Papers Relating to the Foreign Relations of the United States, With the Address of the President to Congress December 5, 1916

File No. 893.51/1707

The Secretary of State to the Continental and Commercial Trust and Savings Bank

Department of State,
Washington, November 16, 1916.

Gentlemen: I have read the contract between yourselves and the Republic of China with reference to a loan of five million dollars for a period of three years [printed below], and I have to say in reply to your oral request for a statement of the policy of this Department respecting such loans that the Department of State is always gratified to see the Republic of China receive financial assistance from the citizens of the United States and that it is the policy of the Department now as in the past to give all proper diplomatic support and protection to the legitimate enterprises abroad of American citizens.

I am [etc.]

Robert Lansing

Agreement between the Government of China and the Continental and Commercial Trust and Savings Bank for a loan of five million Dollars gold

[Left at the Department by the Continental and Commercial Trust and Savings Bank November 16, 1916.]

This agreement made in the City of Washington, District of Columbia, United States of America, this ——— day of November 1916 by and between the Government of the Republic of China (hereinafter called “Chinese Government”), the first party hereto, represented by his Excellency, Doctor V. K. Wellington Koo, Envoy Extraordinary and Minister Plenipotentiary of the Republic of China to the United States of America, acting in the name and on behalf of the Minister of Finance of the Republic of China by special authorization, and Continental and Commercial Trust and Savings Bank, of Chicago, Illinois, United States of America, (hereinafter called “Trust Bank”), the second party hereto,

Witnesseth:

Whereas, the Chinese Government desires to borrow the sum of five million dollars ($5,000,000.00) in gold coin of the United States of America of the present standard of weight and fineness, and may hereafter determine to borrow in the United States of America an additional sum or sums aggregating twenty-five million dollars ($25,000,000) in like gold coin, and desires the Trust Bank to procure the loan to the Chinese Government of said five million dollars ($5,000,000), and the Trust Bank is willing to agree to procure for the Chinese Government said loan to it of said five million dollars ($5,000,000) all upon the terms and conditions hereinafter set forth,

Now, therefore, it is hereby agreed as follows:

Article First.—The Chinese Government agrees to borrow and the Trust Bank agrees to procure for the Chinese Government said sum of five million dollars ($5,000,000) as hereinafter provided. The Chinese Government hereby declares that said loan is needed by the Chinese Government for industrial purposes including the internal development of China, the strengthening of the reserves of the Bank of China and the Bank of Communications (both of which are official banks) and other similar purposes.

Article Second.—Said five million dollars ($5,000,000) loan and the Treasury notes hereinafter provided for are hereby constituted a direct liability and obligation of the Chinese Government which hereby pledges its good faith and credit for the full and punctual payment of the total principal of and interest on said loan and for the full and punctual payment of all of said Treasury notes in accordance with their terms, and for the performance of all of the undertakings on the part of the Chinese Government herein agreed to be performed.

(a) Said five million dollar ($5,000,000) loan shall be evidenced by the Treasury notes of the Chinese Government which Treasury notes shall be designated and known as “Republic of China Six Per Cent Three-Year Secured Gold Loan Treasury Notes of 1916,” and shall be signed in the name of the Chinese Government by his Excellency Doctor V. K. Wellington Koo, Envoy Extraordinary and Minister Plenipotentiary of the Republic of China to the United States of America, and shall bear the official seal of the Chinese Legation at Washington, D. C., and shall be authenticated by the Trust Bank. Said Treasury notes shall be dated November 1, 1916, and shall be payable November 1, 1919. They shall be paid by the Chinese Government, both principal and interest, in gold coin of the United States of America of the present standard of weight and fineness. They shall be in coupon form and be registerable as to principal only. They shall be in the denomination of one thousand dollars ($1,000) each and shall bear interest at the rate of six per cent (6%) per annum from and after their date, payable semi-annually on May 1st and November 1st in each year, which interest shall be evidenced by coupons attached to said Treasury notes. Said Treasury notes and the coupons thereto attached shall be payable at the office of the Trust Bank in Chicago, Illinois, and shall be substantially in the form hereto attached.

At the request of the Trust Bank the Chinese Government will issue registered notes without coupons in the denomination of one thousand dollars ($1,000) or any multiple thereof. If registered notes without coupons shall be issued, they shall be interchangeable with any other notes of said issue under such plan as may be necessary or desirable to conform to the rules of any stock exchange.

