The British Ambassador ( Howard ) to the Assistant Secretary of State ( Wright )

My Dear Mr. Wright: When I saw Mr. Harrison in Washington on August 21st, I touched, amongst other matters, upon the question of wireless in China with special reference to the so-called Federal Contract. I intimated in the course of our conversation65 that this contract was regarded with some apprehension by His Majesty’s Government as vitiating the principle of the “open door” in China, and Mr. Harrison expressed surprise that any such fears should be agitating [Page 1069] our minds. In the circumstances, permit me to invite reference to Mr. Chilton’s note No. 704 of July 22nd, 1925,66 which informed the United States Government that His Majesty’s Government were in general agreement with the Japanese proposals for a wireless consortium and which contained the following paragraph:

“In determining their attitude in this matter, His Majesty’s Government have been impressed by the fact that the difficulties now handicapping the development of wireless communications with China afford a striking illustration of the soundness of the general principles so ably championed by the United States Government in other spheres of foreign relations with that country. The essence of these principles consists in the eradication of international competition in China and the abstention of the foreign powers concerned from any attempt to seek special privileges for themselves and their nationals. His Majesty’s Government do not doubt that these considerations will also animate the policy of the United States Government in the present instance. At the same time, however, they view with a certain apprehension the possibility of practical application being given to the suggestion put forward by the United States representatives at the time of the Washington Conference that the conduct of wireless between the United States and China ought to be solely in the hands of a Sino-American enterprise. Whilst His Majesty’s Government for their part were prepared to accept the recommendations of the wireless experts when taken as a whole, they cannot but feel, in the light of the present difficulties, that the suggestion of the American representatives on this particular point would in practice militate against the above-mentioned principle of equality of opportunity and encourage the powers to claim from the Chinese Government a monopoly of the wireless traffic between themselves and China. Such action on the part of the powers would materially increase the difficulties of the situation and result in the infliction of a considerable injustice on China.”

Since the general contents of the Federal Contract will be well known to you, I think it is hardly necessary to say any more at present about our apprehensions over the possibility of a radio monopoly in China. There are, however, certain points in the Federal Company’s Agreement of September 19th, 1921,67 which I feel may have escaped the notice of the United States Government, and these I have outlined in the enclosed memorandum for your information.

In the light of this memorandum, you will realize that, if the Federal Contract is carried out, my Government may find themselves obliged, at the request of the British banks and bondholders interested, to take concerted action with the other Powers concerned for the protection of British interests in this matter.

Believe me [etc.]

Esme Howard
[Page 1070]


Clauses 4 and 5 of the Agreement of September 19th, 1921, between the Federal Company and the Chinese Government read in part as follows:

From Clause 4

“… The Government also pledges as further and additional security, as aforesaid, the surplus earnings from any and every source accruing to the Ministry of Communications, and if at any time such earnings shall prove deficient, the Government agrees in such event to provide from other Government sources amounts necessary and sufficient to redeem the Bonds herein authorized to the end that the obligations of said Bonds shall be promptly and fully met. … The Ministry of Communications above referred to, so as to fully pay the same agrees that no deductions of any kind shall be made from said surplus earnings of said Ministry of Communications above referred to until full provision has been made for said payment as aforesaid, the Government further agrees, in any event, to provide for the full and prompt discharge of said Bonds, in the amounts falling due each year, together with the premium thereon, from other earnings of the Ministry of Communications or from other Chinese Government sources.”

From Clause 5

“… Further so long as any part of this loan is unredeemed and unpaid, the said China-Federal Radio Administration and the surplus earnings of the Ministry of Communications, shall not, under any circumstances, be mortgaged, nor shall the respective receipts therefrom be given as security to any other party, nor shall the Ministry of Communications of the Chinese Government impair the security of this loan by any pledge of, or agreement to pay from, the surplus earnings of said Ministry of Communications, to the end that this loan, so long as any part of it unredeemed and unpaid, shall have priority as regards principal and premium, and interest over all other loans, charges, or mortgages charged or to be charged on the Ministry of Communications … and no loan, charge or mortgage shall be raised or credited [created] which shall take precedence or be on equality with this loan, or which shall in any manner lessen or impair its security upon the revenue aforesaid.”

It is felt that the pledging of the whole of the surplus revenues of the Chinese Government Railways to an industrial concern, for purposes outside railway development, is prejudicial to the working of the International Bankers’ Consortium of 1918. Moreover, a special lien on Chinese Government revenues would seem inconsistent with the principle of complete equality which formed the basis of the wireless resolution passed by the Consortium Council in Paris [Page 1071] on May 28th, 1923, from which the following (Article 5) is a pertinent extract:

“It was resolved that each group in the new consortium shall be a national unit and that no member of any group shall, within the scope of the operation of the consortium, represent directly or indirectly any other national interest”.

