893.51/6087
The Ambassador in China (Johnson) to the Secretary of State
[Received February 25.]
Sir: I have the honor to refer to a despatch addressed to the Department by the American Consul General at Shanghai, No. 107 of January 20, 1936,72 on the subject “Slump in Chinese Government Bonds Causes Alarm”. On January 15, in the course of a conversation I held with Dr. H. H. Kung, Minister of Finance, in reference to another subject, he told me that he had been trying to do something in the direction of liquidating British and American loans now in default. He said that he had proposed to the British and Germans [Page 576] the replacement of Tientsin–Pukow Railway bonds in default with new bonds redeemable in thirty years and at a lower rate of interest than the present bonds. The plan would provide for the payment of interest only for the first five years and thereafter for payment of interest and gradually increasing payments on capital.
Dr. Kung said to me that the object of his plan was to protect the interests of holders of bonds now in default and that he had proposed a similar plan for adoption in the case of the Hukuang Railway bonds, one semi-annual payment of interest on which bonds has been in default for a long time. This proposal, he said, had been handed to Mr. Charles R. Bennett of the National City Bank in Peiping, who had just landed in Shanghai after a journey to the United States and intended to remain in Shanghai for a few days. The Minister of Finance said, also, that he had directed the Chinese Ambassador at Washington to discuss with the Chief of the Division of Far Eastern Affairs of the State Department and with Mr. John Jay Abbott of the Continental-Illinois National Bank and Trust Company, a similar plan to take care of the “Chicago Bank Loan” of 1916.
Dr. Kung made it appear that these schemes were praiseworthy efforts to make good existing deficiencies in the handling of its foreign obligations by the Chinese Government, but apparently these efforts are at the bottom of the rumors of tampering with Chinese bonds and have occasioned the public uneasiness which is described in the despatch of January 20, 1936, from the American Consul General at Shanghai.
My conversation with Dr. Kung has been reported elsewhere, but it seems desirable to invite special attention to his remarks concerning the bond situation, as is done in the present despatch.
Respectfully yours,
Counselor of Embassy
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