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

Sir: We acknowledge receipt of your letter of July 13, 1922,70 quoting cablegram received by the Department from the American Legation at Peking, dated July 10, 1922.

The proposal of the Minister of Finance of the Chinese Government is that he will put the case of the Pacific Development and Chicago Bank Loans before the Provincial authorities and ask them to deposit 20% of their retained monthly collections of Wine and Tobacco revenues in a Special Sinking Fund Account in designated Banks. We do not question the sincerity or earnestness of the Central Government in proposing to make this endeavor, but we might be pardoned for having some doubt as to the ability of the Central Government to accomplish the desired result in respect to the “eight further yearly installments”. In the original contract with this Bank the Chinese Government covenanted that “During each of the years that all or any part of said $5,500,000 loan, both principal and interest, remains unpaid, a net sum equivalent to at least $5,500,000 in gold coin of the United States of America of the present standard of weight and fineness shall be received from said revenues by the Chinese Government, and shall be available for the service of said loan”. The Chinese Government further covenanted that it would “apply toward the payment of said Treasury Notes, both principal and interest, so much of said pledged revenues as will be adequate and sufficient to fully protect and pay all of said Treasury Notes and all unpaid accrued and accruing interest thereon.” This agreement has not been carried out. The Chinese Government in communications passing between it and the American Legation in Peking, of which we had advice through your Department, promised to make certain payments in respect to the past due interest of our loan out of the Salt Surplus to be released in June and July of this year. This undertaking has also not been carried out and we might be pardoned for having some doubt as to the ability of the Chinese Government to carry out the proposal referred to in the above despatch from the American Legation dated July 10, 1922.

The Chinese Government by its Minister of Finance stated to me, in the presence of Mr. Willys Peck, Chinese Secretary of the American Legation in Peking (of which statement Mr. Peck made a memorandum) that “The only revenues upon which the Chinese [Page 807] Government could depend are those which are under foreign supervision”. In the despatch above referred to, Mr. Tyndall Wei expresses the opinion that there is “no possibility of setting up a Wine and Tobacco Administration with foreign inspector since such step is so radical it would arouse great criticism of present Cabinet which is in enough difficulties”, and therefore we presume that no foreign control of the revenues to be devoted to an extension of the Chicago Bank Loan is at present contemplated. If, however, conditions may have changed since the date of July 10, 1922, so that it might be possible for the Chinese Government to consider a foreign inspector for the Wine and Tobacco Administration, we would be sufficiently interested to send a representative of this Bank to Peking to negotiate with the Chinese Government on this matter. It seems to us greatly in the interest of the Chinese Government that the Wine and Tobacco revenues should be put in such shape as that there might not only be available sufficient revenues therefrom to take care of the loans secured thereon, but that through such development the Wine and Tobacco Administration might be brought to a point where those revenues would form a substantial security for a further loan or loans. From July to December 1921, during which time I was in Peking, the Chinese Government expressed an entire willingness, under the Loan Contract then being negotiated, to arrange for an effective supervision of the Wine and Tobacco Administration by an American and to this end, without having previously mentioned the matter to me, the Cabinet requested me to become Associate Inspector General of that Administration. When the Loan Contract failed of execution the matter of an American Inspector was dropped.

Without being on the ground it is difficult to determine what would be the best way of taking care of the two defaulted American loans, but we have not sufficient confidence in the carrying through, over a period of eight or nine years, of the proposal submitted, to be able with confidence to recommend to several thousand American holders of the Chinese defaulted Notes, that they should waive their present position and accept the proposal heretofore referred to.

Respectfully yours,

John Jay Abbott
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