Papers Relating to the Foreign Relations of the United States, 1919, Volume I
893.51/2350
The Minister in China (Reinsch) to the Acting Secretary of State
[Received August 6.]
Sir: I have the honor to enclose copies of a translation of a memorandum given to me by the Minister of Finance. This was prepared [Page 513] in connection with the request for an advance of $50,000,000 which was communicated to you telegraphically on June 10th [11th].2
I have [etc.]
The Chinese Minister of Finance (Kung Hsin-chan) to the American Minister (Reinsch)
Memorandum on Financial Situation, June 10, 1919
- (1)
- Since the 6th Year of the Republic the income of the Central Government could not have covered its expenses, which is a fact known to foreigners as well as to Chinese, and cannot be concealed. The monthly expenditure of the Central Government is over $15,000,000., whereas the income amounts to something over $4,000,000. The difference is often about $10,000,000. Thus the demands could hardly be met even by borrowing from one to cover the other. When the Peace Conference was opened, officials as well as the people began to hope that the unification of the country would be at hand and that the question of finance could be dealt with from the bottom up. But after a few months a deadlock reigned and the financial difficulty of the Central Government was extremely great. During the past months efforts have been made to maintain the situation by making short term loans which amounted to no less than $20,000,000, and which were borrowed from the Chinese banks and banking houses of Peking, Tientsin and Shanghai. The term is short but the interest charged is high. Their capital is limited and if there is any failure to return the amount when due, they may fail to meet their obligations and then there may be confusion and deadlock for the financial condition which is a dangerous thing.
- (2)
- As to military expenses, although efforts have been made to cut them short such as to cut the contingent expenses and the transportation of soldiers of the various troops stationed at the different quarters, the monthly expenditure is still about $10,000,000. Therefore the Ministry of Finance is not able to cook without rice. Though the military needs are urgent, yet the deficiencies are equally great. Up to the present the balance due the various troops is over $9,400,000. While this is not paid off, further obligations has [have] accrued. If steps are not taken the debt will become bigger and bigger, and there may be trouble which can hardly be avoided as the troops are in need. The danger is indeed great.
Further, if the funds for the management of the various organizations concerning education and industries, are not appropriated according to the time, the workers thereof will feel disappointed and [Page 514] slackness will thus be caused. During these months also due to the discrepancy of income and expenses and to the hardship of borrowing, most of the running expenses for the various organizations are not paid. In view of the situation if remedies are not sought to save it, not only the peace of the place [country] cannot be preserved, but also the commercial interests of the various powers will be affected. Thinking of the way beyond, one could not help deeply grieving at it. For the present the most necessary thing to do is to abrogate [disband] the soldiers but if the present financial condition is not maintained, there will be immediate trouble and then the soldiers cannot be abrogated. Before the general situation is settled the financial power may be exhausted. So the present financial situation cannot be maintained unless the European and American Banking Consortium makes immediate advances so as to quickly save it. After taking the situation into serious consideration, it is proposed to request the consortium to devise ways and means to advance Mex. $50,000,000 within three months, the expenditure of which is specifically put down as follows:
. . . . . . .
The above expenses are distinguished into four kinds, namely, political and military appropriations; subsidies and debts; of which the latter two items to be paid each month are more than the amount as described. Those contained in the list are very important and urgent and are to be paid from advances. There are other necessary payments of debts and urgent military expenses which are to be ascertained and appropriated from the monthly income of $4,000,000 of the Central Government. Thus, the shortage of military supplies for various places may be avoided and the fear for the local financial situation may be removed, and while the Central Financial receipts can cover its expenditures the troops can be abrogated on the one hand and loans be arranged on the other so as to cure the situation from the bottom up, in the hope that within three months definite plans will be made to satisfy the good will of the friendly nations which have been giving assistance.