In this connection, it is of interest to note that the Federal Agreement provides that the Bonds of the Chinese Government shall be secured upon the radio stations, and all revenue accruing therefrom, and it also specifically provides that if this security is found to be insufficient, then the Chinese Government pledges all surplus earnings from whatever source of the Ministry of Communications, and from all other Chinese Government resources. Under the agreement, the Chinese Government is further prohibited from impairing the security of the bonds “by any pledge or agreement to pay from the surplus earnings of the said Ministry of Communications to the end that this loan as long as any part of it remains unredeemed and unpaid shall have priority as regards principle [sic] and premium and interest above all future loans, charges, or mortgages charged, or to be charged on the Ministry of Communications.” This would appear to conflict with the undertaking entered into by the four Powers interested in the Banking Consortium and seems further to contravene the pronouncements of the United States Government on behalf of their national group in their notes to (a) the French, British and Japanese Embassies of October 8th, 1918,69 and (b) to the Chinese Government on September 28th, 1920,70 from which the following extracts are respectively quoted:

“The proposal of the Government of the United States contemplated that industrial, as well as administrative loans should be included in the new arrangement for the reason that, in practice, the line of demarcation between various classes of loans often is not easy to draw. Both alike are essential fields for legitimate financial enterprise and both alike should be removed from the sphere of unsound speculation and of destructive competition. The intention of this Government was to suggest as a means to that end, that the interested Governments should, by common consent, endeavour so to broaden the membership in the newly formed national groups that all financial firms of good standing interested in such loans might be included in the respective groups and should withhold their support from independent financial operations without previous agreement of the interested Governments”.
“In the proposal of the United States Government which in practice envisaged a reconstruction of the Old Consortium it was specifically stated that there was no intention of interfering with any [Page 1072] of the rights of the Consortium. The hope was expressed, however, that the new national Groups formed might be made so broad as to include the members of the former Consortium as well as others who had legitimate claims to such inclusion, so as to meet the larger needs and opportunities of China in a spirit of harmony and of helpfulness rather than of harmful competition and self-interest.”

A further portion of Clause 5 of the Federal Agreement lays down that no deductions of any kind shall be made from the surplus earnings of the Chinese Ministry of Communications until full provision has been made for the wireless bonds. This is at variance with Article 5 of the Agreement regarding the Anglo-French loan of 1908 to the Board of Posts and Communications,71 which states that the service of the loan will be paid from these surplus revenues. The text of article 5 of the loan agreement is as follows:

France (Banque de l’Indo-Chine), Great Britain (Hongkong and Shanghai Banking Corporation) and China.

Agreement for a loan of £500,000 [£5,000,000] to the board of Posts and Communications—October 8th, 1908.

. . . . . . . . . . . . . .

Article 5.

“The service of principal and interest of this loan will be paid from the surplus revenues of the various productive works of public utility controlled by the Board of Posts and Communications; in the event of these surplus revenues being insufficient, other revenues will be selected to make up the deficiency.”

“The Board will further, from and after the date of the first coupon, and during the currency of this loan, leave on fixed deposit in equal shares with the two contracting banks in Shanghai, the estimated silver equivalent of the payment of interest next due. In like manner, from and after the end of the tenth year, the Board will also leave on fixed deposit with the contracting banks in Shanghai the estimated silver equivalent of the instalment of principal next due. These fixed deposits will be renewed and adjusted half yearly on the dates on which interest coupons become due to the bondholders, the silver equivalents of interest and/or principal which they represent being calculated at the rate of exchange or average rate of exchange, settled for the remittance of loan service made ten days previously. Interest on these deposits shall be allowed by the contracting Banks at their advertised rates for the time being for twelve months fixed deposits, subject to any change of rate from the date of such change and will be payable half-yearly.[”]

Finally, Clauses 4 and 5 of the Federal Agreement seem to violate Article 6 of the Agreement of April 10th, 1911, between the Eastern Telegraph Company and the Chinese Government, which agreement reads as follows:

[Page 1073]

Copy from Book of Agreements of Eastern Extension, Australasia and China Telegraph Company, Limited, and the Chinese Government, in F. 1490/667/10 of 1925.

An Agreement, made this tenth day of April, 1911, corresponding with the Twelfth day of the Third Moon of the Third Year of Hsuan Tung, Between The Imperial Chinese Board of Communications (hereinafter called “The Yuchuanpu”) of the one part and the Eastern Extension Australasia and China Telegraph Company, Limited, and The Great Northern Telegram Company, Limited, of Denmark (hereinafter called “The Companies”), of the other part.

Whereas the Yuchuanpu for the purpose of reorganising, improving and developing the Telegraph and Telephone Services throughout the Chinese Empire has to provide large sums of money in the immediate future.

And Whereas in accordance with the existing agreements between the Imperial Chinese Telegraph Administration and the Companies certain revenues administered by the Companies are paid quarterly to the said Administration.

And Whereas the Companies are prepared to make an advance on account of the said revenues to the Yuchuanpu for the purposes stated.

It Is Therefore Mutually Agreed between the parties hereto, as follows:—

Article 1

The Companies agree to make an advance to the Yuchuanpu of the sum of £500,000 (five hundred thousand pounds sterling) on the conditions hereinafter named.

