893.51/5096: Telegram

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

818. Department’s telegram No. 366, November 3 [1], 5 p.m.

The requests which are being made of the Nationalist Government to hypothecate specific revenues for the payment of designated [Page 535] obligations appear to relate to the increased customs revenues which would accrue from the application of the so-called “interim rates”. In view of the terms of our treaty of July 25,7 it does not seem to me that we are in a position to, or that we can consistently, lay claim specifically to customs revenues for the payment of their obligations. Should it appear, however, that the Nationalist Government intends to allot free customs revenues or any other free revenue to the payment of foreign obligations in a manner which would discriminate against American creditors, we should, of course, protest against such contemplated action and inform the Chinese that we should, in that event, be compelled to bring unfavorably to the attention of the American financial interests concerned any evidence of such discriminatory treaty [treatment].
As to the question of procedure, I am inclined to think that it would be inadvisable at this juncture for the American Government to approach Nationalist Government as to its attitude toward payment of the whole body of American obligations. The Chinese would in all probability take an eduction [sic] position as, in fact, they have already done so, namely, that they will recognize and be responsible for the payment of all “proper” obligations incurred by former Chinese Governments, at the same time reserving to themselves interpretation of what obligations they deem to be proper. In my reply, it would be productive of better results to await such a time as the Chinese, feeling the pinch of necessity, approach American financial interests and then if necessary to take the position that they cannot hope for American assistance until adequate arrangements are made for the payment of these obligations.
I feel moreover that at this time it would be prudent to await the ratification of the tariff treaty by the Chinese before confronting them with any direct issue such as is involved in the question of payment of their obligations to us and of the possible extension of further credit on our part to them. Whereas I do not doubt that the Chinese are disposed to ratify the treaty, they are on the other hand fully aware of the importance which we attach to the nondiscriminatory treatment, and it is not impossible that they might seek to touch on the treaty, delaying ratification as a means of leverage to induce us to modify our attitude in financial matters.
Should, however, the Department feel in the present circumstances that the terms of my note to the Minister of Foreign Affairs, to which reference is made, are insufficient to safeguard the interests of American creditors, I see no objection to reinforcing it by a more specific statement of our attitude, and I therefore suggest that the Department authorize me to supplement the previous note by the following: [Page 536]

“I have the honor to refer to my note of October 19, 1928,8 in which reference was made to the intention of the Nationalist Government to issue a short-term loan secured upon a certain portion of the customs revenue and to the existence of a continuing obligation on the part of the Chinese authorities to ensure the payment of the obligations due to the American creditors, and to state that reports have reached me that suggestions are being made that Nationalist Government should hypothecate certain specified portions of hitherto unpledged revenues from the customs or from other sources for the payment of certain designated foreign obligations, hitherto not enjoying such security. I trust that these reports are wholly without foundation; for it is obvious that such a course of procedure would seriously prejudice the interests of creditors not placed upon so favorable a basis. On behalf of the American interests involved I feel it incumbent upon me to bring this matter to your attention and to request an assurance that any policy which may be adopted by the Nationalist Government in these matters will not either in principle or in practice result in any discrimination against the interests of the American creditors concerned.”

  1. Ante, p. 475.
  2. See telegrams No. 772, Oct. 15, from the Minister in China and No. 351, Oct. 16, to the Minister, pp. 532 and 533.