File No. 839.516/53

Minister Reinsch to the Secretary of State

No. 1337

Sir: In connection with the loan of the Continental and Commercial National Bank and in continuation of my despatch (No. 1295) of December 8th,12 I have the honor to report as follows. I have had some conversations with His Excellency, the President of China, and with the Minister of Finance, in which they brought up the matter of the use of any funds which might be obtained from American loans in the near future. It is their intention that the major portion of such funds shall be used for the establishment of an industrial bank.

As to the organization of such a bank two alternatives are suggested. Either there could be organized a stock-company bank, organized in conformity with the legislation of both the United States and China: the capital would be subscribed by Americans and the Chinese Government; the directorate and management to represent both parties. Or the bank could be organized simply as a Chinese Government institution in which on account of the fact that the funds were supplied by an American loan, there would be appointed an American co-manager with full power of concurrent control over all important operations of the bank.

It is intended that the bank should supply funds for enterprises both public and private which deal with the development of the resources, colonization, agriculture and industry, the loans to be secured upon the property of the enterprises concerned. Among the constructive activities thus to be supplied with funds there would be the following, among others: municipal utilities, mining, agricultural colonization, forestry, cattle raising, the building of toll roads, iron works and other manufacturing industries.

The business of the bank would begin with cautious advances to enterprises which could give assurance of abundant returns for a prompt and regular repayment of the loan made. The latter would naturally be for a long term of years repayable in annual installments. In cases where machinery is provided for industries, the presence of the other elements necessary for successful operation would have to be demonstrated.

Any loan made to the Chinese Government for the purposes above stated would have as its security the general guaranty of the Chinese Government fortified more especially by the assignment of some special tax, such as the tobacco and wine tax, which is assigned for the Chicago loan; the security would further embrace the assets of [Page 115] the industrial bank and would therefore rest back upon every enterprise, the development of which would be facilitated through this organization.

In the above I have given the merest outline of the proposals which have been made by the Chinese Government. They have been made with a view to securing the cooperation of Americans who are known to be animated with a desire to help China organize herself and would not use an intimate connection for political advantage. These suggestions of the high Chinese officials have been made informally but I feel assured that should the American bankers take up negotiations along these lines the results indicated could be secured. If this banking enterprise were to be undertaken it would create an unequaled leverage for the upbuilding of Chinese economical well-being.

Should this matter be taken up the Legation will of course exert itself to supply the Department and the parties interested with the most complete information possible on every phase of the subject.

I have [etc.]

Paul S. Reinsch