The Minister in China (Reinsch) to the Acting Secretary of State
[Received May 22.]
Sir: I have the honor to report that under date of April 18th the Foreign Office notified the Legation of the grant by the Chinese Government of a charter to a Sino-American bank, to be known as the China Development Bank.55 While the articles of incorporation, or charter, have not yet been communicated officially to the Legation, I have the honor to enclose a translation of the same which is known to be correct, together with a translation of the petition submitted by the Chinese promoters of the bank, and a translation of the Rescript issued in reply by the Ministry of Finance and Currency Bureau approving of the articles of incorporation as submitted by the promoters.56
This bank is a natural outgrowth of the very marked desire of the Chinese to secure a larger participation by the United States in the financial and industrial development of China. The first proposals looking toward the formation of such a bank were made several years ago, under the influence of a certain Mr. Chang, a Chinese merchant who had amassed a large fortune in Singapore. Some progress was made at that time with the scheme, but partly owing to domestic political disturbances and chiefly to the death of Mr. Chang the proposed bank never materialized. It is not known what American interests, if any, were concerned in this abortive attempt: it is believed that a considerable portion of the alleged American [Page 629]share was to have been taken up by Chinese resident in the United States.
During 1918 a number of different groups of important Chinese financiers approached the Legation at different times with projects for the formation of a Sino-American bank, which would devote much of its attention to industrial development. Informal conversations were carried on with these several groups for some time until finally late in the year arrangements were perfected for the merging into one group of all the Chinese elements interested. Thus a very strong combination was formed including such well known officials as Ex-President Li Yuan Hung, Ex-President Feng Kuo Chang, Counsellor Liang Shih Yi, Ex-Ministers of Finance Chow Tze Ch’i and Chow Hsueh Hsi, Mr. Yang Shih Chung, brother of the late Yang Shih Chi an ex-Secretary of State, and Mr. Hsu En-yuan, ex-Governor of the Bank of China, and such well known merchants as Mr. Chu Pao Shan, President of the Shanghai General Chamber of Commerce, Mr. Yu Yueh Ching, a wealthy ship owner of Shanghai, and Mr. Fu, a director of the Commercial Bank of China and an important shareholder in the China Merchants’ Steam Navigation Company. Other subscribers whose names for obvious reasons will not appear on the prospectus are Mr. Hsu Shih Chang, the President, Mr. Chien Nung Hsun, Premier, and Mr. Li Hsun, the Governor General at Nanking. Apart from the very great financial strength of the group so formed, it should be noted that all shades of political thought with the exception of the extreme Southern radicals are represented. It is particularly worthy of note that such prominent moderates as ex-President Li Yuan Hung and Governor General Li Hsun of Nanking are amongst the subscribers. It should be noted equally that while the project has the approval of the President and Premier, none of the members of the dominant military clique are concerned therein. The attention of the Department is invited to these facts in order that it may be understood clearly that this proposed bank is in its origin free from any taint of party politics, and is indeed a commercial undertaking pure and simple. Were this not the case, it would be impossible for the divergent elements represented amongst the promoters to come together, nor would it have been possible to secure the invaluable backing of the leading Shanghai merchants who take no active interest in politics at all.
The Chinese share of the capital, namely Gold $5,000,000, has been fully subscribed.
Legally the position of the new bank seems perfectly sound. It is a Chinese corporation incorporated by a special act of the Ministry of Finance and the Currency Bureau, the two government departments competent to grant bank charters. The grant of the [Page 630]charter has been formally notified to the Legation by the Foreign Office with a request that it be made a matter of official record.
The charter grants to the bank the widest possible rights and powers, including the right of note issue, and, by clear inference, the right to open branches at non-treaty ports, as it is stipulated that the head office shall be in Peking, which is not a treaty port. The general control of matters of policy is vested in a Board of Directors, eleven in number, of whom six are to be Chinese and five American, while an efficient check on all banking and financial operations is provided for by the institution of a board of superintendents of whom three will be Americans and two Chinese. The charter grants to the board of directors, acting with the consent of the board of superintendents, the power to prescribe the necessary rules and regulations for the conduct of business by the bank, and it is understood that the Chinese shareholders acting under virtue of this provision are quite prepared to vest the executive management of the bank’s affairs in a small and possibly unofficial committee consisting of the President (Chinese), the First Vice President (an American) and the Chairman of the board of superintendents (an American), or to make any other arrangements for executive control which may meet with the approval of the American interests concerned. Indeed it is the avowed desire of the Chinese promoters to avail themselves as much of American banking experience in the conduct of the bank as of American capital in carrying out the financial operations which it will undertake.
