893.51/4909
The Minister in China (MacMurray) to the Secretary of State
Peking, March 18,
1926.
[Received April 23.]
No. 512
Sir: I have the honor to refer to my telegram
No. 97, of February 27, 4 p.m.,21 with reference to the fact that the Chinese banks
had advanced funds to the Chinese Government for New Year’s settlement.
I reported therein that the Ministry of Finance had issued Treasury
Bills for $8,000,000. I now beg leave to transmit, herewith enclosed, a
statement giving the details of the loan.21 These Treasury Notes, to the amount of
$8,000,000, are secured upon that portion of the Customs surplus which
is now being used to serve the Ninth Year Currency Loan, the financial
redemption of which loan is scheduled for 1927. There is also
transmitted, for the Department’s information,
[Page 945]
a copy, dated February 15, 1926, of the
Regulations governing the issuance of the Treasury Notes referred
to.21a
I beg leave to invite the Department’s attention to the fact that the
actual amount received from the proceeds of the $8,000,000 amounts to
$3,880,000 only. Approximately half this amount has been turned over to
the militarists for the prosecution of their respective campaigns. The
other half has been used in the payment of arrears in salary of
employees in the various government ministries.
A glance at the statement of the details of the loan will convince the
Department of the ruinous terms upon which it was made.
On February 6th, after consultation with my British, French and Japanese
colleagues, I transmitted an identic note to the Ministry of Foreign
Affairs protesting against this issue. A copy of this note is
transmitted herewith enclosed. There is also transmitted a note in
translation, dated February 11th, from the Ministry of Foreign Affairs
in reply to my protest stating that “the Customs surplus which is being
set aside as security for this issue of Treasury Notes by the Chinese
Government has, from the beginning, been used as security for the
service of internal loans and does not concern or hinder foreign
creditors.”
This attitude on the part of the Chinese Government appears not only to
constitute a breach of faith to its creditors, but it would seem amounts
to a public dishonoring of the unpaid foreign and domestic debts.
I have [etc.]
[Enclosure 1]
The American Minister (MacMurray) to the Chinese Minister of Foreign Affairs
(Wang)
Peking, February 6,
1926.
No. 162
Excellency: Reports have recently appeared
in the press to the effect that Your Excellency’s Government are
negotiating with Chinese banks for the flotation of an issue of
Treasury Notes to the amount of $8,000,000, to be secured upon that
portion of the surplus Customs revenues which is now being used for
the service of the Ninth Year Currency Loan, due for final
redemption in 1927.
In previous communications I have pointed out that foreign loans, the
service of which the Chinese Government had engaged, in the event of
default or of the specific security pledged proving insufficient, to
meet from other sources, are entitled to an automatic priority over
later internal loans. I have accordingly on several occasions
protested against the action of the Chinese Government in
hypothecating
[Page 946]
surplus
Customs revenues for the service of internal loans while foreign
debts and obligations, anterior in date to the internal loans in
question, remained in default or in danger of default.
The situation regarding foreign loans bearing the general guarantee
of the Chinese Government has since become aggravated, several such
loans having recently fallen definitely into default.
By continuing to monopolise all available security to cover fresh
domestic obligations the Chinese Government are ignoring their
guarantee given in respect of previous foreign obligations, and it
is evident that were this process to continue the fulfilment of that
guarantee would be indefinitely postponed, and the guarantee would
eventually come to be regarded as a dead letter.
I have accordingly the honor to protest against the proposed
utilization of surplus Customs revenues as security for an issue of
Treasury notes, while no concrete steps have been taken to provide
for meeting long outstanding foreign obligations bearing the Chinese
Government’s guarantee of payment from general sources of revenue,
and I trust that the proposal will be abandoned as an earnest of the
Chinese Government’s regard for justice and for its own reputation
for fairness and good faith.
I avail myself [etc.]
[Enclosure 2]
The Chinese Minister of Foreign Affairs
(Wang)
to the American Minister (MacMurray)
[Peking,] February 11,
1926.
No. 152
Sir: I have the honor to acknowledge the
receipt of your formal note (No. 162, of February 6, 1926), stating
that it is rumored that the Chinese Government is planning to use
the Customs surplus for 1928 and subsequent years to secure an issue
of Treasury Notes to the amount of $8,000,000, the flotation of
which is now under negotiation with Chinese banks, and that you
desire to protest against this action.
I have the honor to observe that the Customs surplus which is being
set aside as security for this issue of Treasury Notes by the
Chinese Government has been from the beginning used as security for
the service of internal loans, and does not concern or hinder
foreign creditors.
I have the honor, Mr. Minister, to make this formal reply for your
information.
Seal of the Ministry of Foreign
Affairs
