The Minister in China ( Crane ) to the Secretary of State
[Received February 3—10:28 a.m.]
72. Your 44, January 27, 3  p.m. Before communicating Department’s views Legation desires to call attention to [apparent omission] that since the revolution all releases of customs funds including surpluses have required the assent of diplomatic body. For procedure see dean’s circular 252  transmitted with Legation’s despatch 663, January 3rd.94 Under guidance of Inspector General customs receipts has [have] been used to meet reorganization loan 191395 for which charges 1921 amount to pounds 1,260,000. Furthermore, Russian and German indemnities96 are retained by Inspector General for service of third and fourth national internal silver loans and remaining deferred indemnities for seventh year short-term bonds which will be fully paid up before expiration deferred indemnity. Legation ventures to suggest in lieu of abandoning this means of control by the diplomatic body the possibility of arriving at an understanding between it and the Chinese Government whereby the entire Customs Revenue be earmarked for national purposes such as pre-Boxer loans, indemnity, 1913 reorganization loan, third and fourth year internal loan issues, harbor and river conservancy, maintenance of Foreign Office, diplomatic and consular representatives, and education, thus eliminating territorial question and insuring Southern participation in the benefits of Customs Revenues. This procedure is based on plan added by Inspector General. It would mean large measure of control over Chinese funds but Chinese Government is admittedly approaching open financial bankruptcy during present year97 and some form supervision seems desirable and essential to avoid repudiation of its large obligations as well as disappearance of national entity to be succeeded possibly by disintegration with opportunities for spheres of interest. The above [Page 500] suggestion is made because the American consulate Canton and the assistant military attaché recently there attribute attempted action of Canton Government in regard to customs to anticipation that diplomatic body intend to hand Southern portion surplus to Peking Government for uses prejudicial to Southern interests and Legation ventures to sugget that our American participation in joint diplomatic action may have aroused especial antipathy against United States. It would be perhaps unwise for this Legation to take initiative in action tending to release Southern portion of surplus to Peking without qualifying measures outlined above.