Papers Relating to the Foreign Relations of the United States, With the Address of the President to Congress December 4, 1917
File No. 893.51/1788
Minister Reinsch to the Secretary of State
Peking, June 5, 1917.
Sir: There is herewith enclosed a duplicate original of an agreement between the Government of China, represented by the Vice Minister of Finance and Mr. John J. Abbott, Vice President of the Continental and Commercial Trust and Savings Bank of Chicago. The agreement relates to the assignment of additional security for the loan of 5,000,000 dollars gold made by the bank on November 16, 1916.
Mr. Abbott requests that this agreement be held by the Department, to be turned over to him upon his request, at Washington.
There is also enclosed for the files of the Department a copy of this agreement.
[Page 131]There is also enclosed herewith a copy of a memorandum of the representation which I made to the Premier in connection with the demand of the Continental and Commercial Bank that the matter of security for its loan should be straightened out.
I have [etc.]
Minister Reinsch to the Foreign Office
There are at present in Peking Mr. John Jay Abbott, Vice President of the Continental Commercial Bank, Chicago, and Mr. H. R. Platt, his attorney. Mr. Abbot represents his bank in the matter of the loan of $5,000,000, concluded between the Chinese Government and his bank in October, 1916.
The presence at this time of the representative of one of the strongest financial institutions in the world, is a fact of great importance, especially when it is considered that that institution, providing that the Chinese Government will do business upon a sound basis, is inclined to give its powerful support in the matter of issuing further loans and giving financial support to the Chinese Government.
The Continental Commercial Bank of Chicago is not seeking business with China. So great a number of most attractive proposals are before it at this time that it is manifesting an interest in China only from the point of view of offering its services in the interest of closer financial relations between China and America. It is, therefore, not to be expected that the representative of the bank will do more than to indicate what the bank is willing to do for China. The rest will depend upon the Chinese Government. It is open to it to take advantage of this unprecedented opportunity of getting extensive independent financial support from America.
I fear that the high officials of the Government are far from realizing the importance of this matter to their country.
It is also a highly unfortunate fact that in the solemn assurances given by the Chinese Government to the bank in the making of the original loan essential misstatements of fact occurred. Unless these misstatements are promptly corrected the most disastrous results will follow for the credit of the Chinese Government abroad.
The bank was solemnly assured that the Tobacco and Wine Sales Revenue, which was pledged for the loan, had not theretofore been pledged as security for any other loan. Unfortunately it turns out that this revenue is not clear from other claims upon it.
- 1st.
- The domestic loan of 1916, authorized amount $10,000,000, is specifically secured on this revenue.
- 2d.
- Under the language of its contracts the Banque Industrielle de Chine claims, through the French Legation, that it has a right to all taxes and imposts on tobacco and wine of whatever kind present and future. This claim, which on the face of it might seem unreasonable, is unfortunately to some extent borne out by the fact that in some cases, for instance in the province of Chihli, all tobacco and wine taxes have been consolidated under the form of the Public Sales Revenue. This would bear out the French claim, as their security could, of course, not be defeated by swallowing up the security in some other form of the same tax.
For the above reasons it is imperative that in order to save the public credit of China, arrangements should immediately be made for assigning unclouded security to the Chicago Bank until such time, at least, when both defects now attaching to the security actually assigned, can have been definitely and satisfactorily removed.
This latter can be accomplished only by the entire removal of the domestic loan of 1916 from this particular security, which could be done by providing funds for the taking up of that loan.
Secondly, it would be necessary to make an arrangement by which the claims of the French lenders will be distinctly limited and confined in such a way as to leave abundant security for the American loan. All this requires definite data upon the actual income received from these sources of revenue.
[Page 132]Furthermore the rectification of the defects in the present security will probably require some time, and in order that the good credit of the Government of China should be maintained at its present high standard in the United States it would seem to be most desirable, from China’s point of view, to forthwith set aside as security for the present loan something which will be satisfactory to the Chicago Bank; and as it might be very easy for hostile interest to make it known in the United States that the security which the Chicago Bank at present has is not what the Government of China represented that it was, and which in turn the bank represented to its customers to be as the Chinese Government had stated, such statement would have a tendency to so demoralize the market for Chinese credit in the United States as might make it impossible for some time to come for the Chinese Government to raise independent loans in the States. The credit and financial independence of China is therefore at stake.
Should the difficulty above set forth be satisfactorily settled, the bank is then willing to support the Chinese Government further in the making of important loans in the United States. This fact is alone sufficient to safeguard the financial independence of China.
I regret to state that should my impression be correct that the Chinese Government does not realize what is at stake and that they propose to delay and procrastinate this matter, the representative of the bank will immediately return to the United States as he has no time to waste. In fact, should the negotiations not be seriously taken up in the course of this week, he will probably depart for Hankow and the South of China in order to join his steamer at Hongkong.
In that case it would be my unpleasant duty to take immediate strong action with the Foreign Office based upon the defects discovered in the security guaranteed to the bank by the Chinese Government in the most formal manner. In that case it will be inevitable for this disagreeable fact to become known to the great damage and, in fact, the destruction of Chinese credit abroad. The present matter involves the question as to whether in important international financial dealings the word of the Chinese Government can be relied on.
