893.51/5118
The Consul General at Shanghai (Cunningham) to the Minister in China (MacMurray)15
Sir: I have the honor to transmit an exceedingly interesting report of Mr. T. V. Soong, Minister of Finance, made to the Military Conference at Nanking and published in the North China Daily News (British) of January 14, 1929, under the heading: “Military Costs and the Menace of National Bankruptcy.”14 This memorandum was presented by Mr. Soong to the Conference on the 11th of January and is characteristic of the able and thorough manner in which he deals with the questions that he discusses. In a cruelly frank manner he clearly sets forth the financial condition of the National Government and supports his claim by a convincing array of statistics. It is the third time since last April that Mr. Soong has sounded a warning to his confreres in the Government and called upon the military administration for limited military expenditures under a unified and organized control. (See June political report and my despatch No. 5604 of August 11, 1928, to the Legation.16)
Mr. Soong presents a brief sketch of the national finances in order that the existing financial conditions may be carefully considered in connection with the pending question of disbandment of troops and limited military control. He calls the attention of the military leaders to some cold facts that disprove the idealists’ claim that China is a united nation. This distinguished Minister of Finance says:
“With the nation’s finances still disorganized, and, out of the 22 provinces and the special districts, there being only four provinces—Kiangsu, Chekiang, Anhui and Kiangsi—that furnish figures which are fairly complete or reliable, it becomes almost impossible to attempt to arrive at more than a fair estimation. Many of the provinces do not furnish any reports at all, and those that do, supply data which is either incomplete or of little use. Working under these difficulties, it is only possible for the Ministry to give approximations, basing its figures on whatever available information that exists, and forming a conclusion thereon. The estimates, therefore, should not be taken as wholly accurate, although they are to the best of our knowledge fairly reliable.”
Mr. Soong in May expressed the hope that with the completion of the Northern Campaign there would be a rapid readjustment of financial conditions and a foundation for reconstruction throughout the country. However, he truthfully says:
“There is today little if any improvement from conditions existing during the period of warfare.”
Concerning the contributors to the revenues of the Central Government at the present time, Mr. Soong states that:
“At present the Central Government derives its revenues from only four provinces, namely: Kiangsu, Chekiang, Anhui, and Kiangsi. The receipts of Kiangsi are hardly sufficient to meet its military expenditures, while that of Anhui is in a like position. The chief source of revenue of the Central Government is thus practically confined to Kiangsu and Chekiang. And although these two provinces are regarded as very prosperous, owing to military conflicts during the past two years and the establishment of the Central Government with its multifarious organs in their midst, the drain on them has been altogether too great.”
It is certainly a matter of great sadness and disappointment to one who has contributed his efforts with that loyalty and honesty of purpose which Mr. Soong has, to realize that the Northern Expedition did not result in a speedy readjustment or a lightening of the burdens of taxation.
Mr. Soong says that not only have all revenues been exhausted but:
“In order to meet the urgent administrative and military expenditures the main sources of revenue, such as the 2½% Surtax, the Tobacco Tax, the Stamp Tax, etc., have been pledged for the service of various loans.”
The limited revenue from the four provinces, in reality two provinces, has taxed his ingenuity very heavily during the last six months, and he states in greater detail that the Ministry of Finance
“has resorted to further loans and bond issues, secured on the Petroleum Tax, Wheat and Flour Tax, and the increased Salt Tax.”
He makes the astounding statement that of the total receipts of the Government for the half year from June to November 1928, 45% comes from such loans and bond flotations, while only 55% was received from revenues. (In regard to the bond issue, see this office’s despatch No. 5701 of October 17, 1928.18) Mr. Soong expresses doubt as to the length of time the Government may be maintained on a hand to mouth policy, exceeding the revenues each month, and warns his confreres that:
“It is time that the finances of the country be centralized and reorganized, otherwise only bankruptcy can result.” [Page 131] He emphasizes the impossibility of floating foreign loans in the present disorganized state of the Government and also expresses the belief that it is impossible to float many more loans in the country. He insists as the basis for reform that two steps be taken:
- “1st: the military expenditure must be strictly limited, and
- 2nd: the national finance must be centralized and reorganized.”
He also makes it perfectly clear that in order to bring about the unification of the national finances there must be a central control and a complete and honest accounting to that control by the provinces. He emphasizes that after such organization the difficulties will still not be over as the greatest economy can only result in a deficit of fifty million dollars for the current year.
It must have been, considering the conditions set forth above, with great difficulty that Mr. Soong assembled the statement of revenues which is contained in the enclosed tables.19 However, he admits that these tables are but approximations and with this reservation he estimates that the revenue for 1929 will be $457,740,000; his budget he places at $507,870,000; and this creates a deficit for 1929 of $62,130,000 including the item of $12,000,000 for the five Yuans which has not been approved by the Budget Committee. The total for military expenditure is $192,000,000, which is equivalent to 41% of the total estimated revenues or 36% of the gross expenditures. This is a generous bribe to the selfish militarists. It is an exorbitant percentage of the revenues when it is remembered that in the United States the military expenses constitute but 8% of the expenditures for all Government purposes. Mr. Soong thus puts the patriotism of these ambitious, suspicious and selfish warlords to the acid test. It will be very interesting to know the answer that the Military Conference will make to the frank, patriotic and businesslike statement of Mr. Soong. If the budget is endorsed and a patriotic effort is made to limit the expenditures to this, it will be a surprising manifestation on the part of the militarists. It is in the hands of these militarists to bridge the financial chasm and it is hoped, with very little reason to base this hope upon, that they will meet the test. It is possible that they will accept the principle while they proceed to loot the country as in the past for additional sums to meet the greater expenses.
At the conclusion of his able report, Mr. Soong places before the Conference five proposals20 and assures them that if they are accepted and put into effect
“the Ministry of Finance will be ready to meet regularly and without fail at due dates the annual military expenditure of $192,000,000 [Page 132] in addition to reasonable disbandment expenses. If not, the future is dark indeed.”
Such an undertaking by a financier of less experience and ability would not be regarded seriously in China, but considering Mr. Soong’s past and his frankness in admitting that there are faults in the collection and administration of the finances, there will be a ray of hope for the country if his lead is followed. The concentration of the power of the nation in the hands of a civilian financial leader is infinitely preferable to such concentration in the hands of militarists who seek personal aggrandizement in the way of power and wealth. Mr. Soong is a very young man, scarcely thirty-five, but he has an extremely enviable record to his credit. Let us hope that he will be to China what Alexander Hamilton at the same age was recognized as being to the Federation of American States. Mr. Hamilton was a patriot and financial genius, whose services did much to make the United States the sound financial country that it is. It is admitted, however, that Mr. Hamilton, without the backing and support of a large number of patriotic civil and military officials, could not have given to the country that stability which he did, and it is certain that Mr. Soong, able though he may be, cannot have the support of an equally large number of his confreres in the National Government.
I have [etc.]