893.51/3533: Telegram
The Minister in China ( Schurman ) to the Secretary of State
[Received 7:55 p.m.]
367. My telegram 361, October 18, 8 p.m.23 Financial situation desperate, Government and bankers implored Inspector General Customs save situation. He declared himself powerless and laid situation before English, French, Japanese Ministers and myself as representatives of consortium powers. We five had long conferences 20th and 21st. Official figures finances confidentially presented. Ignoring big debts secured by customs and other revenues, successive governments have rolled up debt of 364,000,000 which is all practically unsecured. Foreign creditors are: Japanese 148,000,000, British 24,000,000, French 22,000,000, American 20,000,000, others one and a half millions. Purposes of loans were: military 66,000,000, whereof 45,000,000 Japanese and 20,000,000 British, naval 1,750,000, [educational,] industrial and commercial 47,000,000, whereof 25,000,000 Japanese, mining and forestry loan, and 14,000,000 “Banque Industrielle”, Pukow industrial loan, railway development 43,000,000 nearly all Japanese, telegraph 12,000,000 Japanese overdue interest 8,000,000, unspecified 34,000,000 including Chicago Bank and Pacific Development together 18,750,000.
Interest 8 percent on unsecured debt of over 29,000,000. This exceeds total receipts for a year at the disposal of Central Government [Page 347] as estimated last April by Chow Tzu-chi, Minister of Finance. Inspector General Customs says salt revenue has decreased about 50 percent to 42,000,000 whereof fourteen pledged for consolidated debt: wine and tobacco may yield 3,000,000; land tax, nothing assured from customs which however at present has accumulation of 15,000,000.
Successive governments have lived on loans using borrowed money as income. Having pledged all sources of revenue they can borrow no longer, receipts are insufficient to pay interest on debt, there is nothing for administrative expenses, collapse is inevitable, no government that might be set up could live. Present Government avoiding public acknowledgment of complete insolvency. Were above facts generally known financial panic would probably ensue as Government has over 40,000,000 unsecured short-term loans with native banks, to say nothing of 22,000,000 native bank advances and 18,000,000 native bank advances on the strength of salt surplus which is now a meaningless expression.
Privately, Finance Minister acknowledges desperate situation. Minister for Foreign Affairs told me [at] weekly reception that action [actual?] Government problems were simple in comparison with finances and that powers would have to consent to revision of tariff to prevent disappearance of Central Government. To colleague who followed me he repeated this statement and added present Government might [apparent omission] with or without disorder. Prime Minister’s resignation due primarily financial embarrassment and although withdrawn this week Minister for Foreign Affairs dining here last night told me withdrawal only temporary.
Government will almost certainly bring tariff law question before Washington Conference. Our conference yesterday were unanimously of opinion that if Conference acceded to request some form of effective control over proceeds derived therefrom should be instituted. I said that such control should be agreed upon between Chinese Government and the powers and [need not be] mainly foreign. Another suggestion was to vest control in trust composed of Minister of Finance, Inspector General Customs and Chinese Bankers’ Association. Japanese Minister did not express himself favorably to either suggestion and thought that detail might be left to Governments. Without some control it is feared that increase of revenues producing revival of credit would immediately set borrowing going again.
We considered eventualities in case collapse Government. Unpaid soldiers and police seeing all hope of pay gone might loot city, especially as soldiers are largely coolies and former bandits. Foreigners’ places of business and isolated houses might be looted. Military control [Page 348] however would soon be [established and] as there is no antiforeign sentiment life should be secure. Have consulted with General Kernan24 who just arrived Peking, and he thinks Chinese military authorities will also complete plans for protecting city in case of looting and disorder. I concur in this opinion. Legation guard give added sense of security.