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

No. 1721

Sir: The Department refers to previous correspondence in regard to the service of the Hukuang Railways Loan of 191131 and in connection therewith encloses, for your information and consideration, a copy of a letter under date July 18, 1935, together with enclosures,32 received by the Department from the American Group of the China Consortium.33

In its consideration of the correspondence attached hereto, the Department has noted with interest the statement of the Ministry of Finance to the effect that, except for the payment by appropriation from the Salt Revenue of one yearly installment of interest due on Hukuang bonds, the Ministry of Railways will have to make their “own arrangements for the payment of the accumulated arrears of principal and interest”; the statement of the Ministry of Railways that “on account of the extraordinary shortage of funds it is really impossible to arrange any payment for the present”; and the statement made to the National City Bank by the Hong Kong and Shanghai Banking Corporation to the effect that, in view of the fact that four strong protests were lodged during 1935 in regard to defaults in the service of the Hukuang Loan, the lodging of further protests at this time would be inadvisable.

The Department has also noted with particular interest the copy of the letter of May 30, 1935, addressed by the Shanghai branch of the National City Bank to its New York office, wherein it is reported (a) that, according to Mr. C. J. Carroll,34 Governor Forbes35 informed General Chiang Kai-shek to the effect that China cannot expect the United States even to consider the granting of further assistance until Chinese loans now in default are placed in good standing, and (b) [Page 762] that, according to the same source, General Chiang Kai-shek stated his intention “shortly to appoint a foreign executive committee to run the railroads of China”.

The Department would appreciate the receipt of any information which the Legation is in position to offer in regard to the foregoing, with particular reference to the proposal that there be created a foreign executive committee “to run the railroads of China”.

Very truly yours,

William Phillips
  1. For signing of the loan agreement by a four-power banking group (American, British, French, German), May 20, 1911, see Foreign Relations, 1912, p. 87.
  2. None printed.
  3. For text of the China Consortium Agreement, October 15, 1920, see Foreign Relations, 1920, vol. i, p. 576.
  4. Vice chairman of the American Economic Mission.
  5. Chairman of the American Economic Mission.