File No. 893.51/1643

Minister Reinsch to the Secretary of State

No. 1053

Sir: I have the honor to enclose a translation of a note dated the 4th instant from the Minister for Foreign Affairs, dealing with the authorization of Dr. V. K. Wellington Koo, the Chinese Minister at Washington, to negotiate a loan with Messrs. Lee, Higginson & Company. There is likewise enclosed a copy of a note dated April 5, from H. E. Liang Shih-yi, stating the purpose for which the Chinese Government intended to use the proceeds of that loan.

While the movement of disintegration was in progress, and as long as it seemed that a strong organization of the opposition might be effected, I felt constrained in my telegrams to you to advise against the completion of the loan for the present. However, the utter disorganization which exists among the revolutionists in Kwangtung and Kwangsi, the fact that the army of the Central Government has been kept entirely intact, but especially the fulfillment on the part of the Government of all the demands of the revolutionists dealing with institutional changes, have created a situation under which I am constrained to admit that no valid ground exists for refusing to complete this contract, notwithstanding the outcry which would probably be raised against it by the revolutionary element. To these considerations must be added the fact the organization of men in charge of the Central Government and of the loyal Provinces, representing as it does the constituted authority of the State, is also the only one from which, under all the circumstances, the aversion of total anarchy and disorganization can be expected.

It is not, of course, assured that the men constituting the Government may be able to avert disaster, but disaster would the more surely come if legitimate sources of revenue for carrying on the ordinary functions of Government, including the maintenance of law and order, were to be withheld.

I have [etc.]

Paul S. Reinsch
[Inclosure 1—Translation]

The Minister for Foreign Affairs to Minister Reinsch

No. 458

Sir: The Ministry of Finance reports that Mr. Ku, the Chinese Minister at Washington, has been authorized to negotiate a loan with Messrs. Lee, Higginson and Company. The said company has agreed to take Chinese Government Treasury notes to the amount of $5,000,000 gold, bearing interest at 6 per cent, [Page 134] payable in three years, and dating from September, 1917, and to be paid in equal instalments every six months. On the conclusion of the agreement the said company has agreed to advance immediately to the Chinese Government $1,000,000 gold on account. Minister Ku has been given full powers to sign the agreement and the Treasury bonds and to draw the advance as well as to attend to all other business connected with the transaction. We are asked to send a formal notification to the American Minister at Peking asking him to notify by telegraph the American Department of State so that the Department may notify the company concerned.

We therefore now notify you, and ask that you will immediately telegraph to the American Government asking them to notify Lee, Higginson and Company.

A necessary despatch.

[Seal of the Wai Chiao Pu]
[Inclosure 2]

His Excellency Liang Shih-yi to Minister Reinsch

Excellency: I have the honor to inform you that the purpose to which the short term loan now to be issued by the firm of Messrs. Lee, Higginson & Company, American fiscal agents of the Chinese Government, is to be devoted is as follows:

Advances to the Provinces for industrial developments, municipal improvements, and education: all under the budget for 1916.

Liang Shih-yi