893.51/5934
The American Group of the China Consortium to the Secretary of State
Sir: We beg to acknowledge receipt of your letter of October 11th16 (FE 893.51/5928) enclosing a copy of the text of the joint memorandum, under date of August 10, 1934, which was transmitted to the Chinese Minister of Foreign Affairs by the representatives in China of the United States, Great Britain and France, together with a copy of the Minister of Foreign Affairs’ memorandum in reply, under date of August 21, 1934.
In the latter memorandum, the Minister of Foreign Affairs quotes certain authorities concerned with respect to the alleged insufficiency of the present customs revenue to meet demands, while at the same time recognizing the government’s obligation to secure the Hukuang Loan upon the customs as a substitute for the likin abolished.
At the time of the abolition of likin in 1931, there was a substantial surplus of customs revenues above the service of all loans charged thereon. As you are aware, large amounts of money were borrowed in China by the Chinese Government on the strength of surrendered or remitted portions of the Boxer Indemnity annuities, the government ignoring completely the obligation to secure the Hukuang Loan. Other indebtedness has also been incurred, secured on the surplus of the customs.
In Sir Arthur Salter’s paper “China and Silver” published in the spring number of Economic Forum, he states on page 71 that after all charges were met out of customs there remained for that year a surplus of $70,000,000 Chinese. It is exceedingly difficult for us to understand how the Chinese Government can steadily maintain, in its replies to the various protests made by the American, British and [Page 562] French Governments, as well as by the three Groups, that there are no customs revenues available to implement the obligations of Articles VIII and IX of the Hukuang Loan Agreement when such revenues, as stated by Sir Arthur Salter, do produce a surplus of this amount. Allowing for the annual remittance which China has made in recent years of an amount equal to one coupon per annum, the loan requirements laid down in the contract for the remainder of the interest and for sinking fund annually aggregate only $3,800,000 Chinese; and if the entire loan service were transferred to customs and no salt funds used, the annual requirements would be increased only to $6,000,000 Chinese. (These figures, of course, take no account of existing arrears.)
It must be the conviction of the Department as it is of the group banks, that China, while using surplus customs revenues for her general needs, is deliberately avoiding the clearly defined obligation to substitute a charge upon customs for the abolished likin pledged under the Hukuang Loan. May we hope that the Department will see fit to request the other interested governments to make even stronger representations than before, in the light of the figures obtained by Sir Arthur Salter from what we understand to be official sources, so that China should use some part of the customs revenues which appear to be available for the purpose of carrying out the obligations which the Chinese Minister of Foreign Affairs in his memorandum recognizes, before such surplus customs revenues are subjected to any further pledges.
Yours very truly,
For the American Group
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