The American Group to the Acting Secretary of State

Sir: Replying to the Department’s letters of January 13th, (FE–893.51/3181), and January 15th, (FE–893.51/3192),36 the former inquiring on behalf of the Legation at Peking for specific information about the proposed activities of the Consortium, and the latter transmitting to Mr. Lamont37 the confidential message from Mr. Stevens, the American Group is of the opinion that both these inquiries are closely correlated and therefore it offers for transmission to the Legation and to Mr. Stevens the following message.

This you may think covers the ground more fully than is necessary, but the principles involved are so important, and it is so necessary that the Legation should be fully conversant with them, that we hope you will be able to transmit the substance of the message which follows:

1. Consortium has no power, and would in no event wish, to curb private initiative. Consortium and individual group agreements provide that members shall invariably offer to Consortium for its consideration any propositions coming to them involving public issues of Central or Provincial Governments. Groups are so constituted that, with probably unimportant exceptions, each national group includes all institutions or firms in a position to undertake [Page 357] financing of such great public utilities as transportation, etc. It was therefore felt, in effect, such propositions would naturally go to Consortium for handling. It was also believed that the Chinese Government would in all such great projects find it greatly to its advantage to deal with one strong body like the Consortium, representing the large investment interests of the countries involved. The Consortium has never planned to undertake industrial or commercial projects, such as manufacturing, merchandising, shipping, etc. These belong to the field of private endeavor which ought to be able to deal with them adequately, especially if larger operations of the Consortium result in establishing better means of communication, sounder economic conditions, etc., thus furnishing a better and safer field for private foreign initiative.

2. If any such bank were a member of a group being part of Consortium, of course it would have no right to undertake any enterprise involving Chinese Government or Provincial bond issue without the acquiescence of its national group and the Consortium. If group, or Consortium, declined such proposition, then the individual bank would be at liberty to proceed alone. In considering this matter Consortium makes no vital distinction as to particular form of Chinese Government or Provincial obligations. The phrase itself draws the issue between public and private flotation; but it is too soon to try to define the limits precisely.

3. Consortium has yet attempted to establish no particular limitations. Any public utility enterprise manifestly appealing to both Chinese Government and Consortium’s experts as constructive, sound, and in China’s interests; being at the same time a public enterprise to the end that the Government, or any one of the provinces, directly or indirectly issues its obligations in payment of the funds therefor, should be undertaken by the Consortium, as security market conditions permit. Personally, Mr. Lamont can hardly imagine any enterprise involving the expenditure of less than $1,000,000 being of sufficient public importance to warrant the functioning of all the Consortium machinery; and he believes that in practice the chances are that the Consortium would seldom, if ever, find itself making a public issue for an amount under five or ten million dollars. No objection has ever been offered to the extension of temporary credit accommodations to the Chinese Government by depositary banks, such being routine over-the-counter transactions; but should the size or aggregate of such transactions arouse inquiry as to their bona fides, then the Consortium might wish to reverse its general attitude on that point.

In general, refer you to American Group Agreement,38 Consortium Agreement,39 Paris40 and New York41 Minutes.


J. P. Morgan & Co.
For the American Group
  1. Neither printed.
  2. Thomas W. Lamont, member of firm of J. P. Morgan & Co.; Acting Chairman of the Managing Committee of the American group.
  3. Foreign Relations, 1918, p. 185.
  4. Ibid., 1920, vol. i, p. 576.
  5. Paris minutes not printed. For resolutions adopted at Paris meeting, see telegram no. 413, May 20, 1919, from the Ambassador in France, ibid., 1919, vol. i, p. 435.
  6. Ibid., 1920, vol. i, p. 581.