The whole or any part of said Treasury notes outstanding at the time, shall before their maturity be subject at the option of the Chinese Government to redemption upon any interest date at par, plus accrued interest and plus one per cent (1%) premium if redeemed on or before November 1, 1917, and one-half per cent (½%) premium if redeemed any time thereafter. At least thirty (30) days’ prior notice of the exercise of such option to redeem stating the amount of said Treasury notes elected to be redeemed, shall be given to the Trust Bank by the Chinese Minister located at Washington, D. C. A notice of the exercise of such option to redeem shall be published by the Trust Bank at least once a week for four (4) successive weeks in a newspaper published in the English language in said City of Chicago and in a newspaper published in the same language in the City of New York, State of New York, United States of America.

If the Chinese Government elects to redeem less than the whole of said Treasury notes outstanding at the time, those to be so redeemed shall be determined by the Trust Bank by lot and in that event said published notice shall state the numbers of the Treasury notes so drawn for redemption. In case of the election by the Chinese Government to redeem the whole or any part of said Treasury notes, the Chinese Government will before the date of the first publication of said notice of redemption, deposit with the Trust Bank the funds necessary to effect such redemption.

The Trust Bank shall promptly after such redemption send a written report to the Chinese Minister at Washington, D. C., stating the numbers of the Treasury notes drawn and the numbers of the Treasury notes redeemed. Treasury notes so drawn for redemption will cease to bear interest on and after the date appointed for their redemption, to be stated in the aforesaid published notice of redemption, notwithstanding anything stated to the contrary in said Treasury notes or coupons pertaining thereto. All said Treasury notes shall be canceled by the Trust Bank as soon as they are redeemed and shall be promptly delivered to the Chinese Minister at Washington, D. C.

(b) At least ten (10) days before any installment of interest on said Treasury notes shall become due, the Chinese Government will deposit with the Trust Bank a sum sufficient to pay said interest in full; and at least ten (10) days before the date of the maturity of said Treasury notes the Chinese Government will deposit with the Trust Bank a sum sufficient to pay at such maturity the principal of and interest on all of said Treasury notes then outstanding.

(c) Until definitive engraved notes are ready, one temporary note will be issued by the Chinese Government, either typewritten or printed, in the denomination of five million ($5,000,000) dollars. Such temporary note shall have the same force and effect as the definitive engraved notes until exchanged for the latter. Said temporary note shall be substantially in the form hereto attached. The Chinese Government will cause definitive engraved notes in form satisfactory to the Trust Bank to be forthwith prepared and to be delivered by the Chinese Government to the Trust Bank to be by it exchanged for said temporary note.

(d) Provision may be made by the Trust Bank after consulting the Chinese Minister at Washington, D. C., for listing said Treasury notes on any one or more stock exchanges in the United States of America.

Article Third.—Said entire loan of five million dollars ($5,000,000) is hereby secured in respect to both principal and interest, by a direct charge upon the entire revenues derived and to be derived by the Chinese Government from the Tobacco and Wine Public Sales Tax. Said security is hereby declared by the Chinese Government to be free from any other loan, pledge, lien, charge or mortgage whatsoever. Said five million dollar ($5,000,000) loan shall have priority both as regards principal and interest, over any future loan, pledge, lien, charge or mortgage whatsoever charged upon the above mentioned revenues. So long as said five million dollar ($5,000,000) loan or any part thereof, principal or interest, shall be unpaid, no loan, pledge, lien, charge, or mortgage shall be made or created which shall take precedence of or be on an equality with said five million dollar ($5,000,000) loan or which shall in any manner lessen or impair its security on or over the said revenues so far as said revenues shall be required for the service of said five million dollar ($5,000,000) loan; and any future loan, pledge, lien, charge or mortgage whatsoever charged on said revenues or any part thereof shall be expressly made subject to said five million dollar ($5,000,000) loan, both principal and interest. The Chinese Government expressly declares in its budget for 1916 promulgated by the presidential mandate on January 1, 1916, that the receipts from said Tobacco and Wine Public Sales Tax will net the Chinese Government during each of the years that all or any part of said five million dollar ($5,000,000) loan, both principal and interest, is unpaid, a sum equivalent to at least five million dollars ($5,000,000) in gold coin of the United States of America of the present standard of weight and fineness.

