in America is about three farthings less than if it were directly exported from this country to America. It may be that that is accidental and has nothing to do with it, but I quote it in answer to the request for evidence. It is not conclusive, and I hope the Financial Secretary will be able to say that what I have said tonight can be contradicted. I will be the first to accept and to welcome that, if it is so. What I have put forward is the only logical deduction from the figures and from the increase of exports in the type of goods I have mentioned.
It is in that spirit that I and my hon. Friends on this side of the House have moved this Prayer tonight. I, hope I have tried to do it in a non-party spirit, but we feel that when we are fighting desperately for our lives, if the evidence of a leak of this nature is so apparent, the least we can hope is that the Government have an adequate answer.
§ 10.29 p.m.
§ Mr. Walter Fletcher (Bury)
I beg to second the Motion.
In doing so I would like to put the case from a slightly different angle, although the impulse which makes me do so is to try to find out, as I hope to hear from the Financial Secretary, whether these orders are really going to be effective. The need to save dollars is obvious to everyone. The methods of saving them are not so clear. I am the first to admit that the situation in Hong Kong is one of extreme difficulty. After all, there has been an influx of over one million people into Hong Kong 1373 during the last few years. It occupies at the present moment, because of the closing of China to a great extent, a much greater position than that it normally occupies as an entrepôt.
The leakage there arises not only in connection with the goods that are directly exported to the country itself, but in a far greater and more dangerous way. The hon. Gentleman opposite asked for instances. I will give him one, but he will have to take it from me that it is accurate. Not so long ago a merchant at Hong Kong bought in Shanghai a very large quantity of rubber, something like 5,000 to 6,000 tons, representing over half a million pounds. He bought in sterling. Hong Kong and Shanghai being in the sterling area, it is perfectly easy to remit Hong Kong dollars into Malayan dollars. The rubber was put on board ship and was supposed to go to Korea, a country not very well famed for the consumption of rubber. When the ship got past Hong Kong, the skipper got an order to make out a new bill of lading for America, and to proceed to New York. The merchant the sold the rubber in New York slightly under the market. Because he was making something like 2o or 3o per cent. on the foreign exchange transaction, he did not mind losing one or two per cent. He received dollars in Hong Kong, where there is a free market.
What is the final result so far as this country is concerned? It is a dead loss of dollars coming from one of the main commodities to which we look to earn dollars. It has a deleterious effect. It means not only a loss of shipping, but it tends to depress the market in America, so that the crop of dollars from the crop of rubber is to that extent diminished. It is extremely serious and runs into very large figures, and not only in rubber. It is an extremely difficult problem to deal with in places of that sort. I think we are doing to service in bringing the matter out into the open, and that it should be made perfectly clear that it is no fantasy, but something that is going on.
When one bolt-hole is closed, the great danger is that another bolt-hole will be found. It has also a very serious effect upon normal people whose business it is to carry out shipment of dollar earning commodities that goods are going into the hands of people who do not play the game in using the system to save currency. I 1374 think the Parliamentary Secretary will admit that practically the whole of our British communities in these countries are doing their very utmost to find a solution. I do not speak in a spirit of superiority, but of trying to see that the regulations will work. The danger of Hong Kong being used as a place from which shipments are carried from all parts of the British Empire—and not only those coming from this country—is very great. I hope that these orders will be made effective.
The order regarding French francs is also of great interest. It is designed so that the French fiscal authorities may take parallel action with our authorities to see that goods from their area are not used in the same way to divert dollars from channels which are normal and be used for purposes we both of us want to end. There is a considerable danger in this, in that in certain areas of the Far East, like Indo-China, it is possible—and it has occurred with rubber and other tropical produce from Indo-China—that goods may be sold to America. If there is a good deal of free sterling in French hands which is not under control, it is possible to use it to purchase exactly the same produce from the British Empire, with the result that the Indo-Chinese get dollars and we get francs. I am quite certain that with the close co-operation that there is now between the French and the French Empire and this country, that the door will be closed.
