File No. 5315/458.
The Secretary of State to Chargé Fletcher.
Washington, August 27, 1909.
Mr. Knox informs Mr. Fletcher that the United States, prior to the initialing of the loan contract, protested against it and insisted upon the right of equal American participation, but unable to bring this about through the ordinary channels, and after refusal of bankers to admit American banks on equal terms, the President communicated directly with His Imperial Highness the Prince Regent, with the result that the Wai-wu Pu was instructed by His Imperial Highness to take up the matter with the American chargé d’affaires with a view to meeting the American claims, and as a means of bringing this about and upon the suggestion of the United States, China has consented to increase the railway loan for the purpose of admitting equal American participation. Mr. Knox says the United States has practically reached an agreement with China as to the basis of that participation, namely, that American bankers will take one-fourth of the total loan with the understanding that the proceeds of the American allotment are to be used for the Hankow-Szechuen line, Hupeh section, and the further understanding that Americans and American materials shall have all the same rights, privileges, preferences, and discretions for all present and prospective lines that are reserved to British, German, and French nationals and materials under the terms of said agreement, except this, that the United States does not now insist upon a chief engineer for either section, being assured by China that American engineers will be employed upon the engineering corps of both sections, and excepting also this, that American participation in future loans for branches is to be one-half in the Kankow-Szechuen line, Hupeh section. Adds that American rights in all other respects are to be as broad as the contract.
Says it is obvious that the correct and only proper thing now to do is to formally make a record of the arrangement in the form of an agreement between the parties for whose benefit it has been made, these parties being China on the one hand and the bankers who agree to furnish the money on the other. Says that whether this be accomplished by the direct and straightforward method of changing the present agreement so as to include all the other modifications incident to American participation, as well as the change in amount of loan, and by making the American bankers’ group who are to furnish the money a party to the agreement to furnish it, or whether all this is to be evidenced by an additional agreement to supersede the original one is perhaps not essential, provided that whatever form it takes the papers must conform to the facts and the American bankers must be parties throughout, and any supplementary agreement would have to be part and parcel of the original.
Directs Mr. Fletcher that he himself will not sign any agreement in any capacity; that the United States will take the assurance of the Chinese Government on the other points in which it is interested, as set forth in previous telegrams and which are not directly covered [Page 195] by the agreement; and that the United States agrees to do nothing but withdraw its objections when the matter is closed to its satisfaction.
Mr. Knox says he will not consent to any plan tending to make this transaction seem other than what it really is, namely, an agreement between American bankers and the Chinese Government on the same footing as the arrangement for the bankers of other countries with that Government.
Having outlined the situation, and referring to Mr. Fletcher’s telegram of August 20, Mr. Knox gives the following specific instructions:
First. The Government of the United States insists upon an amendment to give the American group an equal voice as to the purchasing agencies.
Second. The parties to the agreement must be China and of the second part the European groups and the American group, as in the amended draft which Straight sent, with this addition, after the words all of New York, “constituting the American group.” Also it should be signed not by Mr. Fletcher but by the representative of the American group. This Straight draft would serve as an excellent model for the agreement.
Third. The original agreement having been essentially changed, in fact, in other particulars, in consequence of and in addition to the mere change in amount of loan, all changes now necessitated in the text of the agreement are the intended and indispensable result of the increase of the amount and of China’s agreement that Americans shall participate; therefore this Government sees no reason for isolating in a supplementary agreement changes entirely germane to the change in amount as well as to all other provisions of the original agreement.
One instrument is therefore much preferable, and Mr. Fletcher is instructed to urge a single agreement including all alterations and amendments now involved in the substance of the supplementary and amendatory points now accepted by all parties or herein further suggested.
Fourth. Turning from the general to the purely banking interests, the American group especially dislike the restriction, except at the time of first issue, of the market for their bonds. We are informed that they also wish, among various other things, the amendment of article 14, in the sense that proceeds of their part of the loan are to be deposited with the American group in New York or with such banks in China as they may from time to time designate for the purpose, the International Banking Corporation being at present designated. All such details, however, must be adjusted directly by American group’s representative, under instructions from his principals. His action will be subject to Mr. Fletcher’s approval and will be supported by the legation’s good offices, so far as consistent with his paramount duty to give his strongest efforts to the questions of purchasing agencies, materials, and such broader national concerns.
Fifth. When such text of agreement has been agreed on and found by Mr. Fletcher fully conformable to his instructions, he will address to the Chinese Government a note to the effect that, in view of their assurances as to the employment of American engineers by [Page 196] the managing director, and upon the distinct understanding that American participation in the pending railway loan is to include the enjoyment in the same proportions of all the rights, privileges, and discretions granted to and invested in the English, German, and French interests, and, further, that Americans and American goods, products, and materials shall be entitled to the same privileges and preferences reserved to English, German, and French nationals and materials in respect to both roads and their branches, he is prepared, on behalf of the United States, formally to withdraw objection to the agreement. Says that Mr. Fletcher’s note may conclude with an expression of gratification that this matter is now settled upon a basis so well understood between the two Governments, and that such a note, duly acknowledged as evidence of its acceptance, will be as satisfactory as a protocol would have been, and at that stage he may finally withdraw objection.