The Secretary of State to the Chargé in China (Tenney)

No. 1118

Sir: With reference to your telegram of December 11, 1919, 11 p.m.,66 concerning the attitude of the Chinese Government toward owners of the German issue of Hukuang Railway Loan Bonds, I am enclosing for your information copy of a letter from J. P. Morgan & Company dated December 24th. This letter is a reply to a letter from the Department which transmitted a paraphrase of your telegram above referred to.

You should take advantage of any favorable opportunity which may offer in conjunction with your British and French colleagues to impress upon the Chinese Government the danger of the policy which it has adopted in connection with the bonds in question. These bonds were issued by the Chinese Government pursuant to a contract between that Government and the four groups of bankers, and while this Government is not concerned with the treatment which the Chinese Government may accord to bonds held by German subjects, it considers that application by that Government of the policy indicated in the Legation’s telegram of December 11th, namely, of requiring holders of these bonds to prove non-enemy ownership throughout the period of the war between China and Germany, would impose upon them an undue hardship, because (1) of the impossibility in many cases of proving non-enemy ownership even when such is a fact, and (2) the bonds are negotiable instruments and even though they may have been held by a German subject since China’s declaration of war against Germany, this fact should not defeat the rights of bona fide purchasers for value. It is therefore considered that China should devise some means of carrying out its program which will protect such investors.

The Department believes it necessary to make clear to you that while it deems it proper to urge upon the Chinese Government the expediency of changing its policy as regards these bonds of German issue, it does not feel that it can well object as a matter of legal right to the action of the Chinese Government in refusing to honor Chinese [Page 619] bonds held by enemy subjects. Such action, in so far as enemy owned securities are concerned, would appear to be a matter which concerns the Chinese and German Government[s] alone and our only interest in the case would appear to lie in our desire to protect American citizens who may be classed as innocent purchasers for value; that is to say, persons who have in good faith purchased the bonds in the ordinary course of business without any intention of connivance or collusion with enemy holders to evade the purpose and object of the Chinese Government.

The Department has no objection to the exercise by the Chinese Government of its discretion with respect to China’s obligations held by enemy subjects, its only interest in the matter being to safeguard the rights of innocent American holders of such securities.

There is enclosed for your strictly confidential information a copy of a memorandum prepared by the Solicitors of the State Department with reference to the question.67

I am [etc.]

For the Secretary of State:
Alvey A. Adee

The American Group to the Secretary of State

Sir: We have to acknowledge, with thanks, receipt of your letter of December 13th,67 enclosing paraphrase of a telegram from the American Legation at Peking, to the effect that the Chinese Government will adhere to its expressed policy of discrimination against certain of the German-issued bonds of the above loan, except that the validity of bonds will now be recognized where holders can prove non-enemy ownership throughout the period of the war.

We are also in receipt of a letter from our London office, copy of which is enclosed,67 transmitting copy of a communication addressed to the British Foreign Office on November 25th by Sir Charles Addis,67 suggesting that the Ministers of the interested Powers again join in protesting against the repudiation by the Chinese Government of her clear obligation with respect to these German-issued bonds and coupons.

The American Group is in accord with this suggestion and, if compatible with the Department’s policy, would advocate renewed insistence by the Chargé of the American Legation at Peking and his colleagues, to the end that the Chinese Government will abandon its present untenable position.

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While we have nothing new to add to the arguments contained in the various protests which have already been filed, we venture to advance the suggestion that the present time might be opportune to advise the Chinese Government that the relinquishment of her present claims must be a condition precedent to the consideration by the American Group of the proposed advance of £5,000,000; this in view of the impossibility of marketing an issue of Chinese securities so long as that Government is guilty of a default in the payment of her obligations.

Yours respectfully,

J. P. Morgan & Co.
For the American Group
  1. Foreign Relations, 1919, vol. i, p. 590.
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