File No. 893.811/254
We regret to note that the Chinese authorities have apparently been
misinformed and that they, as well as the American Minister at Peking,
should have been unduly disturbed by an erroneous interpretation of an
arrangement made between the American International Corporation and the
Industrial Bank of Japan.
We have the honor to transmit herewith for the Department’s confidential
information copy of the agreement entered into between the American
International Corporation and the Industrial Bank of Japan, together
with the texts of cables exchanged with our Peking representative with
regard to this entire matter.4
We have the honor to call the Department’s attention to the fact, clearly
shown in the accompanying documents, that the American International
Corporation has from the outset taken the position that our contracts
for the improvement of the Grand Canal were made with the Chinese
authorities and that we could not, without their specific approval, make
any arrangement for cooperation with other interests or admit other
interests to participation in the contemplated loan.
As the Department will appreciate, the arrangement between the American
International Corporation and the Industrial Bank of Japan provides the
basis for negotiations to be undertaken either by the American
International Corporation with a view to ultimate association with the
Industrial Bank of Japan, or jointly by the American International
Corporation and the Industrial Bank of Japan. The provisions of this
arrangement do not concern the Government of China except in so far as
they are referred to in the contract it is proposed to negotiate with
the Chinese Government.
We also have the honor to call the Department’s attention to the fact
that our agreement with the Industrial Bank of Japan provides that the
American International Corporation shall take all steps possible to
recommend and secure the appointment of a Japanese assistant engineer
and assistant auditor who will respectively rank
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second to the American chief engineer and the
American chief auditor, only if and when the action shall be agreeable
to the Chinese Government.
We should be obliged to the Department if it would bring these matters to
the attention of the American Minister at Peking, in order to remove, if
possible, his present apparent misapprehension regarding this
situation.
[Inclosure]
[Untitled]
Agreement between the American International Corporation and the
Industrial Bank of Japan for cooperation, with the approval of the
Chinese Government, in undertaking the improvement of the sections
of the Grand Canal in the Provinces of Shantung and Kiangsu in the
Republic of China.
Whereas, the American International Corporation, through its
representatives in China, on April 10, 1916, concluded with the
Government of the Province of Shantung a contract for the issue of
$3,000,000 seven per cent (7%) bonds, the proceeds from the sale of
which were to be utilized for the improvement of the section of the
Grand Canal in the Province of Shantung, and
Whereas, the American International Corporation, through its
representatives in China, on May 13, 1916, concluded with the
Central Government of China a contract for the issue of $3,000,000
seven per cent (7%) bonds, the proceeds from the sale of which were
to be utilized for the improvement of the section of the Grand Canal
in the Province of Kiangsu, and
Whereas, it is now proposed that, if the Chinese Government in
principal approves such cooperation, the American International
Corporation and the Industrial Bank of Japan shall associate
themselves together, as hereinafter provided, in the carrying out of
this work of Canal improvement, and through the negotiation of a
single contract providing for the improvement of the sections of the
Grand Canal in the Provinces of Shantung and Kiangsu, and the
issuing of bonds to furnish the funds for such improvement to cover
the projects and contracts above described and to supersede such
contracts,
It is now agreed, by and between the parties hereto, as follows:
Art. I. The American International Corporation will jointly with the
Industrial Bank of Japan negotiate with the Chinese Government for a
single contract providing for the improvement of the sections of the
Grand Canal in the Provinces of Shantung and Kiangsu, or if the
Chinese Government prefers, the American International Corporation
will alone conduct negotiations for the contract contemplated,
stipulating in such contract that financial interests other than the
American International Corporation may, with the consent of the
Chinese Government be admitted to a participation in the issue of
bonds thereunder, it being understood that the Industrial Bank of
Japan shall, with the approval of the Chinese (government, be so
admitted, in which case the American International Corporation
through its representatives will keep the Industrial Bank of Japan
advised as to the terms of the contract under discussion.
Art. II. The American International Corporation, jointly with the
Industrial Bank of Japan or alone as the case may be, shall propose
to the Chinese Government as a basis for negotiations, a contract
which shall follow the general lines of the contract for the
improvement of the Kiangsu section of the Grand Canal, and the
American International Corporation and the Industrial Bank of Japan
agree, as between themselves, that the draft contract (copy of such
suggested draft being appended hereto), set forth the general
principles upon which they are willing jointly to undertake to issue
the bonds contemplated thereunder, it being understood by and
between the American International Corporation and the Industrial
Bank of Japan that:
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- A.
- Of the total contemplated issue of U. S. gold dollars
$6,000,000 (or approximately gold yen 12,000,000), the
American International Corporation shall purchase and
arrange for the issue of U. S. gold dollars $3,500,000 and
the Industrial Bank of Japan shall purchase and arrange for
the issue of U. S. gold dollars $2,500,000 (or approximately
gold yen 5,000,000).
- B.
- Bonds are to be issued simultaneously in Tokyo and New
York, the American International Corporation and the
Industrial Bank of Japan to agree as to the issue price of
the bonds in their respective markets.
- C.
- The American International Corporation and the Industrial
Bank of Japan are to issue, or to arrange for the issue of,
bonds of the Chinese Government in their own markets,
without responsibility to each other.
- D.
- All profits to be derived from, and all expenses incurred
in connection with the issue of bonds in New York and Tokyo
respectively, are to be received and paid by the American
International Corporation and/or its associates, and the
Industrial Bank of Japan and/or its associates,
independently and without responsibility to each
other.
- E.
- The American International Corporation (or its associates
through whom the issue on the New York market may be made)
is to endeavor to arrange that the entire issue of U. S.