But I think it will be doing a great service if the Financial Secretary, when he replies, gives in the firmest possible terms an assurance that, not only these orders, but other orders that may be found necessary, will be put into operation to stop what is, as I have attempted to show, a very serious leak. I hope very much that he will not look upon the action we have taken tonight in bringing this forward in this form as an attack, but will regard it as an opportunity to give a warning to the whole world, and particularly to those who are carrying out this extremely nefarious form of fraud—and it is nothing else—so harmful to this country and the British Empire. I hope that in his reply he will not hesitate to use the strongest possible language as to the action that will be taken, and that he will on this occasion call for the assistance of everybody, and every community, to help, not only with informa- 1375 tion, but with suggestions on how to bring to an end a practice which is as dangerous as it possibly can be now, and has the added danger of possibly spreading considerably unless the firm affirmation which I have called for is forthcoming.
§ 10.36 p.m.
§ Air-Commodore Harvey (Macclesfield)
I shall intervene in this discussion only for a few minutes. I lived in Hong Kong for something like five years, and therefore I know a little about that Colony. I wish briefly to support what my two hon. Friends have said. That island has a population of something like 2,000,000 Chinese. There are only some 20,000-odd Europeans living there. When one has done business with the Chinese, one gets a great respect for them as being very shrewd men. There are very few rules and order which they cannot get round. There are at the moment tremendous facilities in Hong Kong for trading with all parts of the Far East. Much of that trade could be diverted to the Philippine Islands, which are a matter of four or five hundred miles from Hong Kong. They would not have to sail across the Pacific. Anything—steamships, junks and other vessels—can be diverted for comparatively small sums. There are many who are doing this type of trading. I ask the Financial Secretary to consider this matter, which has assumed enormous proportions during the last 12 months. All of us want to see the sterling area maintained. If the sterling area breaks down, everything else breaks down. The sterling area can play an important part in supporting the economy of the United Kingdom, but we must annul this order and see that the thing is put right.
§ 10.38 p.m.
§ The Financial Secretary to the Treasury (Mr. Glenvil Hall)
May I say, first of all, that I make no complaint about the raising of this matter, nor do I assume that those hon. Members who have put down the Motion to annul these three orders are doing so in any Party spirit. I would, however, like to say that much of the discussion has ranged outside the ambit of these three orders. There is nothing about Hong Kong in any one of them. Hong Kong is in the sterling area, and I suppose that, strictly speaking, I would be out of Order if I followed the 1376 example of hon. Members opposite and dealt almost exclusively with it. Nevertheless, with permission, I would like to offer a few brief observations on what has been said about that particular Colony. One of these three orders deals with the French franc area, about which nothing has been said. Therefore, I do not propose to detain the House by referring to it.
§ Mr. Glenvil Hall
The hon. Member did mention it, but if I may say so, only in passing. I have listened carefully to what has been said, and it has centred upon what is taking place,for has taken place, in the Far East. Therefore, unless hon. Members wish, I will not deal with the order which covers the French franc area.
§ Mr. William Teeling (Brighton)
I hope that does not mean that the right hon. Gentleman will not deal with the Japanese side.
§ Mr. Glenvil Hall
I will deal with Japan and I will take it first. Let me clear the ground by reminding the House that these orders are made under the Exchange Control Act, 1947, which provides, amongst other things, that regulations may be laid down for exports sent to places outside the scheduled territories, and for payments in the United Kingdom between residents and non-residents of the scheduled territories.
The order which relates to Japan lays down the method of payments for United Kingdom exports to that country. The arrangements upon which this order is based have been made with the Supreme Commander of the Allied Powers in Japan, and it is an excellent order. Hon. and right hon. Members opposite frequently criticise the Government, but they should be grateful to us for this particular order, because it regulates the conduct of private trading between Japan and certain of the scheduled territories. It provides that this trade shall be 1377 financed in sterling. It is true that the arrangement does not extend to Hong Kong for reasons which I will come to in a minute. It will run for six months and will be continued if it is successful.
§ Mr. Fletcher
Will this order prevent Japanese manufactured broad cloth being imported into Hong Kong and paid for in sterling, which sterling will be converted into dollars?
