The Ambassador in Great Britain (Davis) to the Acting Secretary of State

No. 432

Sir: With reference to the Department’s telegram No. 4590 of February 21, 4 p.m., and previous correspondence respecting the formation of a new International Consortium to provide loans to China, I have the honor to transmit herewith enclosed a copy of a Note I have just received from the Foreign Office, to the effect that the British Government have decided to authorise a British group to enter the Consortium under the conditions suggested by the Government of the United States, and setting forth the scheme as it is understood by the British Government.

In dealing with the conditions under which the British Government accept the proposals reference is made to a Note, dated the 14th of August last from the Foreign Office and for the guidance of the Department I venture to point out that a copy of that Note was transmitted to Washington under cover of despatch No. 9710 of August 16th last.79

A copy of the attached Note has been forwarded to the American Commission to Negotiate Peace to-day, despatch No. 102.

I have [etc.]

John W. Davis

The British Acting Secretary of State for Foreign Affairs (Curzon) to the American Chargé (Wright)

No. 37459/10.F.

Sir: With reference to the note from the United States Ambassador of the 24th. ultimo and to previous correspondence respecting the proposal of the United States Government for the formation of a new [Page 427]International Consortium to provide loans to China, I have the honour to inform you that His Majesty’s Government have, after careful consideration, decided to authorise a British group to enter the consortium under the conditions suggested by the United States Government.

The United States scheme as understood by His Majesty’s Government may be summarised as follows:—

It is proposed to establish a system of international co-operation in Chinese finance in the shape of a Four Power Consortium, comprising Great Britain, France, the United States and Japan, each Power constituting a representative group of Banks and Financial Houses, without prejudice to the claims of Belgium and Russia to be included at a later date.
The four Groups will share equally in all Chinese Government guaranteed loans, industrial as well as administrative and financial, which involve a public issue, but financial operations not involving a Chinese Government guarantee or a public issue will remain open to all.
The groups will pool all existing and future options, except such concessions as may be already in operation.
Each national group will receive the active and exclusive support of its Government in the sphere thus indicated.

The acceptance of these proposals, as was pointed out to the late Mr. Page by Mr. Balfour in a note dated August 14th. 1918,80 involves a complete reversal of the policy adopted by His Majesty’s Government in 1913 when it was decided to exclude industrial loans from the scope of the Consortium’s activities, but so convinced are His Majesty’s Government of the urgency, in the interests not only of China herself, but also of foreign trade and finance, of adopting some system to ensure the proper control of loans to the Chinese Government, that they have determined to depart from their previous attitude and to authorise on certain conditions the participation of a British group in a Consortium constituted on the lines suggested by the United States Government.

These conditions comprise the enlargement of the British group in such a manner as to make it representative of the banks and financial houses of this country interested in loans to China and the pooling by the various members of the group of all their existing as well as future options for such loans. Further the inclusion of Industrial Loans in group business is subject to the understanding that the promise of support by His Majesty’s Government applies solely to the financial side of such loans, that the British group is prepared—as is also, I am given to understand, the United States [Page 428]group—to dissociate itself from the industrial side and while providing for the flotation of the loans, to put up to public tender the contracts for the execution of the engineering or other works to be built out of the proceeds of the loans and for the supply of the necessary materials.

On these conditions His Majesty’s Government have authorised the British group to participate in the operations of the proposed International Consortium and have guaranteed to it exclusive official support as regards all future public loans to China which involve a Government guarantee and a public issue, whether for industrial, administrative or financial purposes. At the same time I must add that any financial assistance to China on a large scale from this country cannot be looked for at the present moment, as, having regard to the heavy pressure on the capital resources of this country for reconstruction purposes and to the consequent restrictions imposed on capital borrowing in the London market, His Majesty’s Government have only been able to assent to British participation in the Consortium on the understanding that any loan to China in the near future must be of very moderate dimensions and that the share of the British group should be carried by the United States group, in conjunction with the Japanese group, in the manner suggested in the memorandum which formed the annex to the note addressed by Mr. Lansing to the British Chargé d’Affaires on October 8th. 1918.81

Finally I beg to state that I am in complete agreement with the view expressed in Mr. Davis’ note of the 24th. ultimo, that the question as to what joint agreements should be included in the practical working of the Consortium and what options surrendered could be most easily settled through negotiations between the groups, subject of course to the approval of the respective Governments and I am instructing the representative of the British group accordingly.

I have [etc.]

(For Earl Curzon of Kedleston)
J. A. C. Tilley