893.51/4251
The Secretary of State to the American Group
Gentlemen: Under date of November 23, the Department transmitted to you copies of correspondence with the British and Japanese Governments44 concerning the proposals for a new loan to be arranged between the Consortium and the Chinese Government, primarily for the purpose of funding the floating debt of the Chinese Republic; and in a letter of March 29 last44 I forwarded for your information a copy of the memorandum of the Japanese Embassy, under date of December 28, 1922,45 in further reference to these proposals. In this letter I also explained to you the view of the Japanese Government, as made clear by further discussions of the matter, to the effect that, while unwilling that the Japanese Group in the Consortium should participate at the present time in negotiations with the Chinese Government for a funding loan, it is willing that the Japanese Group should (in common with the American, British and French Groups) consider and recommend to their respective Governments such plans as they may be able to agree upon for a consolidation of Chinese debts, with a view to the possibility that the interested Governments might then give consideration to authorizing their respective Groups to undertake negotiations with China on the basis of such recommendations. My letter further indicated that the position of the Japanese Government is that any consideration of the possibility of a small supplementary loan for specified purposes, over and above what may be required for consolidation of the Chinese Government’s obligations, should take place subsequently to the consideration by the bankers of the question of consolidation.
It thus appears that the Japanese Government is not averse to an initial consideration, among the four international Groups of the Consortium, of the possibility of the Consortium undertaking such funding operations as have been recommended as essential to any plan of reconstruction in China, upon terms mutually satisfactory to the Chinese Government and to the banking interests constituting [Page 535] the Consortium. And I have to advise you that in the event of negotiations to that end being undertaken by the Consortium, the Government of the United States would be prepared, for its part, to give to the American Group and to the Consortium such support as was contemplated by its identic note of July 3, 1919,46 and embodied by the several national groups in a paragraph of the preamble to the Consortium Agreement of October 15, 1920.47
In commending to the attention of the American Group a consideration of the question of a possible loan to the Chinese Government for the purpose of enabling it to reestablish its credit and at least in a measurable degree rehabilitate its financial situation, I am of course aware that there is at least a possibility that no satisfactory basis can be found for such an operation. In particular, it is to be apprehended that the revenues available for the purpose of security (notably the surplus of salt revenues, and the surplus of maritime customs revenues as increased by the revision to an effective five per cent of the tariff of import duties, which went into effect on January 17) may be found inadequate for the purpose in view. And you will of course understand that it is not my intention to urge upon you the undertaking of any financial operation which you and your associates in the Consortium might not deem to be satisfactory on its own merits as a financial transaction. Subject to this understanding, however, I feel that it is proper to point out to you the desirability, from the viewpoint of the Chinese situation and of the prospects for a normal and healthy development of American financial and economic interests in that country, of enabling China to rehabilitate its financial situation as early as may be, and preferably in advance of the forthcoming Special Conference on the Chinese Tariff, for which provision was made by the Treaty relating to the Chinese Customs Tariff, signed February 6 last [1922].48 It is to be feared that, should the Chinese Government have failed to cure its present defaults and give adequate assurance against future defaults upon its unsecured debts, it would prove a practical impossibility for the Special Conference to avoid making such a disposition of the proposed customs surtax as would defeat the intention of making that surtax available for constructive purposes for the benefit of China as a whole. And it is to be anticipated that such a result would not only retard the development of the country along those constructive lines in which it is the object of the Consortium to be of assistance, but would create in China a political reaction against the dissipation of the benefits, expected to accrue from the surtax, in merely satisfying the debts incurred through the [Page 536] extravagance of previous administrations of the Chinese Central Government. It is felt that the funding or other process of disposing of the unsecured debts could be accomplished more satisfactorily in advance of the Conference, by employing as security for the purpose revenues which are already in large part hypothecated for similar uses, than by using for this object the proceeds of the contemplated customs surtax, which the Conference designed for the purpose of constructive assistance to China, and which the Chinese are not unnaturally inclined to regard as a concrete and positive contribution which the Conference provided with a view to the development of China.
It has also to be considered that, as you are no doubt aware, certain of the unsecured debts of the Chinese Government (notably the so-called Nishihara loans49) are associated with political questions of a somewhat controversial character; and that whereas they might be dealt with incidentally to a mere funding operation, without giving occasion for any political agitation, it would appear difficult, if not in fact impossible, to consider them in the Special Conference (in whose deliberations there must of course be a large element of political interest) without the danger of raising in an acute form an agitation on the political questions connected with these financial transactions.
It is therefore my own view, as I have learned through Mr. Wellesley (the Chief of the Far Eastern Department of the British Foreign Office, who recently visited Washington for the purpose of consultation with this Government concerning the Special Conference) that it is the view of the British Government, that it would be highly desirable that the question of the unsecured debts of the Chinese Government should be disposed of in advance, and eliminated from the deliberations of the Special Conference. To this end, I beg to invite your attention to the consideration of this matter with a view to the possibility of such a loan as would enable this result to be attained.
It is my hope that it may prove feasible to complete, before the assembling of the Special Conference, all arrangements necessary for the rehabilitation of the credit of the Chinese Government; but even if it should prove impossible to consummate a loan for that purpose in advance of the Special Conference, it is my feeling that the previous examination of the subject, and particularly the formulation of a definite and concrete plan for dealing with the unsecured debts, would itself be of value as a means of obviating the possibility of the Special Conference being drawn into a general discussion of [Page 537] Chinese finances, which I am disposed to consider not only inopportune but dangerous to the success of the objects which the Special Conference was designed to accomplish.
I enclose herewith for your information a copy of a note on this subject from the British Ambassador, under date of April 10, together with a copy of the reply which I am today addressing to him,50 and would invite your consideration of the procedure suggested in this exchange of correspondence.
I am [etc.]
- Letters not printed.↩
- Letters not printed.↩
- Foreign Relations, 1922, vol. i, p. 797.↩
- Ibid, 1919, vol. i, p. 463.↩
- Ibid., 1920, vol. i, p. 576.↩
- Ibid., 1922, vol. i, p. 282.↩
- See Foreign Relations, 1918, pp. 122–123, 130–133, 147–148, and 155–159.↩
- See supra.↩