Foreign Relations of the United States Diplomatic Papers, 1935, The Far East, Volume III

893.48/1021

Memorandum by Mr. Raymond G. Mackay of the Division of Far Eastern Affairs

[Washington,] November 27, 1935.

In the course of a conversation by telephone on November 26 between Governor Myers of the Farm Credit Administration and Mr. Hornbeck it was decided that Mr. Mackay should call upon Governor Myers to discuss with him the recent request of the Chinese Government⁵⁴ that a revision be made in the schedule of payments covering the obligation of the Chinese Government incurred in connection with its purchase from the Grain Stabilization Corporation in 1931 of certain quantities of wheat and flour.

Mr. Mackay called upon Governor Myers on November 27 and stated that there would appear to exist no reason why the question of the postponement of the obligations under reference should not be decided solely on its own merits; that he desired to offer no recommendations, either for or against such postponement; that he wished merely to sketch briefly certain factors in the situation which possibly might not be known to the Farm Credit Administration.

Governor Myers stated that he appreciated this evidence of cooperation on the part of the Department of State; that he wished, however, to preface the discussion by a statement that, after careful consideration of the matter, he perceived no grounds upon which could be justified a compliance with the request of the Chinese Government; that under existing rulings a postponement of any payments due to the Farm Credit Administration, which Administration, unlike the Reconstruction Finance Corporation, is an integral part of the American Government, would not be permitted unless the public interest would be served by so doing; that in this instance it did not appear that the public interest would be served; that, on the contrary, a postponement to 1960 of the maturity dates of the Chinese obligations would, in his opinion, lessen the value of the obligations and the chances ultimately of obtaining payment; that in any event the sums outstanding form a part of a revolving fund required for other purposes; and that, although he would be prepared to refrain from raising any serious objection if, due to extreme financial embarrassment, the Chinese Government should default on its payments for a period of say three to six months, the proposal, as made to him by the Chinese Ambassador, was “out the window”.

Mr. Mackay agreed that a postponement for 25 years of the date on which the account with the Chinese Government should finally be liquidated might operate to lessen the value of the obligations; that, on the other hand, there should be taken into consideration the possibility that, if postponement is not agreed to by the Farm Credit Administration, the Chinese Government may at once cease all payments. Mr. Mackay added that, if a postponement of payments should be agreed to, the funds thus freed might be utilized by the Chinese Government either to meet its general running expenses, 48½ per cent of which in 1934 was incurred by the military, or to satisfy the more insistent demands of other foreign creditors, particularly Japanese and British creditors. Mr. Mackay also pointed out that the revenues during 1932, 1933 and 1934 of the Flood Relief Surtax approximated $47,000,000 Chinese currency, which sum, at prevailing rates of exchange, exceeds materially the total indebtedness of the Chinese Government to the Farm Credit Administration.

Mr. Mackay indicated the possibility that, from the point of view of the Farm Credit Administration, the credit under discussion was confined to that of a straight business transaction; that, from the point of view of the Department of State, additional factors would have to be taken into consideration; that, as Governor Myers was aware, the silver policy of the United States had occasioned in China considerable adverse comment; and that it would be gratifying to the Department if, without endangering American interests in any way, it were found possible for the American Government to assist the Chinese Government in its endeavors to solve the perplexing problems with which it is now confronted. Mr. Mackay stated that the Chinese Government is indebted not only to the Farm Credit Administration and to the Reconstruction Finance Corporation but also to many private American creditors, in consequence of which, and in the event that the Farm Credit Administration should decide to accede to the request of the Chinese Government for a postponement of payments due on the wheat credit of 1931, the Department of State would wish to be so informed in advance of notification to the Chinese Government in order that this substantial concession to the Chinese Government might be utilized in an endeavor to effect suitable arrangements for the ultimate liquidation of other outstanding American accounts. Mr. Mackay cited, as a single example of such accounts, the so-called “Chicago Bank Loan” which matured in 1921⁵⁵ and on which no payments of any kind have thus far been made by the Chinese Government.

Governor Myers stated that he believed that he understood clearly the position of the Department of State and that, if he should decide to permit a postponement of payments due on the wheat credit of 1931, he would be prepared, before making any announcement thereof, to grant such time as the Department of State might require to make its own terms with the Chinese Government; that he greatly appreciated the very evident desire of the Department of State to cooperate with him; but that in the absence of additional factors, which might cause a reversal of the decision already reached, the proposal of the Chinese Government was, as he had previously stated, “out the window”.⁵⁶

54. The Chinese Ambassador on November 18 addressed notes to the Farm Credit Administration and the Reconstruction Finance Corporation, respectively, requesting a revision in the schedules of payments of Chinese Government obligations; neither printed (893.48/1015, 1016).
55. See Foreign Relations, 1921, vol. i, pp. 374 ff.
56. On December 2, Mr. Mackay held a conversation along the same lines with Mr. S. H. Sabin, R. F. C. Counsel (893.48/1022).