The American Chargé d’Affaires to the Secretary of State.

No. 1024.]

Sir: I have the honor to submit the following observations upon the present political conditions in China.

The suppression of the insurrection in the south has undoubtedly strengthened the hands of the present administration and there is [Page 188] some prospect of an increase in the revenues of the Central Government from the more direct control which Peking will now have of the fiscal administration of the southern provinces. Nevertheless, the financial condition of the Government at present is well-nigh desperate. The proceeds of the so-called Reorganization Loan are about exhausted, except that some £4,400,000 remain to be used for the improvement of the salt administration and certain other purposes, and which will not be paid over until the Government is ready to carry out these reforms. It is stated by a native journal that the Government has already a deficit of $20,000,000.

Already the Government is talking of another loan, and since, according to the terms of the reorganization loan contract, no loan can be made by the Government for six months after the last instalment of the reorganization loan is paid, the quintuple banking group is the only one at present with whom the Government can deal.

Should the quintuple group be approached for another loan, it is more than likely that much harder terms will be made than are found in the last contract, more especially since the claims of the Government with respect to the income from the salt gabelle do not appear to be supported by the facts. In my No. 916 of July 1, 1913,1 I called attention to the budget for the first six months of the year as showing a revenue of but $1,867,000 from salt. The real amount received by the Central Government is said to have been much less than this and by some it is estimated at no more than $200,000.

Much offense was given, too, to the banking groups by the attempt of the Government to place a salt commissioner over the Chinese director-general and the British co-director-general of the salt gabelle, who under the contract were supposed to have full authority to reorganize the gabelle. The creation of the new office was doubtless intended to prevent the carrying out of any reforms not approved by the Government. A strong protest by the representatives of the five powers concerned led to the abolition of the new post and the Chinese Government has reluctantly consented to the plans of Sir Richard Dane, British co-director of the salt gabelle. Whether these plans will prove practicable or not is somewhat problematical. Sir Richard Dane has had experience in India, but he is not well acquainted with conditions in China. I enclose a clipping from the Peking Gazette,1 of September 25th, translated from the Asiatic Daily News, which comments unfavorably upon the proposed plans.

I have several times, in previous despatches, referred to the extravagance and corruption of the present Government. The opinion generally expressed by foreigners in Peking is that there is far more corruption under the Republic than under the Manchu regime. There are many more officials to be satisfied now, and the commissions upon contracts that are approved are necessarily much larger. In one instance it is credibly stated to have been thirty-five per cent.

The amount of paper money in circulation is constantly increasing and is a serious hindrance to trade in some parts of the country. The amount of the provincial notes outstanding is given as $150,000,000. To this must be added $9,000,000 issued by the Bank of China and the Bank of Communications. In a conversation which I had with Mr. Liang Ch’i-ch’ao, Minister of Justice, on the 24th [Page 189] instant, I was informed that it was proposed to redeem the provincial notes now at a considerable discount by issuing Central Government notes payable at a future date. The Peking Gazette reports that one-tenth of the issue, to be determined by lot, is to be redeemed each year, so that the whole of the $150,000,000 would be redeemed in ten years. This does not appear to be a very practicable solution since the notes will not bear interest and the scheme would really amount to a loan without interest. Since the present provincial notes are at a discount of from twenty to forty per cent, however, it is not impossible that if they are exchanged for the new notes, dollar for dollar, the holders might be willing to part with them under the proposed arrangement.

The Premier, the Minister for Foreign Affairs and the Minister of Justice have all repeatedly, within the past two weeks, expressed their regret that the American bankers had withdrawn from the currency-loan agreement. They recalled the deep interest shown by the United States in the reform of China’s currency, the work done by Professor Jenks, and the initiative taken by the Americans in negotiating the currency-loan contract, and seemed very desirous of having American assistance in this reform, so greatly needed. I do not doubt, however, that their desire for American assistance is largely due to their dissatisfaction with the pressure being exerted by the five governments whose nationals are included in the quintuple group.

The present Premier, who is also Minister of Finance, seems to realize the critical condition of the country’s finances and is endeavoring to enforce greater economy in the administration.* * *

The whole situation is affected, too, by the rather strained relations existing between China and Japan.* * *

I have [etc.]

E. T. Williams.
  1. Not printed.
  2. Not printed.