893.51/4339

The American Group to the Secretary of State

[Extract]

Sir: Referring to our letter of June 15th,62 we now enclose … four copies of the Consortium Council Report …

. . . . . . . . . . . . . .

Respectfully,

J. P. Morgan & Co.
For the American Group
[Enclosure]

Report of the Council of the Consortium, Adopted at a Meeting Held May 28, 1923, in the Office of the Banque de l’Indo-Chine, Paris63

  • Present
    • Sir Charles Addis, K.C.M.G.
      Representing the British Group
    • Monsieur R. Thion de la Chaume
      Representing the French Group
    • Mr. Thomas W. Lamont
      Representing the American Group
    • Mr. Kanji Yano
      Representing the Japanese Group
  • In attendance.
    • Mr. J. Ridgely Carter
    • Mr. R. Gosse
    • Mr. W. E. Leveson
    • Monsieur R. Saint Pierre
    • Mr. Jeremiah Smith
    • Mr. C. F. Whigham
    • Mr. F. Sutton
    • Mr. H. Suzuki
[Page 544]
1.
The Council of the China Consortium, having under review recent telegrams from their Representatives in Peking, as well as Press messages and comments bearing on the present economic and political situation in China, consider that a general statement of the policy of the Consortium may be at this time of interest to the public.
2.
The policy of the Consortium, namely the substitution of international co-operation for international competition in the economic and financial affairs of China, has been definitely affirmed and endorsed in a larger sense by China and the Powers in the Treaty signed at Washington on February 6, 1922.
3.
The Treaty is in effect an undertaking by the Powers to respect the sovereign rights of China, to preserve her territorial integrity and to provide her with a free and unembarrassed opportunity to develop her economic resources and maintain for herself an effective and stable government.
4.
The Consortium is an appropriate instrument for giving effect to this policy. It is not designed as a permanent organisation, but rather as a temporary bridge by which China may be assisted to pass in comparative safety through the difficult period of transition from an unsettled to a settled state of government.
5.
What has already been accomplished appears to justify the belief that the Consortium has been constructed on sound lines, and may reasonably be expected to fulfil the purpose for which it was designed with due regard to the natural susceptibilities of the Chinese on the one hand and the security of the foreign investor on the other.
6.
It is popularly supposed, and occasionally asserted, that the main object of the financial Groups composing the Consortium is to harvest undue profits reaped from loans forced upon China under the protection of their respective governments. This is not the case. On the contrary it has been by their consistently refraining from lending that their principal success has been achieved in encouraging the utilisation of native savings before recourse is had to foreign capital, and in arresting the profligate expenditure which was heading the country straight for bankruptcy. It is not too much to say that the Consortium has helped to stimulate and foster a sane and independent public opinion in China, and, by putting a stop to the menace of financial penetration arising from indiscriminate and unproductive foreign borrowings, is helping to conserve the integrity of the country.
7.
Much still remains to be done, and until their work has been accomplished the several Groups of the Consortium are convinced that they would not be justified in having regard merely to their own [Page 545] convenience by resuming their freedom of independent action. They are reinforced in this conviction by the consideration that the Consortium appears to form the chief barrier between China and the policy of Spheres of Interest which prevailed during the last decade of the XIXth century. It will be remembered that it was during that period, known as the “Battle of the Concessions,” that definite claims to exercise preferential rights over specific geographical areas of China were advanced by different Powers. If these claims had been maintained the disintegration of China must have followed. Any backward step towards the resumption of a similar policy might well be expected to produce similar results.
8.
The pressure upon modern nations to discover and develop outlets for their trade is increasing, and China presents to-day by far the largest undeveloped field for commercial expansion. If the restraint at present exercised by the co-operative action of the Consortium is removed, the resort to the pressure of individual agents in competition with each other would appear to be inevitable. From that it might be but a step to the intervention of foreign governments in order to protect the vested interests acquired by their nationals in different parts of China, and Spheres of Interest, with consequences disastrous to China, would once more be established.
9.
It is more in the interests of China for the Powers to deal with her as a whole rather than separately, in co-operation rather than in competition with one another. It is the aim of the Consortium to assist China in the building up of her credit until some day like other nations she can borrow for her requirements on the strength of her national credit, without the necessity of recourse to specific security or supervision of expenditure. When that day comes it will be time enough to talk of disbanding the Consortium. Until then the Consortium must remain intact and, with the approval and support of the Governments, continue to perform with patience the functions assigned to it.
10.
It is the settled policy of the Consortium to refrain from interference in the internal political affairs of China. The present political upheaval in that country precludes the immediate hope of giving practical effect to any Consortium proposals for an administrative loan. Conditions, however, change so rapidly that the Groups must always stand prepared for action in anticipation of the time when China shall have again attained to such degree of political peace and security as to afford a reasonable prospect of a stable government.
11.
Industrial Loans, in which railway loans are included, are in a different category. Provided adequate security can be obtained there seems to be no reason why the further development of railway [Page 546] communication in China, in itself a potent means of political unification, should wait upon the solution of her administrative problem.
12.
It is recognised that an essential part of any scheme for the financial reorganisation of China is the consolidation of the floating debt, and a scheme for such consolidation is at present under consideration by the Group Representatives in Peking.
13.
A certain portion of the Chinese public appears to be under the delusion that in some way or other the object of the Consortium is to obtain control of China’s finances and railways. If such a delusion really exists, it can only be due to a mistaken reading of every public announcement which has been made on the part of the Groups.
14.
It has repeatedly been stated that interference with the domestic politics of China has no part in the programme of the Consortium, that the reorganisation of China’s finances must come from China herself, and that the role of the Consortium is limited to an endeavour to assist the Chinese Authorities, if requested to do so, in re-establishing economic and financial equilibrium.
15.
It would be futile to ask the foreign investor, to whom the Consortium stands in the relation of quasi-trustee, to subscribe to a Chinese loan until he is satisfied that its proceeds will be properly expended and his capital duly returned to him at maturity. It is indisputable that this necessitates some measure of supervision, but no more control than the minimum actually required to provide the adequate degree of security without which it would be impossible to issue a foreign loan.
16.
It is the policy of the Consortium to assist in building up the general credit of China on such secure foundations that all outside intervention may be gradually eliminated and the entire control of loan service and expenditure may finally pass into the hands of China herself.
17.
There appears to be some misunderstanding in China with regard to the suggestion that the Land Tax might at some future date be utilised as a source of security for a supplementary administrative loan should the other revenues of the country prove insufficient for that purpose, or be already fully pledged. That the collection of Land Tax should be remodelled on the lines of that of the Maritime Customs, i.e., placed under foreign supervision, formed no part of the suggestion, and was not even discussed. Neither the application of foreign control to the collection of Land Tax, nor specific hypothecation of that security, came within the scope of the conclusions reached at the Consortium Conference at New York in [Page 547] October, 1920. The project of a loan secured on the Land Tax was not then and is not now under consideration by the Consortium.
  • C. S. Addis
  • R. Th. de la Chaume
  • Thomas W. Lamont
  • K. Yano
  1. Not printed.
  2. Released to the press July 2, 1923.