I desire to invite further attention to the fact that the Chinese promoters realize fully the necessity of proceeding most cautiously and that it is their desire to build up a strong sound institution of irreproachable credit rather than to look for immediate returns on their capital investment. At the same time it may be stated that while in the United States it would be considered extraordinary for a bank to make any large profits on its operations during the first year or second year of its life, the Exchange Bank of China (The Sino-Japanese Bank) according to its published statement has made a net profit of over twenty per cent in a period of less than one year since it commenced business.
While the charter grants to the bank the right to engage in practically every form of banking business, it is the intention of the Chinese promoters to devote attention principally to three branches, namely, the establishment of a national note issue, domestic exchange and industrial development. It seems to be realized that with its limited capital the bank will not be in a position to engage in any large form of industrial loans for the first few years. While the plans of the promoters cannot be crystallized until the views of the [Page 631]American interests are ascertained, it is believed that energy will be centered at first on creating and maintaining the credit of the bank throughout the country at large. This will be attempted by the issue of fully secured bank notes. When these notes have attained a general currency, it is believed that public confidence in the bank will have developed to the extent of placing with it deposits on a large scale, which will gradually make possible the widening of the sphere of operations of the bank including the underwriting of industrial bond issues. At the present time the enormous financial strength of the Chinese people is not available for use in developing the industrial resources of the country mainly because of the lack of confidence, perhaps merited, felt by the population for the few banks which ought to be in a position to serve the country in this way.
That the Chinese feel the need of and believe in the opportunity for such a bank is amply demonstrated not only by the ease with which the desired quota of capital has been raised but also by the fact that the identical project was suggested by a number of Chinese financial groups acting independently one of the other. From the American point of view the institution of such a bank affords many advantages. It is avowedly devoted to the furtherance of commerce between the two nations, and as time goes on may be expected to do more and more in this direction. It should also serve as a most useful medium for financing joint Sino-American industrial undertakings in China, which, under present conditions, are too often hampered either by the difficulty of obtaining financial support or by the impossibility of adequately securing the necessary loans when made by a foreign institution. Under its charter the bank can acquire and hold real property throughout the country, and is therefore not subject to the restrictions normally imposed on foreign commercial enterprises. The project has received careful examination by myself, by the Commercial Attaché of the Legation, and by other members of the staff, and is believed to be perfectly sound in all essentials. Some such plan has also received considerable attention from American bankers and business men in the East during the past few years. In particular has this been true of the International Banking Corporation, which has recently been investigating possibilities in this direction. As the International Bank has had some such plan under discussion with the Legation for some time it was felt to be no more than proper to acquaint it first of the Chinese proposals. These are now in course of being considered by the National City Bank interests which control the International Bank. The Asia Banking Corporation has also expressed itself interested in this project, the details of which will be made available for consideration by that bank at an early date. Mr. Bruce, President of the Pacific Development [Page 632]Company, has also had a number of conversations with certain of the Chinese promoters and plans to take this project up with his principals, who are believed to be the Chase National Bank interests, on his return to the United States next month, should the American quota of the capital be not already subscribed by that time. Other prominent American business men have expressed themselves as strongly in favor of a Sino-American bank, as for example Mr. J. A. Thomas, a director of the British-American Tobacco Company, who discussed this matter with prominent financial interests in New York. In conclusion it should be noted that the program in view in no way infringes on the sphere of operations of the newly formed American consortium. While this bank in the fullness of time may join the consortium as a member of a possible Chinese group, it does not plan to engage in government business to any extent nor to make the granting of loans to the Chinese Government a part of its policy. As has already been indicated, its primary object will be the development of domestic banking in China, with industrial development to follow so soon as its accumulated funds make it possible.
I have [etc.]
- The name of the proposed bank in the official translation of the articles of incorporation, p. 633, is given as the “Bank of Commerce, China.”↩
- Petition and rescript not printed.↩
- The translation here printed is the more literal translation forwarded by the Minister in his despatch No. 2920 of July 30 (File No. 893.516/90).↩
- The translation here printed is the official translation sent to the Department by Frederic E. Lee, economist consul on special detail with the Legation in China (File No. 893.516/182).↩
- Note A: Under the Laws of China the liability is limited to the Amount of Capital subscribed. [Footnote in the original.]↩
- Note: Subject to the future Laws of China. [Footnote in the original.]↩