893.51/4954
The Minister in China ( MacMurray ) to the Secretary of State
[Received September 1.]
Sir: I have the honor to acknowledge the receipt of the Department’s instruction No. 232, of May 28, 1926,29 transmitting a copy of a letter dated May 21, 1926, from the American Group of the Chinese Consortium in regard to the use of revenues of the Chinese Maritime Customs.29 The Department requested that I submit my comments by telegraph. Although the Department in its telegraphic instruction No. 132, of July 1, 5 p.m.,29 indicated that no comments were desired by telegraph in addition to those contained in my telegram No. 242, of June 8, 1926, sent before the receipt of the present despatch, I think it advisable to submit these additional observations by mail.
Referring to the memorandum of December 2, 1921, compiled by the Chinese Secretary of the Legation,29 on the subject of the practice followed in effecting releases of surplus customs revenue, I desire to state that Mr. Peck regrets that in this memorandum he neglected to state that Article 6 of the Bankers Arrangement of 1912 was cancelled by action taken at the Diplomatic Body meeting of April 7, [Page 954] 1913. In writing the memorandum he consulted only the correspondence files of the Legation, which curiously enough, contain no reference to this action. My own compilation of treaties was not available to him and he neglected to search the files of Dean’s circulars, which in the year 1913, were not routed through the Chinese Secretariat.
The memorandum was correct in stating that the Chinese Government and the interested Powers all have appeared at least to act on the assumption that the Chinese Government was not privileged to utilize surplus customs revenues until “released” by the Powers. Requests from the Government for such releases have been made repeatedly, the last one as recently as July 14, 1926. (See Diplomatic Circular No. 174, of July 20, 1926, a copy of which is attached hereto.30) On occasion these requests have been refused, and sometimes on grounds not connected with the service of the specified obligations secured on the customs revenue—e. g., the identic note to the Chinese Foreign Office of November 5, 1918, in which the reason given for refusing the release was the continuance of civil war. (See the Legation’s despatch D. No. 2318, November 6 [8], 1918.30 It was this irregularity of procedure, of course, which caused the Department to observe in its telegraphic instruction No. 3, January 5, 1921,31 that it welcomed “the opportunity to revert to a more regular procedure”.
I do not understand that the Chinese Government itself has interposed any sustained or strong objection to the manner in which, in practice, the Powers have thus extended their quasi-control of the customs revenue under the 1912 arrangement. This control, or trusteeship, has necessarily been exercised through Sir Francis Aglen, Inspector-General of Customs, since in the 1912 arrangement the Powers secured the consent of the Chinese Government that all Maritime Customs revenues should be deposited to his credit. This arrangement has given the Inspector-General an almost despotic power over this revenue—a power which he wields solely by virtue of the support he receives from the interested foreign Legations. The Chinese Government feels itself powerless to dispense with Sir Francis so long as the British Legation and the other Legations support him. As a general thing, I am convinced, the Government appreciates to the full the unimpeachable integrity and devotion to Chinese interests of the present Inspector-General, but there have been times when a harassed Minister of Finance has been highly incensed at the point blank refusal of the foreign Inspector-General to release funds to his order.
[Page 955]Until 1921 Sir Francis always met demands from the Government for customs funds with the statement that the Government must first secure the consent of the interested Legations. After the mandates of March, 1921, establishing the consolidated internal loan service (devised by Sir Francis in consultation with the late Mr. Chow Tzu-chi) he recognized the authority of those mandates, although, in doing so, he did not consult the foreign Legations. In devoting to the consolidated internal loan service the millions of customs revenue required therefor, Sir Francis not only did not ask the consent of the Powers, but he flatly denied any weight to their arguments as to the superior rights of senior foreign loans. Yet, when it has been a question, since 1921, of petty allocations for the support of plague prevention work, etc., the Chinese Government, apparently at his insistence, has still asked the consent of the Powers, just as it did before 1921. In this connection the Department’s attention is invited to the Note of the Chinese Foreign Office dated July 14th, enclosed herewith,32 which states quite frankly that the officiating Inspector-General replied to the request for funds that “the consent must be obtained of the Foreign Ministers concerned.”