Article 2

The advance shall be made at par, and shall bear interest at the rate of five per cent per annum.

Article 3

Of the said sum of half a million pounds sterling a sum of £300,000 (three hundred thousand pounds sterling) shall be paid by the Companies to the Yuchuanpu on May First, 1911, corresponding with the Third Day of the Fourth Moon of the Third Year of Hsuan Tung, and the balance of £200,000 (two hundred thousand pounds sterling) shall be paid within six months after the date of the payment of the above stated £300,000. The said payments shall be made to a bank designated by the Yuchuanpu.

Article 4

The advance of money together with all interest in respect thereof shall be satisfied and extinguished by the payment by the Yuchuanpu to the Companies of a series of equal half-yearly instalments of £21,018 (Twenty-one thousand and eighteen pounds sterling) each. The first of these half-yearly instalments shall be paid on June 30th, 1912, corresponding with the Sixteenth day of the Fifth Moon of [Page 1074] the Fourth Year of Hsuan Tung, and the last of the half-yearly instalments shall be paid on or before the 31st December, 1930. All payments shall be made in sterling or its equivalent through a Bank designated by the Companies either in London or at Shanghai. Should from any unforeseen circumstances of whatsoever nature the Yuchuanpu find itself unable to make the stipulated payment on the date agreed upon, the Companies shall be paid interest at the rate of five per cent per annum on the amount of the outstanding account from the date on which payment was due and until the actual date of payment, it being understood that in case of non-payment or short payment the Companies may deduct any amount due under this Agreement from money due from the Companies to the Imperial Chinese Telegraph Administration under the existing Agreements or Contracts between the said Administration and the Companies or either of them.

Article 5

The Imperial Government of China hereby guarantees the repayment of the £500,000 and the payment of interest thereon in accordance with the stipulations contained in Article 4, and as security for the money advanced hereby grants to the Companies a preferential lien on China’s revenue from “Through Traffic” and “Limitrophe Traffic”: subject always to the lien held by the Companies under any Agreement or Agreements in force for the time being between the Imperial Chinese Telegraph Administrations and the Companies. The above revenues are declared free from all other loans, mortgages or charges.

By the aforesaid “Through Traffic” is understood traffic as defined in the sixth recital of the Agreement dated the 26th of July, 1904, between the Imperial Chinese Telegraph Administration and the Companies, and by the aforesaid “Limitrophe Traffic” is understood traffic as defined in Article one of the Telegraph Convention dated the 13th of May, 1897, between the Imperial Chinese Telegraph Administration, and the Great Northern Telegraph Company, Limited, of Denmark, with the additional traffic as mentioned in Article seven of the Agreement dated the 22nd of October, 1902, between the same parties.

Article 6

No Loan or Mortgage shall be charged upon the security named above until this present advance of money by the companies is redeemed, and neither the Yuchuanpu nor the Imperial Chinese Telegraph Administration shall make any arrangements or agreement or take any other step during the term of this present Agreement that would in any way diminish China’s share of the revenue from the aforenamed “Through Traffic” and “Limitrophe Traffic”.

Article 7

This Agreement is signed under authority of an Imperial Edict dated the Eighth day of the Third Moon of the Third Year of Hsuan Tung which has been officially communicated to the Ministers of Great Britain, Russia and Denmark in Peking by the Waiwupu.

[Page 1075]

In Witness Whereof the undersigned duly authorised to this effect have signed the present agreement.

Done in Peking in the English language and in the Chinese language. Six expeditions [sic] duly compared and found to be in agreement, of which one shall be retained by the Yuchuanpu, one by the Waiwupu, one by the British Minister, one by the Russian and Danish Minister[s], and one by each of the Companies, have been signed in each of these languages on the Tenth day of April, 1911, corresponding with the Twelfth day of the Third Moon of the Third Year of the reign of Hsuan Tung.

For the Imperial Chinese Board of Communications,
Chow Wan Pang.
Appointed with Imperial approval Director
General of the Imperial Chinese Telegraph
Administration and being an expectant Taotai
with the brevet rank of the second class.
For . . . . . . .
For the Eastern Extension Australasia and China Telegraph Company, Limited.
A. B. Skottowe.

The Acting Manager in China.
For the Great Northern Telegraph Company, Limited, of Denmark.
J. J. Bahnson.

The General Manager in China and Japan.
  1. See memorandum by the Assistant Secretary of State, Aug. 21, supra.
  2. Foreign Relations, 1925, vol. i, p. 910.
  3. See despatch No. 37, Sept. 27, 1921, from the Minister in China, Foreign Relations, 1921, vol. i, p. 450; for text of agreement, see List of Contracts of American Nationals With the Chinese Government, etc., annex vni (Washington, Government Printing Office, 1925).
  4. See note to the French Ambassador, Foreign Relations, 1918, p. 193.
  5. Ibid., 1920, vol. i, p. 572.
  6. For text of agreement, see Foreign Relations, 1908, p. 204.