The Chinese Government will promptly apply towards the payment of said Treasury notes, both principal and interest, so much of said pledged revenues as will be adequate and sufficient to fully protect and pay all said Treasury notes and all unpaid accrued and accruing interest thereon. If, during any or each of the years that all or any part of said five million dollar ($5,000,000) loan, both principal and interest, is unpaid, the receipts from said Tobacco and Wine Public Sales Tax should by any reason or circumstance net the Chinese Government a sum not sufficient to meet the service of said five million dollar ($5,000,000) loan, both principal and interest, the Chinese Government will forthwith make good such deficit from other sources of its revenue.

Article Fourth.—The Trust Bank shall sell or cause to be underwritten or sold or disposed of within five (5) days from the date of this contract, said total issue of Treasury notes, and the Trust Bank, if it so desires, may associate with itself as principals or otherwise in this undertaking, other banks, trust companies, firms and individuals. The Trust Bank may itself be an underwriter or purchaser of any part of said Treasury notes.

Said Treasury notes may be offered by the Trust Bank individually or with one or more associates for public description, and if offered for public subscription, shall be offered at a price to the public of not less than ninety-seven (97%) of the par value of said Treasury notes plus accrued interest. The Trust Bank may, however, fix a lower price at which said Treasury notes may be privately offered by it for sale, subject, however, to the provisions of Article Sixth hereof. The Trust Bank may issue interim receipts to the purchasers of said Treasury notes.

All expenses in connection with the printing, engraving and execution of said Treasury notes and interim receipts shall be paid by the Chinese Government, but all expenses in connection with the advertising and sale of said Treasury notes shall be paid by the Trust Bank.

If said Treasury notes, or any portion thereof, are subscribed for by the public at the time of their original offer to the public, at a price in excess of ninety-seven per cent (97%) of their par value plus accrued interest, then such excess, when collected or received by the Trust Bank, shall be divided, one-half to the Chinese Government, and the other half to the Trust Bank.

The Trust Bank is granted the power to determine the manner and method to be pursued in the underwriting, and in the sale (whether private or public) and in the offering and disposition of said Treasury notes.

All details necessary for the prospectus of said five million dollar ($5,000,000) loan shall be prepared by the Trust Bank in consultation with the Chinese Minister at Washington, D. C., who will co-operate with the Trust Bank in any matters requiring conjoint action and will sign, by way of approval, if requested by the Trust Bank, the said prospectus.

Article Fifth.—All of said Treasury notes and coupons and all payments made or to be made thereon, or on any of them, and all payments made or to be made, disbursed, distributed or received on account of or in connection with all or any part of said five million dollar ($5,000,000) loan or on account of or in connection with all or any part of the interest thereon, shall in time of war as well as in time of peace be always exempt from any and all taxes, impositions, liens or charges of any and every kind now or that may hereafter be established or levied by the Chinese Government or any province, division, or branch thereof, or that may be attempted to be established or levied by any province, division or branch thereof.

Article Sixth.—The total of said five million dollar ($5,000,000) loan shall net the Chinese Government ninety-one dollars ($91) for every one hundred dollars ($100) thereof in gold coin as aforesaid, plus accrued interest from November 1, 1916, to the date that the Chinese Government is credited by the Trust Bank with the sum hereinafter in this paragraph specified. Any and all sum or sums of money paid to or received or realized by the Trust Bank on or from the sale, underwriting or other disposition of all or any of said Treasury notes above or in excess of said ninety-one dollars ($91) for every one hundred dollars ($100) of said five million dollar ($5,000,000) loan shall, except as is otherwise in Article Fourth hereof provided, belong absolutely to the Trust Bank, and shall constitute and be the consideration and compensation which the Trust Bank shall be entitled to and is to receive for its services rendered and to be rendered hereunder.

Upon the execution and delivery of this contract and the execution and delivery by the Chinese Minister to the Trust Bank of said temporary note, and within said five (5) days from the date of this contract, the Trust Bank will, out of the proceeds of said underwriting, sale and disposition by it of said Treasury notes, place to the credit of the Chinese Government in the Tryst Bank a total net sum calculated on the basis aforesaid, of four million five hundred and fifty thousand dollars ($4,550,000) in gold coin aforesaid plus the interest accrued on said Treasury notes from November 1, 1916. Said credit may be drawn upon from time to time by orders or checks of the Chinese Government signed by its Minister at Washington, D. C., until and unless otherwise instructed in writing by the Chinese Government. Upon all of said moneys remaining on deposit with the Trust Bank interest will be allowed at the rate of two per cent (2%) per annum.

