The Acting Secretary of State to the Minister in China (Johnson)
298. Your 693, August 18, noon.15 It is the understanding of the Department that the materials supplied Chinese railways, particularly the Peiping-Hankow and Peiping-Suiyuan lines, by American creditors have in a large measure made possible the continued operation of such railways. It is also the understanding of the Department that the Ministry of Railways as well as individual debtor lines offer as an excuse for failure to liquidate the claims of American and other material creditors the alleged fact that such railways have failed to show a profit. Under these circumstances the pledging by the Ministry of Railways of the income from the Peiping-Hankow Railway and the income from other lines under that Ministry’s control, accruing as a result of increased passenger and freight rates, as security for a new loan to the Canton-Hankow Railway would appear to diminish considerably any prospects of payment in the reasonably near future by these lines or by the Chinese Government of long outstanding indebtedness in connection with those lines to American and other material creditors. Such action on the part of the Ministry of Railways would appear to be not only manifestly unfair to American and other material creditors but also politically and economically inexpedient, particularly in view of Soong’s affirmed desire to obtain on credit in the United States additional railway supplies in large quantities.
If upon investigation you find that the Ministry of Railways seriously contemplates hypothecating as indicated in your telegram under reference the revenues of lines under its control, Department authorizes you to protest in the terms indicated in your inquiry, at the same time bringing to the attention of the appropriate Chinese authorities the considerations outlined above.
See Department’s 277 and 278.16