The Vice President of the Continental and Commercial Trust and Savings Bank ( Abbott ) to the Secretary of State

Sir: Referring to conversation held between the Under Secretary of State, Mr. J. V. A. MacMurray,69 and the undersigned, in Washington on May 25, 1921.

In 1916 this Bank made a three-year loan of $5,000,000 to the Republic of China. In 1919 we made a two-year loan to the Republic of China for $5,500,000 with which to take up the first loan and to absorb the discount on the second loan. Our information is that these loans were the first ones made to China by any Bank in this country and publicly distributed in the American market. In connection with each loan the State Department wrote us a letter setting forth the character of support that the American Government would give,70 which letters, with permission, were published in our prospectus and circulars, and as these latter were distributed among a very large number of the Investment Banking Houses and Bond Dealers throughout this country, they are undoubtedly still in their files available for reference and comparison.

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The second loan referred to matures on November 1, 1921 and the writer is about to leave for China with the purpose of investigating the situation over there and with the disposition to effect a new loan the proceeds of which will take up the forthcoming maturity of China’s obligation. Such a new loan seems necessary because of the present financial situation of China which promises to make it impossible for her to meet the maturity without such assistance. Naturally, we do not wish to make such a renewal loan unless it is so well set up and supported as that we can effect a distribution of it in the American investment market. The alternative would be to carry it in our portfolio, which we have no disposition to do. We feel called upon to extend whatever assistance we can to the Chinese Government in this emergency because of the fact, among other things, that the maturing loan was publicly marketed over our name without any associates. It seems to us that if a new public offering were made by us, which did not include a statement of support by our Government, that the investment distributing houses would immediately make inquiry as to why our Government was not giving its support to this loan, where, under the previous Administration support had been accorded to our previous issues of Chinese Notes, and that this absence of support might have a marked tendency to discourage such dealers from venturing to take commitments in the new issue. We therefore hope that the American Government may see its way clear to accord a generous measure of support.

If we are correctly informed, the American Group in the Consortium has been given to understand that in the event of the Consortium offering a Chinese loan in this market that effective support by our Government would be forthcoming. If absence of Government support should make it impossible for us to market the loan referred to, and the date of maturity should arrive and the loan be not paid, China’s credit in the investment market of this country would be hurt so badly as that it might most certainly interfere with the successful functioning of the American Group in the Consortium when the time arrives for that organization to afford financial assistance to China by appealing to the American investing public to buy the securities offered. From this point of view it appeals to us as desirable for this Government and ourselves to work together to the end of maintaining China in good credit standing.

The Pacific Development Corporation made a two-year loan to China of $5,500,000 which matures on December 1, 1921, one month after the maturity of our loan. The Pacific Development loan is carried by the bankers of this country and has never been the subject [Page 378] of a public offering. It has seemed to us that if after a verycareful examination of the situation in China, bearing always in mind the possibilities of the American market to absorb a given issue of Chinese securities, it might be desirable to make a new loan of sufficient amount to take care of the Pacific Development maturity along with our own. Such an operation would depend upon the ability of the American market to take the new offering; on our ability to obtain from the Chinese Government such security for the loan as would be satisfactory; and, further, to obtain such character of supervision over the revenues of the security as would justify us in believing that the interest on the new loan would be promptly met and that the principal thereof would be amortized on some agreed schedule. The Pacific Development Corporation at present has been given the privilege of nominating an Associate Inspector General of the Wine and Tobacco Administration, but without adequate powers to function. It may appeal to our Government as desirable to preserve this situation and to increase the effectiveness of the co-administrator by the grant of further powers by the Chinese Government, but to realize all of this presupposes our ability to market such a new loan, and our judgment is that effective support by our Government is necessary thereto.

This bank has offered our loan to the American Group in the Consortium and it has been declined, so that we are necessarily thrown upon our own resources to take care of the maturity of the loan which we offered, and trust that our Government will give us full measure of support to accomplish our purpose and preserve the credit of China.


John Jay Abbott
  1. Chief of the Division of Far Eastern Affairs, Department of State.
  2. Foreign Relations, 1916, p. 138; ibid., 1919, vol. i, p. 525.