893.51/2192: Telegram
The Minister in China (Reinsch) to the Acting Secretary of State
[Received April 27, 1.40 p.m.]
In connection with the financial situation I beg to submit the following:
- 1.
- It is important that the Department and the bankers should realize the difficulties confronting China in developing at this time a sound fiscal policy. Every one is agreed that the essential matter is reduction of the Army yet the military having in mind precedent of the first reorganization loan are preparing excessive estimates of necessary disbandment expenses. Any civilian leader coming forward with a sound policy would have their united opposition. For instance chief northern delegate recently made an estimate that disbandment would require 150 million dollars, public works for employment of disbanded troops 50 million. Sound opinion would reverse this estimate devoting the bulk of loan to protecting public works; disbandment expenses only for actually [armed] soldiers delivering their arms, making no allowance for innumerable hangers on, but providing ample funds for constructive work. Such a policy though desired by all the people can make headway only if understood to be the sole basis on which loan can be considered. In other words to be able to face united opposition of the military the civilian leaders need to be fortified by prestige of foreign powers. When it is clearly understood that this is the only possible basis of action the military will yield, the best commanders will be glad to have more compact, better paid forces, the inefficient corrupt commanders will cease to be a serious factor as soon as such a policy is announced. The above difficulty makes the Shanghai Peace Conference97 hesitate to announce a policy which it feels unable to carry through with its own authority. The Peking Government is weakened through the presence in it of a clique representing a foreign interest and the [Page 509] powerlessness of other elements to get financial support [for] even ordinary needs; they are therefore not in a position to propose a radical reform policy. In this sense it is futile to expect from China the establishment of a sound reorganization policy which can only be accomplished with the guidance of the friendly powers. This does not mean intervention but simply straightforward statement of the basis on which financial support can be given.
- 2.
- Weak, unrepresentative and lacking in real authority, as it is, the Peking Government nevertheless is held responsible for order in China and its members are exercising themselves to that end though hampered in every possible way. The Minister of Finance desirous of avoiding foreign commitments at present is borrowing money from Chinese commercial sources where currency interest rates are 12 to 18 per cent. Affairs have been so confused that it is impossible to overcome this situation until reorganization policy is adopted with the assistance of the friendly powers. But it is questionable whether it is wise to leave the Peking Government to struggle along with increasing difficulty to meet necessities which cannot be evaded and which impose desperate financial expedients. All this renders the task of reorganization more and more difficult. The situation requires that the powers should prevent the utter demoralization of the Government with the consent of the Shanghai Peace Conference through allowing the Chinese Government by way of preliminary loans advanced by the United States and Japan the means absolutely imperative to carry the burden until the reorganization policy is put in force. Such action would also absolutely preclude any reversion to chaotic civil war which if it should happen would entail great danger to all and widespread suffering. Formulation of a common sense policy of reorganization which the Chinese Nation will be only too glad to accept and the allowing of the absolutely necessary minimum support until the reorganization can go into effect are essential.
It is inevitable that Mr. Abbott should speak with Chinese officials and bankers about actual conditions existing and to indicate when solutions proposed [are] unsound, impracticable. It is important that such matters should be cleared up before the actual negotiations begin. Abbott has the confidence of the Chinese, they desire his personal opinion about proposed solutions. While these matters are still plastic and while on account of the confidence referred to, overtures for guidance are constantly made, there is an opportunity for avoiding misunderstanding and [of?] future proposals which it is my earnest belief should be availed of for the permanent good of China. In other words while Abbott will not discuss what the consortium proposes to do he can not avoid discussing conditions on which any solid financial support is dependent.
[Page 510]Please forward substance of following to Morgan:
“Prime Minister vouching at dinner last night that Shanghai Peace Conference would finish at an early date, before which Government desired to obtain expression of opinion as to the substance and form of what may come therefrom; following which Government would wish to discuss [second] reorganization loan. As latter would probably be inadvisable [until?] after formation consortium, suggest that I leave for Hankow and Canton with purpose of investigations there among business men so as not to be available to Peking For conference on loan matter until such time as you deem best. [Have] always felt that [contact] with central and southern sections would be necessary in order to approximately understand this country. A Canton representative is here urging that South have equal opportunity with the North to present their views. Suggestions regarding consortium in the pouch on Ecuador. Abbott.”