893.51/6120a: Telegram
The Secretary of State to the Ambassador in the United Kingdom (Bingham)
115. Please confer informally with the Foreign Office on the following:
1. The American Government has on several occasions joined with the British and the French Governments, usually upon the initiative of the British Government, in joint representations through the missions of the three countries in China, to the Chinese Government, urging that the provisions of the Hukuang loan contract looking to substitution of customs revenue for abolished likin be carried out. These representations have been based on the obvious adequacy of the customs surplus to pay the full current loan service and clear up the arrears of overdue interest; they were not predicated upon reductions in the regular service called for by the loan contract.
The Department is advised that an adjustment has recently been proposed by the Chinese Government with regard to the service of the Tientsin–Pukow loan, and that such adjustment has been recommended to the British bondholders by the British Bondholders Committee formed at the instance of the Bank of England, but that, with regard to this adjustment, the British Group of the Consortium has taken no official position. The Department is further advised that, following the proposal with regard to the Tientsin–Pukow loan, representatives of the British interests, without previous agreement among the various national Groups as to procedure, undertook to negotiate with the Chinese Government a proposal with regard to the Hukuang [Page 585] loan, and that these negotiations resulted in the making by the Chinese Ministry of Finance of a proposal, later amended and somewhat improved, the terms of which in the amended form are substantially identical with the offer in regard to the Tientsin–Pukow bonds in the form recommended to the British bondholders by the above-mentioned British Committee.
While there are substantial foreign holdings of both groups of bonds, there was no American issue of the Tientsin–Pukow loan and, so far as the Department is aware, there are no American holdings of importance. American investors hold, however, a substantial amount of Hukuang bonds, and the issuers of the Hukuang loan, who are largely identical with the managing committee of the American Group of the Consortium, urge that on the basis of existing security the Hukuang bonds are entitled to receive more favorable treatment in a readjustment than the Tientsin–Pukow bonds. The American Group contends that the superior position of the Hukuang bonds has been consistently recognized through payment of one-half the interest annually, as contrasted with complete default on the Tientsin–Pukow bonds, and through the market price for Hukuang bonds, almost double that of the Tientsin–Pukow bonds. It contends, therefore, that these differentials in favor of Hukuangs should be given recognition, on a basis which it has outlined, through its representatives in London, to the British interests concerned.
While ordinarily the details of a financial settlement between American bondholders and the Chinese Government might not come within the Department’s province, the Department feels that, in the light of the antecedents to this situation, neither the American Government nor the British Government can disregard the issues and implications involved in the possibility of there being concluded between the bondholders of the one nationality and the Chinese Government without due consideration of the interests and views of the bondholders of the other nationality an agreement satisfactory to one Group but not to the other, there having been hitherto common action and there being throughout involved common interests.
The American Group has presented to the British Group its views on these and other points and has invoked the cooperation of the British Group. The members of each of the Groups are of course entirely free to arrive at their own decisions. In the belief, however, that the interests of all concerned will be best served by the continued maintenance of the cooperative attitude and practices that have heretofore largely prevailed, the Department feels it highly desirable, and it believes that the British Foreign Office will share the view, that careful consideration be given by the British Group and Committee members to the views expressed by the American Group. The Department therefore ventures the hope that the British Foreign Office [Page 586] will see its way clear to suggest to the British interests involved the desirability that those interests give consideration as sympathetically as possible to the views of the American interests, in order that the spirit and practice of cooperative action in support of common rights and a common objective may not be impaired and may in fact be strengthened.
2. In case rejoinder be made by the Foreign Office that the American Government failed to act on the principle of cooperation in that it did not respond favorably to the British Government’s suggestion that each of the interested governments send to China a financial attaché, you should say that the American Government gave the British Government’s suggestion full consideration on its merits and in the light of then existing circumstances, and that all that we now ask is that the British Government give to the suggestion made above consideration on its merits and in the light of now existing circumstances and future possibilities.86 The British Government’s suggestion upon which this Government was not able to act favorably related to a new and affirmative step; the suggestion which the American Government now makes relates to continuation of an attitude and a practice long since agreed upon and effective in defense of common rights and interests.
3. You should say that your Government requests an indication at an early date of the British Government’s views and intention with regard to the above suggestion.
4. The Department suggests that Atherton87 handle this matter in person and report action when taken.
- For correspondence with reference to sending a financial attaché to China, see Foreign Relations, 1935, vol. iii, pp. 591–646, passim.↩
- Ray Atherton, Counselor of Embassy in the United Kingdom.↩