893.51/3579: Telegram

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

403. Runs on Peking, Tientsin and Shanghai branches Bank of Communications and Bank of China began yesterday. First bank more serious. Peking branches both banks refuse to cash more than $10 per person of bank notes offered. Small exchange banks no longer permitted to accept notes of these two banks against cases payment up to $5,000, as is usual practice, but holders referred to offices two banks. Railways and other governmental agencies still accepting notes. Impossible to estimate amount outstanding notes or general condition two banks.

Minister for Foreign Affairs discussed situation very anxiously last night at special gathering separately with Ministers Great Britain, Japanese Chargé d’Affaires, France and myself. Said situation was serious and would, if unchecked, probably extend to smaller Chinese banks and possibly commoner banks. Cabinet had considered matter and wanted to get release portion of accumulated customs reserve, now about 15,000,000. Said money releases would be paid to banks to enable them to tide over crisis. Vice Minister of Finance visited Chinese Secretary today and urged favorable action. I understand Department’s position is that Chinese Government is entitled to entire reserve in so far as it is not [Page 352] needed to cover service of Boxer and pre-Boxer obligations. Minister for Foreign Affairs stated to me confidentially that Hongkong Bank, which is depositary of these funds, would probably be unable to meet such a sudden call for payment of this sum. Chinese Government willing, however, to accept Hongkong Bank’s assurances of early payment which would reassure native banks.

Minister for Foreign Affairs said Cabinet was again considering Aglen’s scheme 50,000,000 customs loan, reported my 371, October 26, noon, and would submit it forthwith to the diplomatic body for approval, having substituted for Aglen’s plan of control audit board with foreign representatives. I should be glad of instructions as to the attitude to be taken.

Minister for Foreign Affairs said Government could not go on without funds. I suggested possibility loan from consortium. He replied consortium would not lend till China reunited and that reunification might take years.

I concur in general opinion that only outside financial assistance can maintain present puppet government and no worse consequences are to be apprehended from its collapse than hastening temporary local disturbances and looting from unpaid soldiers and police.

Many, especially British, regard the present as opportune time for China’s financial collapse in view of meeting Washington Conference. It is generally assumed Conference must arrange financial rehabilitation China.

Northcliffe here keenly following situation.

Schurman