711.03/302

Memorandum by the Chief of the Division of Far Eastern Affairs (Hornbeck) of Conversations With the Chinese Minister of Finance (Soong) and the Chinese Minister (Sze)

[Extracts]

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At this point Mr. Hornbeck took occasion to discourse at some length upon the reasons for apathy—to say the least—in this country at present toward projects for lending or selling upon credit abroad. In the course of this discourse, he made mention of American experience—along with that of other countries—in connection with loans made, goods sold and services rendered in China. He said that, among other things, the American Government is being pressed more hard than ever before by American creditors of China. He retraced certain of the statements which he made to Mr. Soong a few weeks ago and said that what he had stated then was even more emphatically the situation now. He expressed the belief that the only way to enlist a renewal of American interest in advancing funds or materials for use in China would be actual demonstration by the Chinese that they are making concrete progress with a plan for the settlement of outstanding obligations. Mr. Soong said that his “organization committee” would take care of that. Mr. Hornbeck said that what the creditors are demanding is performance: they would look with critical disapproval upon any effort of the Government or of private interests to support further business on a loan or credit basis in advance of action by the Chinese in reference to the claims of past business. He said that American creditors are at present complaining that China is favoring creditors and trade interests of other countries. To illustrate, our materials creditors have reported to us that the Chinese Government has made an arrangement for the benefit of British materials creditors, based on operation of the Tientsin-Pukow Railway, and has made no similar arrangement for the benefit of American materials creditors. Mr. Soong said that he was not aware of this having been done, but that if it had been done he would get the facts and attempt to arrange for equitable treatment for American materials creditors.

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Supplement

At one point in the above recorded conversations, Mr. Soong, while expounding his plan for obtaining financial assistance from abroad, and while dwelling especially upon the question of credits, said that he understood that there is in existence in this country an over supply of railway materials, including rolling stock. He wondered whether it would not be possible for arrangements to be made for China to purchase some of this supply on credit. (Note: Mr. H. H. Kung, formerly Chinese Minister of Industry, while here a few months ago raised this same question). Mr. Hornbeck said that there probably were some amounts of such supplies, but, the companies which possess them, if approached for sales on credit, would doubtless at once take into consideration two questions: first, that of their own or other’s experience in connection with such transactions in the past; second, that of the security offered. In the light of the experience up to date of American railway materials creditors, they would doubtless not be very enthusiastic over such a proposal. In the presence of current complaints from such creditors, they would hesitate to go before their stockholders with proposals for or reports of new sales of such supplies on credit. If, however, China could take steps to satisfy the existing railway materials creditors, along with other creditors, there would then exist a situation in which it might be possible to propose with some prospect of success new credit transactions in that field.

At another point in the conversation, Mr. Soong referred to the proposal of the American Government that there be established a commission for the consideration of claims between the United States and China.6 He mentioned the fact that before leaving China and when here on his way to Europe he had been favorably disposed toward that proposal, and that recently, in the light of developments in China, he had sent word to the Department suggesting that we refrain from pressing with regard to that proposal until after his return to China. Mr. Hornbeck said that we had acted in accordance with that suggestion. Mr. Soong said that he appreciated our action and that when he got back to China he would see what in the light of the then existing circumstances he might be able to do along the line of our original suggestion. But, he did not want to give the impression that he favored dealing with American claims alone. Mr. Hornbeck said that we were not seeking that American claims alone be dealt with or American interests be given a special preference. We were looking after American interests, it being our business to [Page 645]do that, and we had proposed this claims commission as a means toward an end. Other countries might, and we hoped they would, do likewise. We understood well that the Chinese Government entertained the idea of dealing with all claims in one comprehensive plan of ways and means. But, unfortunately, the Chinese Government has made little or no progress toward formulating—or at least toward submitting—such a plan. The idea has our approval in principle, but, in the absence of evidence of progress toward putting it into execution, we are compelled to emphasize the desirability of action by China which will give satisfaction to American creditors and restore confidence on their part with regard to the intention and capacity to perform in such connection of the Chinese Government. We know, too, that other governments are similarly pressing with regard to the claims of their nationals. It is reported to us from time to time that China takes steps which are alleged to be discriminatory in favor of claims of nationals of this or that other country. We do not wish to stand in the way of payment by China of claims to any creditor, but we believe in and we consistently insist upon the principle of equality of treatment. That means, of course, equality of favorable treatment. No one can advocate or assent to equality of unfavorable treatment. We do not ask that China discriminate in favor of American claimants; but we must ask and insist that wherever and whenever she gives favorable treatment to claimants of other countries she give equally favorable treatment to American claimants. If, as has been alleged to us, there have been cases in the recent past wherein China has accorded new and favorable assurances to claimants of other countries, we must ask that similar assurances be given to American claimants. Also, if the Chinese Government is giving new business on favorable terms to nationals of other countries, we must ask that she offer the same or similar business to nationals of the United States. Mr. Soong said that he felt that all this was reasonable and that he believed that Mr. Hornbeck realized that, if any favoring was to be done, he, Soong, would rather give to the United States than give to any other country a most favored position. Mr. Hornbeck indicated that he accepted that statement and then reiterated that the quickest and surest way for China to pave the way for the economic assistance which Mr. Soong hopes to obtain both from American sources and from sources in other countries would be to demonstrate that China is adequately solicitous with regard to squaring up outstanding accounts as well as intent upon obtaining new credits. Mr. Soong said that he would keep all of the points which had been made definitely in mind.

  1. For text of the proposed convention, see Foreign Relations, 1931, vol. iii, p. 1043.