893.51/6912: Telegram
The Counselor of Embassy in China (Peck) to the Secretary of State
[Received June 10—7:45 a.m.]
371. The Chinese Government informally inquires whether the American authorities concerned will entertain a proposal for modifying temporarily during [the hostilities?] the schedule of payment of the consolidated note into which are funded the flood relief and cotton–wheat loans. About United States dollars 10,000,000 remain due on the foregoing note out of about United States dollars 26,000,000 originally advanced. Current payments of about United States dollars 3,300,000 yearly include United States dollars 700,000 quarterly for principal plus interest of 5%.
The Chinese Government is most reluctant to raise this question in view of the much appreciated consideration received from the Export-Import Bank and other American Governmental agencies in these transactions and does so only because of real necessity. Realizing that these obligations differ from long-term bond issues the Chinese Government did not include them in the suspension of payments on customs debts announced January 15 last and duly paid the installment of March 31. Likewise it has not included them in the current debt negotiations which are approaching completion on a basis which if finally approved would reduce loan and indemnity payments from over United States dollars 25,000,000 to about United States dollars 10,000,000 per annum.
The note is secured on customs surtax about 80% of which is being detained by Japan and on consolidated tax revenue of which much the greater part has been seized or destroyed. Also Japanese interference with the Chinese currency and with foreign trade prevents current acquisition of foreign currency from which debt payments normally are made. In order to make such payments, China therefore must draw upon reserves which are now much reduced. It is of the utmost importance for China carefully to conserve its resources to meet vital needs of the country in its struggle for national existence.
In these circumstances the Chinese Government earnestly hopes that the American authorities concerned will be in position to agree to deferment temporarily during the hostilities of all or substantially all of the principal payments and if possible part of the interest. An early favorable reply would be appreciated as the next installment is due June 30.
Code text by mail to Peiping.