Papers Relating to the Foreign Relations of the United States, 1919, Volume I

893.51/2353

The Minister in China (Reinsch) to the Acting Secretary of State

Peking, July 7, 1919.
[Received August 5.]

No. 2881

Sir: I have the honor to enclose copy of a note received from the Foreign Office concerning the confiscation of the German issue of Hukuang Railway bonds. It was, of course, impossible for me to accept this interpretation as, undoubtedly, many bonds of the German issue had, in perfectly good faith, come into the hands of American holders. My British and French Colleagues are of the same opinion. I have the honor to enclose draft of a note written in reply to the Foreign Office’s note of June 11th, which I have submitted to my Colleagues for joint action.

I have [etc.]

Paul S. Reinsch

[Enclosure 1]

The Chinese Acting Minister of Foreign Affairs (Ch’en Lu) to the American Minister (Reinsch)

[Peking,] June 11, 1919.

No. 976

Sir: We are in receipt of a note from the Ministry of Communications to the effect that the Loan Agreement for the Ching-Pu Railway of January 13, 1908, and the supplementary Agreement of September 28, 1910, and the Loan Agreement of the Hukuang Railways of May 20, 1911, together with the various notes connected therewith regarding issue of bonds, interest and special privileges are all cancelled from August 14, 1917, the date of the declaration of war by China upon Germany and Austria. The payment of capital and interest on these obligations ceased from the date of the declaration of war. But there is a certain number of these bonds which investigation has shown are not in the hands of enemy subjects. The Hongkong and Shanghai Bank acted for the Chinese Government from September 3, 1917 to March 31, 1919 in the payment of interest on these bonds. This was limited to the numbers of the bonds and corresponding numbers of the interest warrants as reported by the Bank. We acknowledge that these bonds were not in the hands of enemy subjects, and in future the Hongkong and Shanghai Bank will continue to pay the interest on these bonds. With the exceptions of the above bonds, all the bonds issued by the Deutsch Asiatische Bank are reckoned as belonging to enemy subjects; and will be applied to the settlement of the expenses incurred by China in the War. No payments of principal or interest will be made by China upon them. They may not be used as negotiable securities. The Ministry of Foreign Affairs is requested to inform each Legation of this decision so that these bonds reserved to meet the losses of the Chinese Government may not be transferred from enemy subjects to the hands of those who are not enemy subjects.

This Ministry now sends you this notification for communication to the American Government so that American merchants may be duly notified.

A Formal Despatch.

Seal of

Wai Chiao Pu

[Enclosure 2]

Draft of Proposed Note of American Minister (Reinsch) to the Chinese Acting Minister of Foreign Affairs (Ch’en Lu)⁹³

[Peking,] June 26, 1919.

I have the honor to acknowledge the receipt of Your Excellency’s despatch of June 11th quoting a despatch from the Ministry of Communications which states in connection with the Tsin-Pu Railway Loan Agreement of January 13th, 1908, the Supplementary Loan Agreement of September 28, 1910, and the Hukuang Loan Agreement of May 20, 1911, that all bonds issued thereunder through the Deutsche Asiatische Bank will be considered as belonging to enemy subjects and will be applied to the settlement of expenses incurred by China in the War. An exception is to be made, however, in the case of such of these bonds as were not in enemy hands from September 3, 1917 to March 31, 1919, as evidenced by the payment during that period through the Hongkong & Shanghai Bank on behalf of the Chinese Government of principal and interest thereon. Subject to this exception it is stated that no payments of principal or interest will be made by China upon such bonds.

I find myself unable to accept the proposal of the Ministry of Communications. There are a large number of such bonds which have been purchased in entire good faith by American citizens both before and after September 3, 1917, in respect to many of which it is probable that no application has been made for the payment of principal or interest. It is manifestly unjust and contrary to recognized international usage that such bonds should be repudiated. Moreover it is understood that the bonds issued through the Deutsche Asiatische Bank are practically identical in appearance with these issued through the other non-enemy banks interested in these issues, and bear nothing which would enable the public to distinguish between them. It is certain thereafter [therefore?] that many such bonds will be purchased in entire good faith by American citizens from time to time. Finally, I have the honor to observe that the bonds of these issues are payable to bearer and are in reality the same as interest bearing bank notes. It is contrary to all established practice to declare that any instrument of this sort is repudiated because it has passed through enemy hands.

Such action as the Chinese Government may decide to take in regard to enemy personal property within Chinese jurisdiction is not a matter which concerns me. But, for the reasons stated above, I must protest most strongly against any attempt to repudiate Chinese national bonds held by American citizens and must reserve the right to demand the execution of China’s contractual obligations in respect thereto.

93. Proposed note was submitted to British and French Ministers for joint action, but there is no record in the Department files that it was ever sent to the Chinese Foreign Office.