893.51/2852: Telegram
The Acting Secretary of State to the Chargé in Japan (Bell)5
245. American Group having received from Chinese Minister of Communications formal reply declining to alter decision in respect to payment of Hukuang and Tientsin-Pukow coupons which was made solely on grounds of International Law with respect to enemy property and without reference to the practical aspects of the question is so informing the British, Japanese and French Groups stating that consortium would thereby be estopped from all operation if Chinese Government persists in present attitude toward said bearer bonds. In conferring with State Department Lamont expressed the belief that all four Governments should separately but in practically identical terms point out in a communication to the Peking Government that the present course if persisted in by the Chinese Government is calculated to ruin its credit for a long time to come; that the amount involved is comparatively insignificant; and that some measures might reasonably be devised in the way of a temporary loan to assist China in meeting these outstanding and overdue obligations. The Department of State is in favor of an urgent recommendation to China along the lines thus outlined and therefore proposes to address a note to the Chinese Government through its Legation at Peking along the following lines:
“The Department has now had an opportunity of reading the communication of April 20, 1920, addressed to the Minister of Communications by Mr. Lamont, acting in behalf of the American, British and French Groups. You will observe that since the date of Mr. Lamont’s communication the consortium has been finally organized by the inclusion upon like terms as the other groups of the Japanese Banking Group.
The Department has also read the reply to Mr. Lamont’s note, coming from the Minister of Communications, dated at Peking [Page 648] May 4, 1920, and has noted the position that the Chinese Government takes in this controversial matter covering the payment of coupons upon bonds hitherto issued under the seal of the Chinese Republic in return for moneys borrowed for construction of the Hukuang and Tientsin-Pukow Railways, and it is not the Department’s disposition to argue the question of international law in connection with property that may have been suspected as belonging to the enemy.
Its sole purpose in now addressing the Chinese Government is to point out purely the practical aspects of the matter, and the grave consequences certain to accrue to China in its credit position if it persists in its present determination not to pay these obligations that at present stand in default. The American Government has taken such a strong position in respect to the organization of the new consortium and is so anxious, for the benefit of China and for the upbuilding of her great public utilities and means of communication, to see the consortium begin to function in the near future that it cannot but view with deep concern any attitude on the part of the Chinese Government that precludes early and favorable formation of policies by the consortium.
The difficulty is a very real one. Owing to the refusal of the Peking Government to meet the obligations referred to, quite aside from whether it is legally justified, the outstanding obligations of the Chinese Government in the money markets of New York, London and Paris have declined to such a point that it is quite impossible with any hope of success for the consortium bankers to attempt a fresh issue of Chinese obligations until the present default is remedied. The Department is informed that the amounts involved are not large and it would therefore appear that in persisting in its present attitude the Republic of China is likely to ruin its credit for a long period of years to come without any possible compensating advantages. On the other hand, for the Chinese Government to take a fresh attitude, the effect on these bearer obligations, if it will meet its interest promptly regardless of what the ownership of the obligations may once have been, should prove of immense benefit to China.
For these reasons, this Government urges that the Chinese Government will give earnest and immediate reconsideration to this whole question.”
You are instructed to bring this to the attention of the Government to which you are accredited urging it to join this Government in such action.