893.51/2523

The Vice President of the Continental & Commercial Trust & Savings Bank of Chicago (Abbott) to the Chief of the Division of Far Eastern Affairs of the Department of State (MacMurray)

Dear Mr. MacMurray: This is to confirm conversation this morning with Mr. Breckinridge Long, as requested by him.

I advised Mr. Long that our Directors had decided not to approve the contract of October 20, 1919, and that we would not take any action under said contract. The principal reasons which actuated [Page 531] us to this decision are, first, that we today received from the Chinese Legation, Washington, a letter dated October 28th in which it is stated that a cablegram from the Ministry of Finance at Peking “is of the opinion that the pledging of the surplus of the salt revenue as security for the new loan ($30,000,000) may give the Chinese Government no little embarrassment as the existing International Banking Group is sure to enter a protest on this account”,—“instead of the salt revenue the Ministry wishes to offer as a substitute the Goods Tax receipts from the revenues which annually bring to the Government a revenue of $15,000,000, etc. etc.” All of our discussions with those whom we had hoped to associate with ourselves in such financing, had been based upon having as additional security the said surplus revenues from the salt; it is altogether too late to consider making a change in the security and also such a change would necessitate much explanation which could not be expected to produce a favorable opinion. Second, the extremely unsatisfactory condition of the American Investment Market due to the reception accorded the $250,000,000 loan of the United Kingdom of Great Britain & Ireland, which up to this time has left the Investment Banking Houses, and the principal distributors of securities, with outstanding commitments in respect to that issue which they have so far been unable to relieve themselves of, with the result that we have noticed a disposition on the part of such concerns, at this particular time, not to undertake further obligations or commitments until they are able to see more clearly the way to discharge the liability incurred through the United Kingdom loan.

I advised Mr. Long that we had definitely decided not to undertake the $30,000,000 loan, or any part thereof, but that we would immediately bring out an offering of Chinese two-year 6% Notes in the amount of $5,500,000, as provided for in the contract between China and this Bank, dated October 11, 1919, and that in this connection we would use Secretary Lansing’s letter dated October 21, 1919. To all of this Mr. Long was agreeable, but asked that we make a particularly strong effort to see that it should not appear, in any quarter, that there had been a failure of a big loan to China. I promised him that we would do anything and everything that was possible to see that no such information should come out and to that end we have cautioned all of our Directors and Officers and have had one of our Vice Presidents, who is at present in New York, talk in the same sense with the people in New York with whom this $30,000,000 loan has been discussed.

The above confirms the conversation of this morning.

[Page 532]

So that the file and record of your Department may be complete, we enclose herewith certified copies of the following:—32

(1)
Agreement between the Republic of China and Continental and Commercial Trust and Savings Bank, Chicago, dated October 20, 1919. We call your particular attention to the addition to this contract on the last page thereof, dated October 23, 1919, initialed by Mr. Hsu Un Yuen and myself. This was made necessary because Mr. Hsu was leaving Chicago the day before I could arrive and take the matter up for discussion with our Board of Directors, and desired to take one copy of the contract with him.
(2)
Agreement between the Republic of China and Continental and Commercial Trust and Savings Bank, dated October 23, 1919, in respect to an option.
(3)
Agreement between the Republic of China and Continental and Commercial Trust and Savings Bank, Chicago, dated October 23, 1919, relating to the amortization of the $30,000,000 loan commencing October 30, 1920. It was our thought that if the loan distribution could have been made without putting this Agreement into effect that we would use the Agreement only in the event that the Four-Power Consortium would not have been formed by October 1920; in other words, that if the Consortium was organized before that time we would look to it in respect to the maturity of the loan, and if it were not organized that we might find it desirable to provide for the payment of the loan in the manner covered by the Agreement.
(4)
Letter to the undersigned, signed by Mr. Hsu Un Yuen and Mr. Yung Kwai, arranging for certain details as to how the money should be withdrawn from the Chicago Bank as, if, and when it were made available to the Chinese Government.
(5)
Letter from the Charge d’Affaires of the Chinese Legation, Washington, to Continental and Commercial Trust and Savings Bank, dated October 25, 1919, enclosing translation of a cablegram from the Cabinet carrying the required confirmation of the loan.

I am indeed very sorry that this business did not eventuate, but there are conditions over which we have no control.

Kindly acknowledge receipt.

Very truly yours,

John Jay Abbott
  1. Enclosures not printed.