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

No. 2980

Sir: Sometime ago the Chinese Government gave notice that the interest coupons of Hukuang Railway bonds, German issue, would not be paid except those that had previously been paid through the Hongkong and Shanghai Bank in London. As the issue is an international one, it was considered that such a refusal to pay interest due to bona fide holders, of other than German nationality, was not proper. I have the honor to enclose the draft of a note to the Foreign Office which is to be sent in jointly by my British and French colleagues and myself.

I have [etc.]

Paul S. Reinsch

Draft of Note of the American Minister ( Reinsch ) to the Chinese Acting Minister of Foreign Affairs ( Ch’en Lu )98

Sir: I have the honour to acknowledge receipt of Your Excellency’s note of the 11th June99 regarding payment of interest and [Page 588] repayment of principal of Tientsin-Pukow and Hukuang Railway Bonds. Your Excellency informs me therein that bonds of those issues, other than those on which interest has been paid by the Hongkong and Shanghai Bank in London from September 3rd, 1917 to March 31st, 1919, will be regarded as being held by enemy subjects and therefore as being neither negotiable nor valid.

On receipt of that note I at once communicated its contents to my Government, by whom I am now instructed to protest against this decision of Your Excellency’s Government.

As regards differentiation between bonds of which coupons have previously been paid and those which have not this protest is based on the following grounds:

It would be practically impossible to make a list of numbers already paid.
The Stock Exchange[s] would object to any arbitrary difference being made in value of bonds with the exception of a difference based on enemy ownership.
Investors would not understand refusal to pay interest on bonds bearing certain numbers, while paying bonds of same issue bearing other numbers.
It would be impossible to place any future Chinese securities in foreign markets if a certain number are to be arbitrarily made valueless.

As regards the Hukuang Railway Loan in particular, it has to be observed that the Bonds and coupons of this loan have been internationalized, that is to say payment of interest and repayment of principal in each of four international centres is a direct obligation of the Chinese Government as expressly stated on coupons and bonds of this loan. As a consequence the Hongkong and Shanghai Bank in London, in its capacity of Clearing House, is not in a position to exercise supervision over bonds and coupons cashed at other centres and advised to it for clearance. The proposal to limit the payment of interest on German issued bonds to those of which the relative coupons have been paid in London is therefore clearly impracticable, since the internationalisation of these bonds makes them good delivery in the various centres where the relative coupons are payable indifferently as regards the place of issue, as each coupon explicitly states. It is on these terms that investors of the Allied and Associated countries as well as neutrals have bought these bonds, and the widespread injustice to bona fide holders which would result from carrying out the present instructions of the Minister of Communications makes it impossible, in my opinion, to justify the limitations now imposed on the grounds either of equity or policy.

I avail myself [etc.]

  1. Note to be sent jointly to the Foreign Office by the American, British, and French Ministers in China.
  2. Ante, p. 584.