893.51/5010

The Minister in China ( MacMurray ) to the Secretary of State

No. 870

Sir: I have the honor to refer to my despatch No. 509 of March 25, 1926,43 with which I transmitted copy of a joint memorandum dated March 18th signed by the representatives of France, Great Britain, Japan and the United States, protesting against the issue of a $20,000,000 bond issue, to be known as the “Fifteenth Year Public [Page 963] Loan Bonds”, to be secured on that portion of the Customs revenues formerly required for the service of the German indemnity; also to my telegram No. 346, of August 24, 4 p.m., in which I quoted a note I addressed to the Ministry of Foreign Affairs on the same date protesting against the report that the Chinese authorities were about to issue new Domestic Loan Bonds to a par value of silver $25,000,000; as well as to my despatch No. 790, of October 20, 1926,44 with which I transmitted a translation of the reply from the Ministry of Foreign Affairs to my note of August 24th in which I protested against the issuance of the $25,000,000 bond issue.

In connection with the foregoing I have the honor to transmit herewith enclosed, for the Department’s information, copy of a joint memorandum dated November 20th, signed by the French, British, and Japanese Ministers, and myself, in which opposition is reaffirmed to any further hypothecation of the Customs revenues for the purpose of floating new internal loans as long as no steps have been taken by the Chinese Government to make good the existing unsecured and inadequately secured foreign obligations of the Chinese Government.

I have [etc.]

J. V. A. MacMurray
[Enclosure]

The American, British, French, and Japanese Ministers to the Chinese Ministry of Foreign Affairs

Memorandum

The Undersigned Representatives of France, Great Britain, Japan and the United States have the honour to acknowledge receipt of a memorandum from the Wai Chiao Pu dated 13th October, in reply to their joint memorandum of 18th March protesting against the issue of any new internal loan on the security of surplus Customs revenue while longstanding foreign obligations remain in default.

The Undersigned note that the Ministry of Finance maintain that the interests of China’s foreign creditors are in no way affected by the assignment, as security for a new loan, of surplus Customs revenues hitherto set aside for the service of the consolidated internal loans. Such a contention is obviously untenable, and has already been answered in the memorandum of 10th [18th] March in which it was pointed out that, when there is only one source of revenue from which China’s creditors can hope for payment, every new lien created thereon must necessarily postpone pro tanto the expectation of such payment. And it is, indeed, self-evident that the interests of China’s [Page 964] foreign creditors must suffer by every fresh hypothecation of that revenue.

At the present time the Chinese Government are reserving the surplus Customs revenue for the service of the internal loans consolidated in accordance with the Presidential Mandates of 1921, thereby disregarding the claims of their foreign creditors. Their protestations of good faith towards the latter clearly require that surplus Customs revenue should be utilized for meeting prior foreign claims before any new charges are placed thereon.

The Undersigned Representatives are, therefore, under the necessity of reaffirming their opposition to any further hypothecation of the Customs revenue for the purpose of floating new internal loans as long as no steps have been taken to make good the defaults in the existing unsecured and inadequately secured foreign obligations of the Chinese Government.

[File copy not signed]
  1. Not printed; for joint memorandum which it transmitted, see p. 947.
  2. Not printed; for reply from the Ministry of Foreign Affairs which it transmitted, see p. 961.