Sir Francis Aglen has undoubtedly met with great difficulty in conserving the Customs revenue for the purpose of meeting the legal obligations of the Chinese Government and for uses calculated to promote the Government’s own real welfare. On a number of occasions the Chinese Government has attempted to secure immediate use of funds allocated to the service of internal loans under the terms of the Mandates of 1921. In these circumstances Sir Francis has insisted that those terms be carried out and that the Government keep faith with the bondholders. I understand that in defence of the internal loan service he is guided by the belief that popular support of the Government will be increased by widespread investment in Government bonds. There can be no doubt that his announced support of these bonds has been the essential factor inducing the Chinese public to purchase them, and that he feels keenly his moral duty toward the purchasers. In furtherance of his policy, he wishes to add more issues to the bonds thus secured. This leads him to reject the claims of previously concluded foreign loans, as presented by the Legations. He is thus brought into conflict with the very Governments upon whose support he is entirely dependent for his control over Customs funds, as given to him by the 1912 Bankers’ Agreement. (MacMurray’s China Treaties, page 946.)
Adverting once more to the Foreign Office Note of July 14, 1926, I have the honor to state that I pointed out to my colleagues in an observation placed on the circular what appeared to me to be an important principle involved in the continuing nature of the allocation [Page 956] to which assent was requested. The same principle is raised in the hypothecation of the customs revenues for the service of bonds. I venture to quote below the observation to which I have referred:
“The note of July 14 from the Wai Chiao Pu introduces an innovation which appears to me to be fundamental, in that it requests not merely the release of an ascertainable balance but a commitment to assent to releases33 month by month for an indefinite period, without the possibility of foreseeing whether the balance requested will be available in any given month in the future. In my understanding of the matter, so long as the 1912 agreement remains in effect, the body of interested Ministers have a fiduciary obligation to assure that the indemnities and specified loan services are duly met; and although they have no discretion as to the uses to which the Chinese Government may put any balances in excess of the funds necessary for the indemnity and loan services, it is their function to assure that no releases are made until satisfied of the existence of such surplus at the time. I cannot escape a feeling that by consenting to the present request they would vitiate this principle and forego what is both a right and a duty to protect the security of the indemnities and foreign loans specifically charged upon the customs revenue.”
It is an unlooked for situation that has now arisen out of the international action taken in 1912. The Powers acquired, and still exercise, a trusteeship over the whole customs revenue, but in respect to obligations that require only a portion of the whole. In regard to the disposition of the remainder, they have informed the Chinese Government most emphatically that they exercise no control whatsoever. They have, in fact, latterly refused even to express an opinion as to the way that it should be used. But at the same time they continue to insist upon an arrangement that places the control of this surplus in the hands of a particular officer of the Government of foreign nationality.
The Department will have noted in the Senior Minister’s memorandum to the Chinese Foreign Office of May 12, 192634 (see Diplomatic Circular No. 118, of the same date35) a statement that the interested Heads of Legation “do not desire to interfere with any arrangement arrived at between the Chinese Government and the Inspector-General of Customs with regard to the disposal of this surplus revenue”. The original draft of this communication was presented by the British Minister in accordance with suggestions given him, as I understand, by Sir Francis Aglen. At any rate my British Colleague observed at the meeting of the interested Ministers that he thought it would strengthen the hands of the Inspector-General. In deference to the unanimous judgment of my colleagues, I concurred in the draft; but when the Senior Minister proposed inserting the same [Page 957] phraseology in a similar memorandum to the Foreign Office in the following month, I suggested that its inclusion was unnecessary, and my suggestion was adopted. (See Diplomatic Circular No. 142, of June 11th, and copies of observations placed thereon.35a)
It may be questioned whether, if the Protocol Powers were to follow to its logical conclusion their present announced policy of leaving the Chinese Government free to dispose of the surplus customs revenue at its will, they should not announce to the Government their willingness to limit the applicability of the 1912 Bankers’ Agreement to that portion of the customs revenue required for the service of foreign obligations specifically secured thereon. That done, there would remain no means of foreign pressure to prevent the Chinese Government from restoring, to a large extent, if it so desired, the conditions existing before 1911, when the Inspector-General of Customs had no control over customs revenue, but was merely the head of the collecting agency. I do not suggest that it would be advisable to withdraw international support from the Inspector-General in this way; on the other hand, in view of arrangements now in contemplation for debt consolidation and purposes similarly requiring definite security upon customs revenues, I am definitely of the opinion that it would be preferable to insist that the control of those revenues should remain in the hands of such a foreign official. I have invited the Department’s attention to this point principally because it seems to supply the only discernible basis for the impression that prevails with many Chinese, and some foreigners, that the foreign Legations control the Maritime Customs revenue.
Incidentally I may remark that some inconsistency is to be found in the fact that in China it is the British Minister who wishes to “strengthen the hands of the Inspector-General” (British), while among the foreign governments it is the British Government that has expressed most anxiety not to overload the customs revenue with foreign obligations, and not to appear to increase foreign control over that revenue.
I have [etc.]