Expenses 2
Funds for abrogation [disbandment] of troops of $20,000,000.00
| 1st | month | $6,666,666.00 |
| 2nd | “ | 6,666,666.00 |
| 3rd | “ | 6,666,666.00 |
In accordance with the Supplementary Note No. D. of the Re-organization Loan Agreement of the 2nd Year of the Republic, the plan is to disband troops of the provinces in proportions. The fixed amount is over T 20,870,000. As the length of time of this war has necessitated the increase of soldiers, the troops to be disbanded and the expenses in connection therewith are proportionately increased.
[Page 515]When the matter of disbandment is put into effect after the unification of the country, the difference will be great, considering the amount of $20,000,000. This is a matter of importance. It is proposed to gather together the military experts of the whole country to establish a provisional organization of adjustment for discussing procedures and deciding plans for general supervision, so as to show clearly to [sic] the confidence entrusted. With the exception of paying the ration due, the procedure of disbanding soldiers will be still in accordance with that adopted in the second year of the Republic, that is, at the same time, to pay “disbanding gratuity” $300 for each officer and $20 for each soldier, plus $4.00 as travelling allowance. Suppose half of the above $20,000,000 is for payment of salaries due and half for disbanding gratuity. Suppose, from the latter half the officers get 3/10 and the soldiers get 7/10. Then officers to be disbanded will be over 9,000 and soldiers, about 300,000. But rations before disbanding and expenses in connection with the removal of soldiers from their quarters, and with the securing [of] other positions for them, are not included. Therefore the suggested plan is a preliminary proposition. That [sic] how many soldiers and how many officers can be eventually disbanded, is to be decided when the opportunity arrives. Of course, it is expected that one more soldier can be disbanded and [sic] one soldier’s ration can be saved, so that the loan may not be wasted. Moreover those who are in charge of the matter must handle it gently and not to [sic] take hasty steps in order to avoid trouble.
security for advance—salt surplus
The salt income is increased year after year. The estimate for the 8th year (1919) of the Republic is over $91,686,000. Apart from using the salt tax as security for the past several loans of which the amount which has not been refunded, is very large this year, necessitating an appropriation of more than $31,000,000.00, there will still remain a surplus of about $60,000,000 which is proposed as security for the advance.
As the period of time for the return of the advance sooner or later, has greatly to do with the installments to be refunded, a certain amount should be proportionately appropriated each month from the yearly surplus of $60,000,000. as reserved fund for refunding the principal and interest of the loan when the period of time for the return of the advance is settled.
inspection of uses of advance
The procedure for inspecting uses of the re-organization loan of the 2nd year (1913) of the Republic was defined in Art. 14 of the [Page 516] original agreement. Subsequently, during the 6th year (1917) and the 7th year, (1918) of the Republic, the Yokohama Specie Bank representing the Four Powers Banking Group, made the 1st, 2nd, and 3rd, advances on currency reform by basing upon the procedure of inspection as contained in Art. 14 of the agreement. This time the procedure of inspection should also be in accordance therewith, so as to test truth and faith.
Procedure in Art. 14 of the Re-organization Loan Agreement is appended herewith.3
Any certificate for taking delivery of loan funds should be signed for approval by the Chinese and Foreign Inspectors of the Loan Inspection Office (Note: in English they are called Chinese and Foreign Chiefs of the Bureau of National Loans) which is under the jurisdiction of the Department of Auditor. The amount of money to be handed over by any bank should be delivered in accordance with the actual amount needed for the matter.
In connection with the delivery of loan funds by the bank in which they are deposited, the money order and/or money delivery instruction should be signed by the deputy appointed by the Minister of Finance, and the signed certificate as described in the previous paragraph, together with the appropriation instruction, should be sent to the representative to be designated by the bank. After the representative examines and finds that the proposed amount is appropriated in compliance with Art. 2 of the Loan Agreement, and with the supplement thereof, he shall immediately attach his signature on the order which is to be returned to the Ministry of Finance for taking delivery of the fund.
If the representative of the bank is in doubt [as to the amount] of the loan fund which has been already paid out, he can inquire [of] the Foreign Inspector of the Foreign Office (Note: in English he is called Foreign Chief of the Bureau of National Loans) of the Department of Auditor and ask for receipts and detailed date [data] for inspection.