The Secretary of State to the Minister in China (Crane)
60. Your telegrams 72, February 2, noon; 75, February 3, 1 p.m.
So far as this Government is aware the assent of diplomatic body to releases of customs surpluses has been required only in order to assure the service of Boxer Indemnity and pre-Boxer loans as provided by the arrangement for the commission of bankers as [Page 501] first established January 30, 1912,98 and subsequently modified from time to time. That agreement constitutes the commission of bankers acting in behalf of the diplomatic body as trustees to receive the customs revenues for the sole purpose of satisfying from them the charges due upon the specified obligations of the Chinese Government and any surplus thereafter remaining is to be deemed as a credit balance held in trust at the free disposal of that Government. It is further understood that allocations recently made to the Canton Government from customs surplus were so paid by authorization of the Peking Government which has now withdrawn that authorization. It is the opinion of this Government that in the absence of any such assent by the Government which alone is internationally recognized in China, it is not within the competence of the Powers to withhold the balances due the Government or to impose new conditions for the release of the funds held in trust for it.
Although the Reorganization Loan is secured primarily upon the Customs and secondarily upon the Salt revenues it is not under the contract entitled to service through the Bankers’ Commission: and it would seem that neither to that loan nor to the domestic loans that your telegram enumerates can the diplomatic body give the advantage of such service without at least appearing to take the position that China is already bankrupt and that the foreign powers are entitled to take possession of the assets and establish such a method of distribution among creditors as they see fit. Whatever may be the reasons to apprehend that possibility this Government is not prepared to accept a belief in China’s insolvency and abandon the hope of reconstruction in cooperation with the Consortium.
The same reasoning applies to the suggestion that the Powers permit the Chinese Government to receive and employ its own free balances of revenue solely for such uses whether constructive or political, as the Powers may dictate. Such an extension of the strictly limited control which is now exercised by virtue of the agreement for the International Bankers’ Commission would in the view of this Government be a breach of trust and a gross violation of the fiscal and administrative independence of China.
The Department is gravely concerned that the views indicated in its telegram, No. 3, January 5, 5 p.m.,99 ‘should have been so misunderstood as to allow the Legation to propose taking the initiative in pressing for the imposition of conditions upon the release of Customs surplus due to the Chinese Government. You are herewith instructed [Page 502] to explain without further delay to your colleagues and to the Foreign Office the substance of that instruction as also of the present telegram. You will also telegraph these two instructions to the Consulate General at Canton for informal communication to Dr. Wu Ting-fang with the further comment that this Government cannot consider the question as one between north and south but that recognizing only the Peking Government it finds itself constrained to insist upon the principle of trusteeship as the alternative to a procedure which could not but impair the independence of the whole of China.