§ Mr. Glenvil Hall
It does not cover a transaction of that kind, for reasons which I hope to indicate. The sterling acquired as a result of the private trading covered by the order will be convertible into dollars. I should hasten to add that an arrangement has been made with the Supreme Commander that the conversion will only take place after six months, and then only if the Commander-in-Chief feels it essential. He will, if he can, use sterling for purchases of raw materials in the sterling area, and it is only as a last resort that he will convert the balance into dollars at the end of any given period.
I regret to say that this arrangement does not cover cotton textiles, about which the hon. and gallant Member for New Forest and Christchurch (Colonel Crosthwaite-Eyre), gave some figures in opening the Debate. The reason for this is that cotton textiles will cost us "straight" dollars because the material from which they are made has been purchased from the proceeds of a dollar loan which has not yet been fully repaid.
§ Mr. Fletcher
The right hon. Gentleman says "straight dollars" Does he mean "American dollars"—that is important.
§ Mr. Glenvil Hall
I mean United States dollars; I am sorry if hon. Members did not follow me. As some hon. Members know, there was previously no real private trade between Japan and this country or any of the other territories within the sterling area. What trade there was cost us dollars and we have to put this agreement against that background. The advantage of it is that, in the future, only the balance will be convertible into dollars. Furthermore, it will enable the Supreme Commander to draw more and more raw materials from sterling area sources instead of from dollar sources as in the past.
1378 The China and Formosa order does not, I think, need to be explained in detail; I will not go into it unless the House wishes. It is a routine order which ties Formosa to the arrangements for China in the parent order which we agreed to some months ago.
This leaves me only one other point, and that is the vexed question of Hong Kong. Here the position is peculiar and complicated, and I admit frankly that we realise this at the Treasury. The difficulty is that Hong Kong is both a member of the sterling area and so within our "family circle" and also that she is close to China with whom she does the bulk of her trade. Economically, she is linked to China, which is not, as we know, a unified entity. It is very difficult to come to terms and make arrangements with China. We have done our best to do so, but we have not met with the success we should have liked. We have to realise that we are dealing here with difficult circumstances and we have to limit ourselves to what is possible. We also have to remember—and this, I think is the answer to much of what the hon. and gallant Gentleman asked—that Hong Kong depends on her entrepôt trade. It is, therefore, very natural for merchants in Hong Kong to re-export much of what they import. At present, the trade which Hong Kong does with the world is mainly with dollar countries, and she has an unfavourable balance of trade with them. She does an enormous trade with South China, as is well known to the hon. Member for Bury (Mr. W. Fletcher) who has travelled and lived in the area. It is almost impossible to regulate trade between these areas, and it would be impossible for Hong Kong to demand dollar payments from China for her exports to that country. For one thing the Chinese Government has not got the dollars.
It is true that there is a large free market in Hong Kong. It is also true, as the hon. Member stated, that 25 per cent. of the dollars that exporters receive is handed over to the Control, leaving them the other 75 per cent. to use in the free market. Supposing it were laid down by the Control that the full 100 per cent. should be handed over; it is probable that much of the trade which now goes through Hong Kong would take another route. Therefore, we should not get the 25 per 1379 cent. we now get, but probably a good deal less.
I must admit that the situation is extremely unsatisfactory. The Bank of England now has an official in Hong Kong discussing this matter with the authorities there, and I am sure that hon. Members opposite will not wish me to say more or to indicate what sort of solution the Treasury and the British Government are seeking. I can assure hon. Members and the House that we shall strain every nerve to find a solution. May I give, on behalf of the Government, the assurance that the hon. Member for Bury asked for: we do mean to try and straighten this thing out if we can.
The House will realise that the British community in these areas has played the game, as the hon. Member very properly said. They have helped us considerably and will continue to do so, but unfortunately they are not the only people there. There are others for whom the King's writ does not run in any shape or form: the ocean is wide and they are far away, and what we can do with them I do not know, but I can assure the House that we are alive to the difficulties of the situation and the possibilities of loss. As far as the Government can deal with a preventable leakage of dollars, it will be stopped.
