File No. 893.811/229

Minister Reinsch to the Secretary of State

[Telegram]

My June 19. In view of all the facts I must recommend bankers reconsideration of Kiangsu matter. By treating Huai River project from the beginning as national we have thrown on the Chinese Government the responsibility for gaining cooperation of provincial authorities where necessary and have avoided endless trouble and interference on the part of the latter throughout the course of work. If we have now to approach local authorities with a request for a separate guaranty which does not materially add to security we not [Page 122] only alienate central officials through whom we must work but we invite provincial intermeddling. Therefore, I beg to suggest that the prospectus might treat canal loan as a unit guaranteed by Central Government further secured by canal tolls and in the case of Shantung portion by special revenues.

I had already received from the Chinese Government a promise that it would secure from Kiangsu authorities formal expression of readiness to further work; it is one thing to hold the Government responsible for securing such cooperation, another to solicit for ourselves by urging local authorities to guarantee an obligation of the Central Government. In the case of Shantung portion the initiative came from the province.

Before proceeding any further I am awaiting your instructions.

Reinsch