[Untitled]
This agreement made in triplicate in the City of Peking in the Republic of China on this 14th day of May, 1917, between the Government of the Republic of China (hereinafter called the Government) and the Continental and Commercial Trust and Savings Bank of Chicago, in the State of Illinois in the United States of America (hereinafter called the Trust Bank), Witnesseth:
Whereas under date of the 16th day of November A. D. 1916, the Government and the Trust Bank entered into a certain contract in the City of Washington in the United States wherein and whereby the Trust Bank agreed to and did loan to the Government the sum of 5,000,000 dollars in Gold coin of the United States and the Government agreed to and did secure the repayment of said loan among other things by making the principal and interest of said loan a direct charge upon the entire revenues derived and to be derived by the Government from the Tobacco and Wine Public Sales Tax.
And whereas in and by such agreement the Government represented and guaranteed that the said security was free and clear of any other claims or charges whatsoever and that the said loan should always remain a first, and prior lien thereon and whereas other terms and provisions were contained in said agreement, to the original of which agreement reference is hereby made for the details thereof:
And whereas certain claims have been made by other persons or on behalf of other persons that certain other obligations of the Government are a valid claim or lien on the said taxes or on some part thereof prior to the claim of the Trust Bank on account of said loan.
And whereas it is desired by the Government—without admitting or passing upon the validity of such claims—to give to the Trust Bank for its benefit and for the benefit of all persons who now are or at any time may become the owners or holders of any of the Treasury Notes by which the obligation of the Government to repay said loan is evidenced, additional security which is and shall be entirely free from any conflicting claims of any sort.
Now, Therefore, it is agreed as follows:
Article 1. The Government hereby declares that the Treasury Notes described in the said contract of November 16, 1916, are and shall be secured by a direct charge upon the following revenues of the Government.
[Page 133]The Goods tax receipts from the provinces of Honan, Anhui, Fukien and Shensi, whether such receipts be in the nature of likin taxes, transportation taxes or other taxes or imposts of like natures. And for the purposes of further identifying the said taxes, the Government declares that the receipts from the taxes herein described for the fourth fiscal year are shown on the fiscal records of the Government to have been as follows:
| Honan Goods tax | $721,483 | in | Chinese | dollars |
| Anhui Goods tax | $1,703,000 | “ | “ | “ |
| Fukien Goods tax | $1,186,400 | “ | “ | “ |
| Shensi Goods tax between July 1, 1915, and March 31, 1916 | $879,500 | “ | “ | “ |
And the Government hereby agrees that so long as any part of the said Treasury Notes shall remain unpaid, the said taxes shall remain in force and shall not be diminished, repealed or released without the prior written consent of the Trust Bank, and that the revenues derived therefrom shall be at all times subject to the charge herein imposed and the Government represents and guarantees that the said revenues are not nor is any part of them pledged in any manner whatsoever, and that there is no charge thereon and that the lien thereon created by this agreement shall remain a first prior and continuing lien thereon for the further security of said Treasury Notes.
And the Government further represents that the said taxes are collected by the officials directly commissioned by the Government and are deposited when collected in depositaries selected by the Government and subject only to its order.
Article 2. The Government and the Trust Bank agree that nothing herein contained is intended to be or shall be construed as an admission that any other person has any charge upon or interest in the revenues under the said agreement of November 16, 1916, but it is stated that this supplemental agreement is made in recognition of the existence of the claims referred to but not in recognition of the validity of such claims.
Article 3. The Government and the Trust Bank expressly agree that nothing herein contained shall in any way limit or modify the obligations and undertakings of the Government contained in the said agreement of November 16, 1916, but that the agreements herein contained are in supplement of and in addition to the terms of such contract and the Government and the Trust Bank hereby reaffirm and agree to be bound by the terms of said contract and by the terms of this supplemental agreement and that the same shall be construed as an entire agreement binding so long as any of the said notes shall remain outstanding, provided however that when and as soon as all demands and obligations which may be claimed or appear to be prior or equal liens with said Treasury Notes on any part of the wine or tobacco revenues pledged under said agreement of November 16, 1916 shall have been fully paid and discharged or otherwise fully and legally released as a charge against such revenues, so that the said Treasury Notes shall be an undisputed first and prior charge thereon, then and in such event this supplemental agreement shall immediately be released and discharged.
Three copies of this agreement have been executed in English, of which the Government is to hold two copies, and the Trust Bank to hold one copy, and in the event of any doubt arising in regard to the interpretation hereof the English text shall govern.
In witness whereof the Government of the Republic of China has caused these presents to be signed by its Premier and the Vice Minister of Finance in charge of the Ministry of Finance acting under the express authority of the said Government and sanctioned by the President, and the said Trust Bank has caused these presents to be executed by John Jay Abbott, its Vice President, thereunto duly authorized by the action of its executive committee all as of the day and year first above written.
The Premier of the Government of the Republic of China
The Vice-Minister of Finance in Charge of the Ministry of Finance
The Vice-President of the Continental & Commercial Trust & Savings Bank of Chicago