893.51/5804: Telegram

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

674. With reference to your 146, June 6, 6 p.m., 1932,7 regarding Hukuang Railway loan; and 188, June 5, 3 p.m., 1933,8 regarding Reconstruction Finance Corporation loan, British Minister states that agent of Hong Kong and Shanghai Banking Corporation has drawn his attention to reported hypothecation of 5% famine relief customs surtax as part security for newly concluded American cotton-wheat loan. Agent adds that representatives of Hukuang group banks have, with reference to this report, addressed note to Chinese Minister of Finance reserving rights of bondholders of Hukuang Railways loan to receive payments due them from customs revenue with priority over all charges created subsequent to date of that loan agreement and agent requests that interested Ministers may support action of group banks by making suitable representations to the Minister for Foreign Affairs on this point.

British Foreign Office suggests forwarding to Minister for Foreign Affairs on about August 20th a memorandum to be signed jointly by the three Ministers of which the following quotation is the essential part.

“It now appears from recent reports that the newly concluded American cotton-wheat loan is partly secured on the 5% famine relief customs surtax and that the customs revenue has been hypothecated while the prior claims of the Hukuang bondholders remain ignored. Accordingly the representatives of France, Great Britain and the United States of America now desire to draw the attention of the Chinese Government to the fact that the bondholders of the Hukuang loan are entitled under article 9 of the agreement to obtain payment from customs revenue with priority over any other charges created subsequent to the date of the loan agreement.”

The Department’s instructions are requested by telegraph.