File No. 893.51/1156.
The American Minister to the Secretary of State.
Peking, October 22, 1912.
Sir: I have the honor to report that the concession granted by the Chinese to the Belgians for the railroad from Lanchow in Kansu to Haichow on the sea continues to be a matter of interest and has had a disturbing effect upon the minds of the local representatives of the sextuple groups. They fear that a general campaign for concessions is about to be inaugurated by outsiders, which will prove detrimental to the interests of the groups in more ways than one.
The groups are in an embarrassing position. The conditions they imposed for the reorganization loan, so called, were approved by their respective Governments. They do not believe it safe or expedient to modify these conditions in any material degree and will not do so unless their Governments consent. Both the bankers and the powers supporting them, although actuated by different motives, are really working to the same ends. Those ends are: the control of the amount of the indebtedness that China is to contract, so as to [Page 158] avoid financial improvidence and national bankruptcy; the reform of the administration of the revenue pledged as security for the proposed loan, so as to make it efficient for that purpose; and the supervision of the expenditure of the loan proceeds, in order that they may not be wasted or applied to private use. These ends are in the interest of the Chinese people and serve to promote and preserve their national integrity.
The Chinese object to the proposed terms and conditions. They want no control, no supervision, no auditing or accounting. They admit the present inadequacy of the security offered—the salt revenue—and the necessity for its reform; but they want to reform it in their own way and at their own convenience. They are now hostile to the groups and have broken off all negotiations therewith, and there is now no prospect of the renewal of the same in the near future. In the meantime other parties have come into the field and made loans and obtained important concessions. The largest of these loans—that of the London syndicate—is made upon the same security previously offered the groups. In this London loan contract there is no provision for supervision of expenditures or for the audit of accounts or for improvement of security pledged. If this and other loans made were sufficient to supply China’s needs perhaps the powers supporting the groups, and the groups themselves, would have no right to object. But unfortunately they are not large enough; they are, so to speak, “a mere drop in the bucket” or only a modicum of what China needs and must have. Therefore, instead of helping the Chinese out of their difficulties or clearing up the situation, these loans only make it worse. This London loan in particular adds to the burden imposed upon the salt revenue, increases the volume of securities to be thrown upon the market, and makes it that much harder to float any subsequent issue. And, what is worse, it demoralizes the Chinese and intensifies their opposition to the groups, to whom they must probably come in the end for the full measure of relief they require.
The Belgian concession evidences a return on the part of the Chinese to a policy which it was supposed they had irrevocably abandoned, that is, giving concessions instead of making straight loans. * * *
Under these conditions it is not strange that the local group representatives should feel a little nervous * * * they are blocked on the reorganization loan and are thereby prevented from competing for industrial contracts on the joint account, and the combination agreement prevents them from acting on their individual account. In the meantime they are exposed to flank attacks by loan promoters and concession hunters.
It is doubtless true that if the groups remain firm, if the powers continue their exclusive support, and if the French market remains closed to these outside or sporadic loan issues, these loan promoters can not go very far in their efforts; their operations will be necessarily confined to rather narrow limits. But whatever they do, whether much or little, only serves to demoralize the Chinese and make them that much harder to deal with. * * *
I think the reasonable probabilities are that if the pending deadlock continues much longer, if other concessions like the one given [Page 159] the Belgians are granted, and if other loans like the one made by the London syndicate are effected, the tie that holds the groups together will break and a dissolution of the groups will result.
I have [etc.]