893.51/5703b

The Acting Secretary of State to the Minister in China (Johnson)

No. 853

Sir: In connection with the adjustment of debts owed by the Chinese Government to American citizens or organizations and the presentation [Page 622] by American citizens of claims against that Government, the Department has reluctantly been forced to the conclusion that no serious attempt is being made by the Chinese Government to arrive at a satisfactory settlement of the issues involved.

In this connection the Department refers to your despatch No. 1555 of June 4, 1932, in regard to the Continental Illinois Bank and Trust Company loan, your despatch No. 1614 of July 7, 1932,75 in regard to the Hukuang Railway loan of 1911, and to numerous previous communications on various subjects which, in the opinion of the Department, indicate an unwillingness on the part of the Chinese Government to liquidate or even consider seriously its just debts and obligations. This situation would appear to exist irrespective of the implied assurances given by the officials of that Government in the more or less stereotyped replies, which, particularly of late, have been made to the Legation’s inquiries on the subjects under discussion. Without going into detail in regard to this phase of the general question, with which the Legation no doubt is more familiar than the Department, it would appear not only advisable but also necessary that the appropriate authorities of the Chinese Government be informed, both orally and in writing, that the American Government has long and very patiently awaited an indication that the Chinese Government is willing to consider its outstanding obligations to American citizens; that with the exception of a few tort claims such as the Nanking Indemnity, payments in connection with which are now in default, such consideration has from a practical point of view been lacking; and that the time has now come when this Government must request of the Chinese Government constructive action in regard to the determination and adjustment of the latter’s obligations to American citizens.

While appreciating the very serious financial difficulties which now confront the Government of China and while realizing that such difficulties may make impossible an early settlement of the outstanding obligations of that Government, the Department nevertheless fails to perceive any justification for the attitude of evasion and procrastination which has characterized the refusal of the Chinese Government to consider seriously the question of American claims and to reduce to concrete and final form the amount of its outstanding indebtedness to American citizens. The Department considers the matter as one of urgency, not only because of the inherent rights of the American interests concerned but also because the Chinese Government is constantly hypothecating for other purposes revenues which might be, and which should be, devoted to the service of obligations to American [Page 623] citizens and because with the passage of time it becomes increasingly more difficult to establish the validity of certain types of such obligations.

The Department is in no way desirous of unduly embarrassing the Chinese Government during the critical period which now exists. On the contrary, the Department desires to be of assistance in all practicable and appropriate ways and to that end is firmly of the opinion that if, as a result of the establishment of an appropriate commission, the outstanding obligations of the Chinese Government to American citizens were reduced to a definite and final form not subject to further discussion as to amount, with the exception of accrued interest, such a step would redound to the credit of China as an indication of its willingness to face issues squarely and to place its finances on a sound basis.

As of possible assistance to the Legation in its endeavors to arrive at a satisfactory settlement of certain of the questions under discussion, the Department, in its instruction No. 643 of December 10, 1931,76 placed at the disposal of the Legation a “Draft of Proposed Convention Between the United States and China for the Examination and Adjudication of Claims of Nationals of Each Country Against the Other”. In case the Legation has not already made use of this draft, the Department considers it desirable that the Legation take steps toward bringing the fact of the existence of such a draft and a summary of its contents to the attention of the Chinese Government as suggestive of a means by which the outstanding claims of the two countries may be given the attention which they merit and solution of the problem of settling them justly, amicably and within reasonable time, be expedited. Whether this particular plan be put into effect or another of a somewhat similar character, or whether the Chinese Commission for Adjustment of Domestic and Foreign Obligations, referred to by the Minister for Foreign Affairs in his despatch to the Legation under date May 24, 1932, be caused to function in regard to debts owed American citizens, is of secondary importance, the important objective being that some means be devised and steps be taken to bring about a prompt and serious consideration by the Chinese Government of its financial obligations to American citizens and to bring nearer action on China’s part toward liquidation of those obligations.

The Department of course would be glad to receive your comments on this matter. As it is essential that a propitious moment be chosen and an unpropitious moment be avoided for making such representations, and as the Department considers that it may be desirable, before [Page 624] you thus approach the Chinese Government, that it inform the British Government, through the British Embassy here, of the American Government’s intentions in this connection, the Department desires that, shortly after the receipt of this instruction, you report by cable or by naval radio and thereafter await further instruction before acting. You may in your discretion make the subject of debts and claims a matter of informal discussion with your colleagues, especially your British colleague, with a view to getting any information and opinions which may be helpful for the guidance of your Government; but you should give no intimation that the Department has in contemplation the procedure outlined above or any other action.

Very truly yours,

W. R. Castle, Jr.