The Secretary of State to the American Group

Sirs: I have received the letter of June 12, 1924, with which you enclosed a copy of a memorandum prepared by Mr. S. F. Mayers, of the British Group in Peking, in association with Mr. W. S. Nathan, Chairman of the British and Chinese Corporation, Ltd., containing certain proposals in modification of the Consortium Agreement of October 15, 1920; also a copy of a letter dated May 23, 1924, relating to these proposals from Sir Charles Addis to Mr. C. F. Whigham.

In view of the fact that the existing Consortium Agreement will expire in October, 1925, the question has arisen of the advisability of continuing that Agreement and of the possible necessity of making arrangements in the near future to that end. I approve of the continued application to the field of Chinese finance of the principles which that Agreement embodies, namely, that loans made to [Page 549] China should be based upon sound investments, and that this result should be assured by a mutual undertaking among the principal national financial groups to abstain from reckless competition. While it is no doubt true that the results of the past few years have been purely negative, and that it is of course impossible to appraise the value of such results, I nevertheless venture the opinion that, but for the existence of the Consortium during this period, the financial situation of the Chinese Government would present an even more difficult problem than it now does. I therefore see no occasion for dissatisfaction with the policy which has been followed, and I should welcome the making of arrangements to continue that policy substantially unmodified.

With regard to the proposals contained in the memorandum prepared by Mr. Mayers and Mr. Nathan, I am frankly disposed to concur in the criticism made by Mr. Anderson in his telegram to Mr. Lamont of June 14 (a copy of which was enclosed with Mr. Simpson’s letterito Mr. MacMurray of June 16),79 that these proposals “seem almost tantamount to abandoning Consortium principles entirely”, at least in so far as concerns loans for industrial purposes. I am apprehensive that the adoption of the phraseology of Clause 11 of the memorandum would be likely to lead to misunderstandings among the several national groups of the Consortium, such as might tend to disrupt their unity of action and lead to a reversion to the former regime of nationalistic competition which it was the fundamental purpose of the Consortium to obviate.

It is possibly premature to make more detailed comment upon these proposals until Mr. Mayers and Mr. Nathan shall have had an opportunity to elaborate them at the meeting of the Consortium Council on July 14 next. If it is then felt that there is sufficient ground for their belief that the Chinese Government would be more readily inclined to negotiate with individual groups, it would seem that the modifications to the proposals, as outlined by Mr. Anderson in his telegram above mentioned, might afford a means of facilitating dealing with the Chinese Government and at the same time conserving the essential basis of principle animating the Consortium Agreement, in the event that it should still appear desirable, in spite of the progressive disintegration of the Chinese Government, that the development of railways should proceed without awaiting a solution of China’s administrative problems.

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I have read with much interest the proposed agenda which you have submitted for the meeting of the Consortium Council in London on July 14, 1924.

I am [etc.]

Charles E. Hughes
  1. Not printed; the telegram referred to was sent from Paris by Mr. A.M. Anderson of the staff of the American group to Mr. Thomas W. Lamont, representative of the American group. Mr. Malcolm D. Simpson was secretary for the American group and Mr. John Van A. MacMurray was Chief of the Division of Far Eastern Affairs of the Department of State.