The American Group to the Secretary of State

Sir: We hand you herewith copy of a memorandum prepared by one of the representatives of the British Group in Peking, in association with the Chairman of the British & Chinese Corporation, Ltd., together with copy of letter of May 23rd from Sir Charles Addis to Mr. C. F. Whigham. This memorandum is submitted to us by the British Group for consideration in advance of a meeting of the Consortium Council arranged to be held in London on July 14th, which will be attended by Mr. Lamont, Chairman of the American Group. We would appreciate very much any expression of opinion the Department may care to make on this memorandum, as of assistance to the American Group in discussing it at the proposed meeting.

We also enclose for the information of the Department a very brief suggestion from our Group of matters to be placed upon the agenda of the meeting.78 If the Department has any suggestions in connection with any of these topics, they will be gratefully received.


J. P. Morgan & Co.
For the American Group

The Chairman of the British Group ( Addis ) to Mr. C. F. Whigham, Representative in London of the American Group

My Dear Whigham: I understand that Mr. Lamont is expected here sometime in July and, if it would suit his convenience, I should propose to convene a meeting of the Consortium Council at this office for Monday, July 28.

As soon as we have agreed the date of the meeting with Lamont I should advise the other groups and invite them to give me as early notice as possible of any items they desire to place on the agenda.

[Page 545]

I may take this opportunity of reminding you that the Consortium Agreement, which was for a period of five years, will expire in October, 1925. It may be expedient, therefore, at our meeting to consider in advance what step, if any, should be taken to provide for its renewal. It might take the form, for instance, of a resolution for its renewal without any limit of time, subject to the right of any Group to withdraw on giving six or twelve months’ notice.

I have taken advantage of the return from China of Major Nathan, C. M. G., who has recently been appointed Chairman of the British and Chinese Corporation, and of the presence of Mayers, to ask them to formulate what in their view constitutes the chief difficulties in the way of industrial progress in China. I enclose an advance copy of the memorandum which they have prepared.

With the permission of my colleagues on the Council I should propose to ask these gentlemen to be present at our meeting in July for the purpose of answering any questions which the Council may wish to put to them. Their proposals, which, it will be noted, involve the elimination of Residuary Participation, are intended to secure greater individual freedom of action on the part of the Peking Representatives of the Consortium.

I reserve the expression of any opinion on the merits of the proposals until their authors have had an opportunity of explaining them to the Council.

As soon as the date of the meeting is fixed I propose to communicate a copy of the Memorandum to each of the other Groups who will, no doubt, wish to discuss this very important matter with their respective Governments.

Yours sincerely,

C. S. Addis

Memorandum by Mr. S. F. Mayers, of the British Group in Peking, and Mr. W. S. Nathan, Chairman of the British and Chinese Corporation, Ltd.

Lack of Progress in Railway Construction

1. It is now two years since the Consortium recorded the view that there was no reason why the development of railways should wait on the solution of China’s administrative problems.

2. During these two years the increase of disorder in China and the continued reluctance of the Government to seek assistance from the Consortium have rendered progress impossible.

[Page 546]

3. We suggest that the time has arrived to bring to a test the question as to how far assistance from the Consortium, as at present constituted, is practicable.

Chinese Reluctance to Negotiate with the Consortium

4. In the sphere of general debt consolidation the Chinese objections to dealing with the Consortium are apparently less pronounced than in the sphere of railway development. In the opinion of our representatives on the spot, the prospects of assistance from the Consortium being ultimately found practicable for financial or administrative loans are better than the prospects of making a Consortium loan for railway purposes.

5. The reason they assign for this is that the Chinese have less fear of losing their liberty of action by concluding a financial loan, with an international combination such as the Consortium than they have of seeking from such a combination the funds needed for railway purposes. In the case of a financial loan the Chinese feel that once the security has been allocated and the arrangements made for its supervision by the Customs or Salt Revenue departments, there will be no marked increase in foreign control of their affairs. On the other hand, in the case of railway loans, they foresee serious administrative difficulties in entrusting to the nominees of a quadruple international body the increased foreign control of their railways which they know is inevitable if they are to regain the confidence of foreign investors.

Dissolution of the Consortium Undesirable

6. The disordered condition of China, with the consequent lack of security, renders it difficult to see any advantage, at the present time, in considering either the dissolution of the Consortium or the separation of industrial or railway loans from the scope of its intended activities. If such loans were now thrown open to international competition, it is at least doubtful whether railway development would be accelerated. In any case, before such considerations are taken into account, it appears advisable to examine the possibility of making some progress by means of an understanding which would permit of greater liberty of action on the part of the individual Groups.

Possibility of Developing Existing British-Financed Railways

7. The various existing railways, for example those in which the British Group is especially interested, viz. the Peking-Mukden, Tientsin-Pukow, Shanghai-Nanking, Shanghai-Hangchow-Ningpo and Canton-Kowloon lines, could each profitably employ a considerable [Page 547] amount of new capital; but the Ministry of Communications will not entertain any suggestion of a Consortium loan for these railways, and the Consortium Agreement precludes any proposal for public issues for these lines without participation being offered to the other groups. In these circumstances it would conduce to progress if the British Group were at liberty to arrange for the finance required by these existing railways without the obligation of offering participation to the other groups.

possibility of developing other existing or New railways

8. As regards other existing railways, the Peking-Hankow and Peking Suiyuan lines are in urgent need of new capital for the payment of debts and for further development. We believe that an offer of a loan for the rehabilitation of these two railways would be welcomed by the Ministry of Communications, if means can be found to present such an offer in a manner acceptable to Chinese public opinion. We therefore suggest that, so soon as any one of the groups has decided on its ability to make such an offer, it should inform the other groups of its intention and proceed with negotiations individually.

9. Similarly, in the case of loans for the construction of new railways any group which is in a position to make proposals to the Ministry of Communications for the issue of a loan should be at liberty to do so individually, after informing the other groups of its intention.

10. In both of these cases it would be understood that upon signature of an agreement the group concerned would be bound to offer a share to any other group desirous of actual participation but without obligation to offer residuary participation.

Proposals for Greater Individual Liberty of Action

11. In order to put the foregoing into concrete form, we suggest the adoption by the Consortium of a resolution on the following lines:—

With a view to giving effect to the opinion expressed in Article 12 of the Report of the Consortium Council dated May 1922, that the development of railways in China should not wait upon the solution of China’s administrative problems it is resolved that:—

With regard to existing railways in respect to which any group holds mortgage rights or rights in respect of further finance, such group shall be free to conclude agreements for the further finance of such railways by public issue without offering participation to other groups.
With regard to other existing railways, new railways or industrial enterprises, any group which is in a position and desires to make a public issue shall be free, after informing the other groups, to negotiate and conclude agreements for such railways or enterprises either individually or with any other group or groups who are also in a position and desire to take their share of the public issue for the same purpose.
It shall be understood that no negotiations for any one of the railways for which an agreement has been pooled by an individual group shall be initiated without the consent in writing of that group.

Alternative Proposal for Inter-Government Negotiations

12. If, on the other hand, it is felt by all the groups that the principle of equal participation must be strictly maintained, it appears to us advisable to ask the four Governments to ascertain, either through their Ministers in Peking, or by sending a special mission to China, by what means and under what conditions the Chinese Government can be induced to agree to a Consortium loan for railways on the lines of equal participation contemplated by the Agreement. In the absence of an understanding between the Chinese Government on the one side and the Consortium Powers on the other, it appears to us improbable that the Consortium Agreement as it stands can be made operative for railway loans.

  • W. S. Nathan
  • S. F. Mayers
  1. Proposed agenda not printed.