File No. 893.51/1477.
The American Chargé d’Affaires to the Secretary of State.
Peking, October 21, 1913.
Sir: I have the honor to report that I called by appointment upon the Premier and Minister of Finance, Mr. Hsiung Hsi-ling, on the 18th instant to inquire about the negotiations at Yunnan Fu between an American, Mr. T. G. P. Pierson, and the Yunnan Provincial Government for a loan of $2,500,000, as already reported in my No. 1064 of even date.1
After Mr. Hsiung had denied any knowledge of such negotiations, he broached the subject of a loan by American capitalists to the Chinese Central Government. This is the third time recently that he has introduced the subject, but the first time that he has stated the amount and purpose of the proposed loan and definitely requested any action upon my part. Three other Cabinet Ministers have also recently approached me upon the same subject. The Premier said he regretted that the American bankers had withdrawn from participation in the currency loan, that the currency of the [Page 190] country was in a very bad condition, and that its reform was urgently needed. He said the Chinese Government would be glad if the American Government would give such assurances to American capitalists as would induce them to resume the lending of money to China.
I assured the Minister that the American Government was not only not opposed to the investment of American capital in China but on the contrary would be glad to see such investment made, whether for industrial or purely financial purposes, but that it was not the desire of the American Government to conduct the negotiations for such loans, which should be taken up with the American capitalists themselves.
I called attention, however, to China’s pledge not to make or guarantee any loans for six months after the last payment upon the recent reorganization loan. The Minister replied that the six months would expire in February next and that the time between the present and next February was but too brief for the negotiations of a new loan, and that even if negotiations should be completed before that date no bonds would need to be put upon the market until the six months period should be completed.
I inquired as to his plans for the improvement of the currency. He stated that there was a vast amount of paper money afloat which had been issued by the provinces, that it was now at a heavy discount and he proposed to replace these notes with notes of the Bank of China which it was intended to secure by the loan requested. The total amount of provincial loans afloat is estimated at Chinese $200,000,000. Mr. Hsiung said that it was thought that if a loan of, say, £5,000,000 or £10,000,000 could be negotiated in the United States, a further loan from the quintuple group could be avoided: a result much to be desired by the Chinese Government. Such a loan for the reform of the currency, he considered, would be for the general benefit and would in effect be an industrial, not a political loan, since it would encourage industry and commerce by giving a stable medium of exchange and removing the danger of financial loss from a depreciated currency. The Chinese Government would benefit greatly because the revenues now being sent up from the provinces are paid in this depreciated currency, which must be received at its face value by the Central Government but which can be paid out at no more than its market value.
The Minister pointed out that if China should have to turn again to the quintuple group for a loan of another £25,000,000 each of the five nations interested would have an investment of £10,000,000 in these two loans, and that if the United States had no share in them its interests were likely to suffer correspondingly. He did not explain this statement, but I presume he meant to imply that the conditions of supervision, etc., without which the loans cannot be made, would place these five powers in practical control of China’s finances and enable them to dictate its fiscal policy, while at the same time their numerous advisers and supervisors would place them in an advantageous position widen purely industrial loans were to be made or railway, mining, or other concessions were to be granted.
I raised the question of security for such a loan as he desires, but he replied only vaguely that there were plenty of revenues that could be given as security.[Page 191]
I did not encourage him to hope that American capitalists would be attracted by the proposed loan, but, on the contrary, pointed out that American capital could find such remunerative investment at home as to make it undesirable to enter into competition with that of Europe, which was content with low rates of interest. In reply to this remark he asked whether the bonds for such a loan could not be floated in the United States, in which case he would be willing to pay a higher rate of interest inasmuch as the quotations of Chinese securities in Europe would not be affected thereby. I expressed the opinion that if the rate of interest were high enough the bonds could doubtless be sold in the United States.
At his earnest solicitation I agreed to report to you his request for the good offices of the American Government with American capitalists, but at the same time I suggested that the proper channel for the communication of such a request was the Chinese diplomatic representative in Washington.
In making this report it is scarcely necessary to do more than call attention to the desperate condition of China’s finances, of which the Legation has already on various occasions advised the Department. I enclose a clipping from the Peking Gazette of October 15th, which quotes an estimate of China’s indebtedness made by the Osaka Mainichi, from which it appears that her foreign debt is not less than Y1,715,751,728, or United States $857,875,864. These figures are believed to be substantially correct. Taking a conservative estimate of the population at 320,000,000, the indebtedness amounts to United States $2.68 per capita, which seems very light when compared with Japans $25.00 per head.
But China’s finances are in such disorder that it seems impossible for her to continue long to meet her obligations without foreign interference, and that possibility must be given due weight in considering the advisability of an American loan to this Government. Undoubtedly, the Chinese would like competition between American financiers and those of the quintuple group, since the latter might in such case be induced to moderate their demands, and I am disposed to believe that this is the principal motive prompting the Cabinet to ask for an American loan at the present time.
I have [etc.]
- Not printed.↩