File No. 893.51/2513a
The Secretary of State to President Wilson
My Dear Mr. President: The subject of making a loan or loans to China again presents itself. Conditions are different at present [Page 170] from what they were when this subject was up a while ago, and entirely different from what they were when the American group withdrew from the consortium. The last time it was under discussion the Secretary of the Treasury expressed the feeling that our commitments to European countries and our needs in America were such as to make a loan to China then impracticable.
I have recently been advised by the Secretary of the Treasury that the affairs of the Treasury will probably permit some such loans to be made, provided the diplomatic situation warrants so doing, and I feel that it does. The question immediately arises as to the nature of the loans, the purposes for which they are to be used and the character of the loan, that is, as to whether it shall be a governmental loan or one by private bankers. After consultation between the officials of this Department and of the Treasury, it is felt that loans for war purposes by private bankers would be best under the circumstances. With that object in view, it is being proposed to call together the representatives of a few of the banks which have been interested in making loans in the Far East, and that they, or any of them, and such others as they may desire, form an American group. Those who would fall in this category are the officers of the Guaranty Trust Co., J. P. Morgan & Co., Kuhn, Loeb & Co., of New York, the Continental & Commercial Trust & Savings Bank of Chicago, and Lee, Higginson & Co. of Boston.
There are three matters in prospect which offer opportunities for such a group to operate in, in which it will be very advisable to have American financiers interested. They are as follows:
- 1st.
- The Continental & Commercial Trust & Savings Bank of Chicago made a loan to China some time ago, taking as security the income from the wine and tobacco tax. As part of the contract they obtained a preference on any additional loans looking to the same security up to twenty-five million dollars. Japanese interests are at present negotiating with China to make a loan on the same security, having in contemplation a liquidation of the existing five-million-dollar loan above referred to, and including in the contract provision for the organization and control of the whole tobacco and wine industry of China—its manufacture, production, and sale. …
- 2d.
- The railroad service projected from Canton to Hankow was under British control. The line is not completed. It will take about thirty million dollars to finish it. The British financiers have not been able to proceed with it and have called in the American International Corp. and their subsidiary, the Siems-Carey Co., and have asked them to proceed with the construction. The Siems-Carey Co. is unable to finance it, but is able, in case they can make financial arrangements, to agree with the British interests that American engineers shall be used and American control exercised over the road during the period of the contract existing between the British interests and the Chinese Government which extends over a number of years. The financing of the road at this time would enable American interests to control a very important railroad. It is understood between the Siems-Carey Co. and the British and French interests concerned that their Governments would, because of such aid, be likely to withdraw their claims to the spheres of influence in the regions affected.
- 3d.
- The loan for currency reform purposes, which will amount to a sum variously estimated between one hundred million and two hundred million must, under the contract, be made with the old consortium from which the American group withdrew, and with which neither the British nor the French groups are now able to proceed. That leaves Japanese capital in control. They have several times requested American participation and have expressed a real desire to have us join them. This is not imminent but will become active within the next three or four months. China has renewed the option several times but has declined to extend it again so that unless we are able to participate Japan can and probably will proceed alone with this large and important loan.
China has expected some financial assistance from the United States. Japan has made her many loans recently. We have made none. It was at our invitation she entered the war, and it is to us that she is looking for some financial help to guard against possibilities now that the scenes of war are nearing her borders. The indications are that her disappointment at not receiving what she has felt she had reason to expect has made her somewhat resentful against this country. If we are able to give permission to American banks to make the loans in connection with the tobacco tax and with the railroad, and to cooperate with Japan on the question of currency reform, it will be pleasing no doubt both to China and Japan.
The proposal is made to form an American group, composed of interests which have made loans in the Orient, and to allow them to carry out the details. It would be necessary to assure them of the support of the Government for these three projects, and for such other legitimate and non-political enterprises upon which they may enter.
In view of the present circumstances and of the situation in China, and of the conversations which have been had with the Treasury Department and their informal and verbal assurances that the plan above suggested would be feasible, I have the honor to request whether it receives your approval that we organize an American group for the purpose indicated and have your permission to proceed therewith subject to consultation and agreement with the Treasury.
Faithfully yours,