The Minister in China (Johnson) to the Secretary of State
[Received 10:29 p.m.26]
247. Your 105, March 27, noon, 1929.27
1. Referring to his letter of March 16, 1929 (Legation’s despatch No. 1995, March 23, 192928) Mr. C. R. Bennett, American group representative in China of the Hukuang Railways loan group banks, in a letter of March 10, 193028 stated that a year has now passed without any improvement in the situation created by the fact that the security of the Maritime Customs for all practical purposes has been reserved exclusively for domestic loans, leaving ignored the unpaid claims of foreign bondholders and other creditors. While admitting some doubt as to whether the matter could be taken up advantageously with the Nanking authorities at the present junction [juncture?] by the designated representatives of the United States, Great Britain, France and Japan, Bennett expressed the hope that it would be acted on at the earliest opportunity. He enclosed a copy of a memorandum prepared by the French group representative28 relating to the present state of the customs liability, from which it appears the annual charges both internal and foreign for the current year to be borne by the Customs Administration will be in the neighborhood of 100 million dollars Chinese currency. The memorandum further sets forth:
- That while the customs administration has been intrusted to make a yearly provision for 5 million only for the consolidation of both external and internal loans in default, no less than 275 million of new internal obligations have since been secured by the Chinese Ministry of Finance on the customs revenue representing for 1930 interest and amortization charges totaling 48 million dollars.
- That in considering domestic charges on the customs revenue, account should be taken of the arrears due in respect of some internal loans the service of which the Ministry of Foreign Affairs has been unable to meet in accordance with the original amortization table. The amount of these arrears due to be liquidated from future customs revenue is over 32 million.
- That in view of the decision of the National Government to abolish likin and similar taxes throughout China as from October 10, 1930, the Hukuang Railway and Tientsin-Pukow Railway loans will have to be included under a separate heading of contingent customs obligations.
2. My British colleague proposes on April 7th to address a note to the Minister of Foreign Affairs, referring to Minister Soong’s [Page 590] annual message for July 1928 to June 1929 (my despatch dated Nanking March 14, 1930)29 and concluding substantially as follows:
“While fully appreciating, therefore, the difficulties with which the National Government is confronted, I feel that I cannot urge too strongly the importance of taking, without further delay, some practical measure with a view to alleviating the injustice caused to the foreign creditor by the present policies [policy of] pledging the only available revenues of the Government for new issues of internal loans, while prior foreign obligations, whether secured on specific revenues, or merely on the pledged word of the Chinese Government and its departments, remain uncared for.”
3. The Department’s instructions as to the desirability, if only for purposes of record, of similar action by this Legation are respectfully solicited.