500.A 4 e/226: Telegram

The Ambassador in Japan (Bancroft) to the Secretary of State

118. In an informal conversation with Shidehara46 yesterday, Neville46a and I being present, MacMurray47 stated his general views on the following points:

The policy should be a middle course between China’s national aspirations and rights of foreign governments under the treaty. The present situation in China makes it necessary for the special economic conference to assume a position a little beyond the scope of the conference in order to reestablish Chinese confidence. It is necessary to find a course between sternly rebuffing the Chinese claims on the one hand and weakening the foreigners’ position by allowing the disorders to control the action of the conference.
The powers might find themselves in a position where they will have to grant the two and a half percent48 for political reasons even though this might not otherwise be advisable.
The purpose of the customs treaty obligates the powers to make the conference a means of abolishing the likin. It may be possible to induce the Chinese to bring into unity the central and local governments. This is worth considering for the good that might be produced and it might impress the Chinese with the need of coming to such an agreement though the conference may be unable to go very far in this direction.
The conference will have to decide as to the disposition of the additional two and a half percent if allowed. Hypothetically it is desirable to devote the additional income to internal constructive work but with the large unsecured debts the conference may have to devote the funded increased income to China’s unsecured and inadequately secured debts. We think this two and a half percent should be distinguished from customs revenues heretofore allocated as security for the Boxer loans. The British claim the contrary.
It is unknown and impossible at present to know whether the two and a half percent will provide revenue for funding the total of these debts and leave some amount for administrative purposes. No plans have yet been worked out and none can be until full data of claims are available. In considering such debts no distinction can justly be maintained between external and internal. Both must be dealt with on the same basis.
Debts of Finance Department and of Communications cannot be distinguished because of the fallacious assumption that the railways’ earnings are adequate. Due to political conditions we know that they are quite inadequate.
Each claim should be established on its individual merits based on the amount actually received by the Chinese Government.
While the conference cannot legally act as a judicial body, in practice it may have to do so through full cooperation between the powers.

Shidehara expressed agreement with the general statement of the situation, the proposed treatment of it politically and adjustment of debt claims. He said he knew of some sham debts where no money passed. He suggested a convening of the Extraterritoriality Commission without delay.

MacMurray answered that it seemed they should not sit at the same time because one would be played off against the other and would interfere with the best results and encourage the Chinese to attempt to control the action of each; that it would be better if the Extraterritorial Commission were convened at a fixed date after the completion of the work of the economic conference. Shidehara answered “perhaps that would be the better way of treatment.”

As to the British claim that the two and one-half percent should be a part of the customs revenues, which would thus be deposited in certain banks, Shidehara responded “That means that it would go to the custodian bank. I think we might well align ourselves with you on this point.”

MacMurray further suggested that the two and a half percent is described as a surtax, the amount, time and disposition of which the conference is specifically authorized to fix and clearly there is no reason for increasing the security of the secured loans.

Shidehara then suggested that an additional two and a half percent would have the effect of a substantial protection to the industries of China and it occurred to him that to be accompanied by this protective feature the powers might propose a countervailing excise tax of two and a half percent on domestic productions for the benefit of the provinces. This would be agreeable to them and might help to induce them to surrender at an earlier date the likin. Shidehara further suggested that an average of seven and one-half percent duty on all imports is very high, as high in fact as the average duty in high tariff countries like the United States—and a 12 percent duty is unheard of MacMurray suggested that this might raise a number of political and other questions on which we should reserve judgment. While the provinces would be glad to have this additional income, not the surrender of the likin but other means of [Page 838] increasing revenues might result; and the people might regard this as a further burden attributable to foreign influence.

MacMurray left this morning for Kobe to rejoin his ship for Shanghai. Copy to Peking.

  1. Japanese Minister for Foreign Affairs.
  2. Edwin L. Neville, first secretary of Embassy in Japan.
  3. John V. A. MacMurray, newly appointed Minister to China, en route to his post.
  4. Surtax provided for by art. iii of the Chinese customs treaty, Foreign Relations, 1922, vol. i, p. 282.