Gold dollars $6,000,000 (or approximately gold yen
12,000,000) shall be listed on the New York Stock Exchange,
and the Industrial Bank of Japan, and/or its associates, to
endeavor to arrange that the entire issue of U. S. gold
dollars $6,000,000 (or approximately gold yen 12,000,000)
shall be listed on the Tokyo Stock Exchange.
- F.
- The bonds are to be engraved or printed to meet the
requirements of the New York and Tokyo Stock
Exchanges.
- G.
- The American International Corporation is to endeavor to
arrange that the Chinese Government shall for this
transaction make a fixed rate of exchange as between U. S.
gold dollars and gold yen on the basis of two gold yen to
one United States Gold Dollar. The Industrial Bank of Japan
shall join in such endeavor if the contract is negotiated
jointly.
- H.
- Loan proceeds are to be deposited in New York and Tokyo in
proportion to the amounts issued in the United States and
Japan respectively, and are to be transferred to China in
proportionate amounts to meet expenditures for improvement
work. Funds so transferred to China are to be held in China
by the International Banking Corporation and a Japanese bank
to be designated, until such funds are withdrawn for the
purpose contemplated and in the manner provided by the
contract.
- I.
- Principal and interest of the bonds are to be payable at
the offices of the National City Bank in New York or of the
Industrial Bank of Japan in Tokyo, in dollars and yen
respectively.
Art. III. (a) The American International Corporation and the
Industrial Bank of Japan agree, as between themselves, that the loan
shall be for a par value of U. S. gold dollars $6,000,000 (or
approximately gold yen 12,000,000).
(b) An American chief engineer shall have charge of the improvement
work and an American chief auditor shall have charge of all receipts
and disbursements contemplated thereunder.
(c) The Siems-Carey Railway & Canal Company shall be designated
as contractors to undertake the improvement work, and shall have
entire charge of the personnel of the contracting and construction
staffs.
Art. IV. By virtue of its issue of bonds under the loan agreement to
be concluded, whether such loan agreement be negotiated jointly by
the American International Corporation and the Industrial Bank of
Japan or by the American International Corporation alone,
participation thereunder of the Industrial Bank of Japan being
subsequently arranged, the American International Corporation will
cooperate with the Industrial Bank of Japan in all matters arising
under the contract.
In order that Japanese industry may have an opportunity to profit in
proportion to the amount of capital subscribed by Japanese investors
in the bonds to be issued for the improvement of the Grand Canal,
Japanese material shall at equal price, quality and delivery be
given equal preference with American materials and wheresoever in
the judgment of the Siems-Carey Railway & Canal Company the
interests of the Chinese Government may best be served and the
progress of the work be facilitated, subcontracts shall be awarded
to Japanese subcontractors to be recommended by the Industrial Bank
of Japan.
If and when the action shall be agreeable to the Chinese Government
and the Industrial Bank of Japan requests that such action shall be
taken, the American International Corporation agrees to take all
necessary steps possible to recommend
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and secure the appointment of a Japanese
Assistant Engineer and a Japanese Assistant Auditor who will
respectively rank second to the American Chief Engineer and the
American Chief Auditor.
Art. V. The Industrial Bank of Japan agrees that the Siems-Carey
Railway & Canal Company shall receive for their services as
contractors for the Canal improvement, the ten per cent of the total
cost of such canal improvement work provided for under the original
agreements referred to in the preamble hereof.
Moreover, since the Industrial Bank of Japan is to share, with the
American International Corporation, those financial obligations
imposed by the canal contracts, it is hereby agreed that the
Industrial Bank of Japan shall participate in the benefits derived
from the construction profits of the contracts, and that to carry
out this participation the Industrial Bank of Japan shall receive a
sum equal to five-twelfths of the total amount of the canal
construction profit dividends declared and payable to the
Corporation by the construction company, such amounts to be paid
when and as the canal construction profits are distributed, and such
payments to constitute the sole participation due or to be claimed
by the Industrial Bank of Japan in such benefits.
It is further understood and agreed by and between the parties hereto
that this contract does not give and shall not be construed to give
to the Industrial Bank of Japan, any right, title or interest
whatsoever in stock of the Siems-Carey Railway & Canal Company,
which is now owned or which may be hereafter acquired by the
American International Corporation, and that this contract does not
give and shall not be construed to give to the Industrial Bank of
Japan, any rights or interests whatsoever or any voice in the
control, management, or disposition of such stock so owned or
acquired, or in the affairs of the Company itself.
Art. VI. When, subsequent to the conclusion of the contract between
the American International Corporation and the Chinese Government
for the improvement of the Grand Canal hereinabove referred to, the
American International Corporation shall arrange with the Industrial
Bank of Japan for the issue in Tokyo of a portion of the bonds
contemplated for the improvement of the Grand Canal, the Industrial
Bank of Japan shall reimburse the American International Corporation
in the proportion of 7 to 5 for all expenses incurred by the
American International Corporation in conducting the negotiations
for the two contracts referred to in the preamble of this agreement,
in the negotiations for the single contract for a loan for the
improvement of the Grand Canal, in arranging for the participation
of the Industrial Bank of Japan in the new contract now
contemplated, and in perfecting all arrangements for the issue of
the bonds, including the drafting, framing, printing, et cetera, of the bonds wherever and whenever
such arrangements are of use to both the American International
Corporation and the Industrial Bank of Japan.
In witness whereof, the undersigned, being duly authorized by the
American International Corporation and the Industrial Bank of Japan
respectively, hereunto affix our hands and seals, this eighth day of
March 1917.
American International Corporation
Charles A. Stone
President
Witness:
Joseph S. Lovering
Yeijiro Ono
Vice President of the Industrial Bank of
Japan
Witness:
Willard Straight
