493.11/1983
The Ambassador in China (Johnson) to the Secretary of State
[Received April 6.]
Sir: I have the honor to refer to the Department’s telegraphic instruction No. 226, of July 29, 6 p.m. (1935),79 directing that the Embassy continue to urge strongly the setting-up of a Sino-American Claims Commission.
In this relation there is enclosed a memorandum of a conversation on this subject held by the American Ambassador with the Minister for Foreign Affairs on March 2, 1936.80 The feature in this memorandum to which the attention of the Department is particularly invited is the statement of the Minister for Foreign Affairs that the Committee for the Readjustment of Domestic and Foreign Loans had been re-organized and that the Committee would go into the whole question of internal and foreign debts, although he was non-committal on the point whether it could deal with “diplomatic claims” arising from internal disturbances. It was the evident desire of the Minister for Foreign Affairs that the American Embassy should take some solace from the fact of the reorganization of the Committee for the Readjustment of Domestic and Foreign Loans and should, on this account, refrain from pressing for the formation of a Sino-American [Page 580] Claims Commission. Other arguments, also, were advanced against the proposal.
It will be noted that, in order to soften the iterated refusal of the Chinese Government to set up a Claims Commission, or its desire that this step be at least postponed until all other methods had failed, the Minister for Foreign Affairs insisted that the Ministry was actively investigating those American claims which had been reported to it; that efforts were being made to make settlements of claims concerning which no doubt existed; and that the Ministry would do what it could to urge settlement of the various matters as soon as settlement should become possible.
On March 5 at a luncheon given for the Ambassador by the Administrative Vice Minister for Foreign Affairs, the Counselor of Embassy at Nanking81 discussed this general subject with Mr. T. K. Tseng, Administrative Vice Minister of Railways, who has long been Secretary General of the Committee for the Readjustment of Domestic and Foreign Loans. Mr. Tseng has always been frank and informative on the subject of China’s obligations when questioned by officers of the Embassy.
The gist of replies made by Mr. Tseng to questions put by Mr. Peck follows:
Mr. Tseng said that he would continue as Secretary General of the reorganized Committee for the Readjustment of Domestic and Foreign Loans. He said frankly that he did not think that the Committee as reorganized would accomplish anything more in the way of concrete progress than had the former Committee. His reasons were (1) the immensity of the problem and (2) the existence of the “Nishihara” loans.
As for the first reason, the Committee would still fear that if the Chinese Government were to attempt to settle some of the smaller debts, the Government would have the question of similar treatment of larger debts, beyond its capacity to deal with at the present time, raised in an acute form. His own idea was that some sort of beginning should be made, both by paying off some small, undisputed foreign obligations, and also by deciding on a few principles of repayment and the adjudication of other debts in accordance therewith.
In reference to the second reason, he said that the “Nishihara” loans offer some points of difference which make the formulation of uniform rules for repayment difficult. There is the question whether some of these loans are, in fact, obligations binding on the Chinese Government. Mr. Tseng said that, for his own part, he felt that it was no concern of the creditor whether the proceeds of loans ostensibly negotiated, say, for railways, were actually used for railways; that [Page 581] was a domestic matter and should not affect the question of the obligation of the Government to repay the loans. Again, whereas bond issues are often issued at a considerable discount, the “Nishihara” loans were for the most part paid to the Chinese Government at a rate of 100%. Although the Chinese Government might conceivably decide to repay bond issues at a rate scaled down to what the Government received, it would be somewhat unfair to scale down the “Nishihara” loans, yet if they were not scaled down other creditors might demand payment of the face value of their loans.
Mr. Peck mentioned that he had been reliably informed that a Japanese diplomatic official had recently stated that Japanese firms had claims against Chinese railways, based on unpaid loans, aggregating $500,000,000 Chinese currency and he asked Mr. Tseng whether he thought such claims could conceivably amount to that sum.
Mr. Tseng said that it was possible that, from the Japanese viewpoint, Japanese claims against Chinese railways reached this high figure. He pointed out that a loan at eight per cent (8%) compounded for twenty years more than quadrupled in amount, and he thought it possible that Japanese loans ostensibly for railway purposes aggregated more than $100,000,000.
I have the honor to explain that the remark quoted above as having been made by a Japanese official was reported by Mr. C. Yates Mc-Daniel, of the Associated Press. Mr. McDaniel when conversing with Mr. Y. Suma, Secretary of the Japanese Embassy, on or about February 29, had been told by the latter that the Japanese Government viewed with grave concern the reports of other than Japanese foreign railway projects in China, because Japanese firms held claims against Chinese railway revenues more than $500,000,000 in amount.
Mr. Peck called attention to the fact that the Ministry of Finance had recently authorized the Bureau of Engraving and Printing in Peiping to negotiate with Japanese creditors an arrangement to pay them Yen 4,500,000 in settlement of a loan of Yen 2,000,000, made in 1918 (See Embassy’s despatch from Peiping No. 84, of November 13, 1935, entitled “Nishihara Loans”82). Mr. Tseng said he thought that probably the amount to be repaid was not more than twice the amount of the loan, since the Ministry of Finance had made it a rule not to recognize accretions to a loan amounting to more than 100% of the loan itself.
Respectfully yours,
Counselor of Embassy
- Foreign Relations, 1935, vol. iii, p. 762.↩
- Not printed.↩
- Willis R. Peck.↩
- Not printed.↩