Article Seventh.—In the event of any of said Treasury notes or any of said coupons pertaining thereto, being destroyed, lost or stolen, the Trust Bank is hereby authorized to notify the Chinese Minister at Washington, D. C., thereof, who will authorize the Trust Bank to insert an advertisement in one or more newspapers published respectively at the time in the Cities of Chicago and New York, stating that the payment of such note or notes or coupon or coupons has been stopped, and to take such other steps as may appear advisable to the Trust Bank according to the laws or customs in the United States of America.

Should any such Treasury note or notes or coupon or coupons be destroyed, lost or stolen, and not be recovered after a lapse of time to be fixed by the Trust Bank, the Chinese Minister at Washington, D. C. will execute a duplicate note or notes or coupon or coupons for a like amount and deliver the same to the Trust Bank to be by it delivered to the owner or owners of such destroyed, lost, or stolen note, notes, coupon or coupons. The Trust Bank shall require from such owner or owners proof and indemnity satisfactory to the Chinese Government or to the Trust Bank.

Article Eighth.—In reimbursement of its compensation and expenses connected with the distribution by the Trust Bank of the moneys to be received by the Trust Bank from the Chinese Government with which to pay the interest on said Treasury notes and the principal thereof, the Trust Bank shall be paid by the Chinese Government a commission of one-half (½%) per cent, of the moneys received by the Trust Bank to pay said interest and a commission of one-quarter (¼%) per cent. of the moneys received by the Trust Bank to pay said principal.

Article Ninth.—In the event of the Chinese Government hereafter determining to borrow in the United States of America an additional sum or sums up to twenty-five million dollars ($25,000,000) gold of the standard aforesaid, the Chinese Government will grant the Trust Bank the first option to determine whether it will agree to procure such additional loan or loans for the Chinese Government at such times and in such installments and on such terms as may be hereafter mutually agreed upon. Such option shall be valid for and during a period of sixty (60) days from the day on which written notice is given to the Trust Bank by the Chinese Government of its desire to obtain such additional loan or loans. If the Trust Bank fails to exercise such option during the time covered by said notice, the option shall become null and void and the Chinese Government will be at liberty to borrow said additional sum or sums from any other bank or group of banks.

Article Tenth.—On behalf of the Chinese Government, the Chinese Minister, his Excellency Doctor V. K. Wellington Koo, who has signed this contract, agrees that the making of said loan of five million dollars ($5,000,000) and the issue of said Treasury notes and coupons and the execution and delivery of this contract are each and all entered into and duly authorized by the Chinese Government and are each and all in accordance with the Constitution and laws of the Republic of China, and that there is no treaty, convention, obligation or agreement of any kind to the contrary, and that the Chinese Government will, upon the execution and delivery hereof, deliver to the Trust Bank a cablegram (or copy thereof) from the Minister of Finance of the Chinese Government, and promptly thereafter a confirmatory document from said Minister of Finance, in substance stating that the making of said five million dollar ($5,000,000) loan and the issue of said Treasury notes and coupons and the execution and delivery of this contract are each and all entered into and duly authorized by the Chinese Government and are each and all in accordance with the Constitution and laws of the Republic of China, and in no way contrary to any treaty, convention, obligation or agreement of any kind.

Article Eleventh,—This contract is signed on behalf of the Chinese Government by the Chinese Minister at Washington under authority of a cablegram from the Minister of Finance of the Republic of China dated the ———— which has been officially communicated to the Minister in Peking, China, of the United States of America.

Three original copies of this agreement have been executed in English, two copies to be retained by the Chinese Government, and one copy by the Bank.

In the event of any doubt arising in regard to the interpretation of this agreement, the English text shall rule.

In witness whereof, his Excellency Doctor V. K. Wellington Koo, the duly authorized and accredited Envoy Extraordinary and Minister Plenipotentiary of the Republic of China, to the United States of America, acting in the name of the Government of the Republic of China and on behalf of the Minister of Finance of the Republic of China, under special authorization as above, has hereunto signed his name and caused the seal of the Chinese Legation at Washington, D. C., to be affixed hereto, and said the Continental and Commercial Trust and Savings Bank of Chicago, Illinois, has caused this instrument to be duly signed and delivered for and in its name and on its behalf by ————— —————, its ————— President, at the place and on the date first above written.

————— —————
Continental and Commercial Trust and Savings
Bank of Chicago, Illinois,
By ————— —————
Its —————