§ Mr. Fletcher
I do not quite follow the right hon. Gentleman's explanation. Is it a result of the arrangement that when Japan wants to buy tin or rubber or some other raw material from the British Empire, which should be paid for in dollars, they are in future to be paid for in sterling? If that is the case, that means a very considerable direct loss of dollars.
§ Mr. Glenvil Hall
Where we can get good dollars, we will. Normally, in the case visualised by the hon. Member, dollars will accrue; but what we are doing here is to make an arrangement with Japan so that transactions take place in sterling so far as the scheduled territories are concerned. Later on, at intervals of six months, the Supreme Commander will consider whether dollars are necessary to him to meet his obligations and whether sterling has to be converted into dollars. In such circumstances, the arrangement is that it will be converted.
§ 10.55 p.m.
§ Mr. William Teeling (Brighton)
I only want to speak for one or two minutes, but I would like to say how much I regret the fact that we have no one here tonight from either the Colonial Office or from the Foreign Office. After all, these matters affect not only the Treasury, but the whole question of Japan and they extend to China and Formosa and also Hong Kong. I am not entirely happy about all that has been said about Hong Kong. I do not want to stress it too much because the right hon. Gentleman has said that it is really only a side line of these particular orders; but I do feel that one ought to say this for the Hong Kong Government: that it would be better—and perhaps that is what the right hon. Gentleman meant by sending out somebody from the Treasury—that at the moment it should be left to the Hong Kong Government itself. The Hong Kong Government themselves are in a better position than any one in this House to assess the position over there and we know full well that the Hong Kong Government are 100 per cent. loyal to this country and want to do everything possible to help the situation.
If instead of allowing a vast number of banks to deal with the question of exchange, just a few recognised, very reputable banks were definitely only allowed to deal with these exchange matters, such as the Hong Kong and Shanghai Bank and the Chartered Bank, I think probably that might be the solution. The Hong Kong Government have felt for a long time that they did not want to be a burden to this country and they felt from the start that, after the war, by recommending that there should be a certain amount of latitude in that area, perhaps more than in other areas, it would be possible for them to earn dollars for this country.
I think that they would admit today that they have to a certain extent made a mistake. The Chinese in trading matters are even shrewder than most others; they can find a loophole where others cannot. It is a very difficult position, as has been pointed out by my hon. Friends the Members for Bury (Mr. W. Fletcher) and for Macclesfield (Air-Commodore Harvey). More than a million Chinese have come into that country recently, some more 1381 honest than others, and have brought with them a considerable sum of money, and it was thought by the Hong Kong Government that this would mean by export and import trading sufficient profit for the Colony as a whole to enable it to stand on its own feet. I think that is the only reason that these things have happened in the past. I feel that the representative going out from the Treasury will be able to co-operate with great ease with the Hong Kong Government and they must not feel that anything said in this House tonight is in any way critical of the very gallant effort that Hong Kong has made since the war to pull itself together and to be of help to the Government.
With regard to the Japanese order, I was out in Japan with other Members when this matter was being discussed in Tokyo, and it was then said to us that undoubtedly this question of the cotton textiles not being included in the agreement was due to the fact that so much had been purchased from the United States and that they wanted that concluded first. We were equally assured that that period was very nearly over, that the whole of these deals were very nearly cleared, and that the problem would cease in the immediate future. Now, unfortunately, we see that a new loan is about to be made in the United States through the Far Eastern Commission which is to go on dealing on the same basis with the textile side. That is particularly worrying and is a matter which the Treasury ought to watch in the immediate future, and the more distant future, in case the peace treaty is not signed.
I am not particularly happy about this question of the six months' agreement and the plans for exchange about which General MacArthur will be in a position to decide himself what is to be done. I am not very happy about the situation, and I can only say that I do hope that the right hon. Gentleman and his friends will watch it very carefully in the immediate future, for six months ago we hoped that the peace treaty was going to be settled almost immediately. Now it looks as if it is going to be a little further off. If that is the case, we shall have to take our present position far more seriously with regard to Japan and our trading possibilities in that area.
§ Colonel Crosthwaite-Eyre
In view of the Financial Secretary's very honest statement, although I cannot pretend that I am happy about it, I beg to ask leave to withdraw the Motion.
§ Motion, by leave, withdrawn.