893.51 Con-Ob Continental/154: Telegram
The Ambassador in China ( Johnson ) to the Secretary of State
[Received October 4—10:40 a.m.]
477. Reference Department’s No. 223 of September 15, 11 a.m. Gauss reports that Lockhart, adviser to Ministry of Finance,9 told him confidentially and [privately] that Kung was somewhat exercised over what he considered strong representations made by Peck as reported in Nanking’s September 17, 6 p.m. Other information conveyed by Lockhart was:
1. Contrary to the apparent assumption of the Bondholders Council, China was adopting no definite formula for loan settlements and would be in a further unfortunate position if she were forced to do so in the adjustment of loans carrying high interest rates such as the Japanese share of the “$96,000,000 loan”. The negotiations for the adjustment of this are apparently being conducted by the Ministry of Foreign Affairs and not by the Finance Ministry, the American financial advisers to the Finance Ministry know little of these negotiations.
Gauss points out that under pressure Japan might be able to induce China to grant better interest rates on the readjustment of her loan than those granted on other foreign loans and suggests that this might make desirable an appropriate reservation by the Bondholders Council or the Department under which, in event of any such arrangement, American loan settlements might be reopened for equally favorable revision.
2. The Vickers Marconi settlement was on the basis of cancellation of interest in arrears and then 1½ percent interest for 1936–37, increasing one quarter percent annually until it reaches 3 percent in 1942 and subsequently until fully paid.
3. Dr. Arthur Young, now on leave in Los Angeles, has been asked to proceed to Washington to discuss the Chicago Bank Loan with the Department jointly with Ambassador Sze. He has been told that Dr. Kung regrets his inability to accept the percentage principle and increase of current interest to 3 percent and 6 percent. However, Kung is prepared to pay 1.3 percent on arrears and also to reimburse the bank for the November 1920 coupon advance. If absolutely necessary China will pay the November 1921 coupon as a matter of expedience but much prefers to shorten the period of amortization to 18 instead of 20 years.
[Page 599]4. Minister of Finance told Sze, presumably as a gesture of security of the salt revenue in foreign loan adjustments, that he might mention that the Associate Chief Inspector of the Salt Revenue Administration was an American. In view of the fact that the future of foreign participation of the Salt Revenue Administration seems to be gravely threatened, Gauss suggests that the Department or the Bondholders Council may wish to consider whether they should not ask for some indication of the intentions of the Chinese Government with reference to the reorganization of the Salt Administration and the continuance of responsible foreign representation in the control of this revenue agency.
- Oliver C. Lockhart, also American Associate Chief Inspector of the Chinese Government Salt Revenue Administration. This conversation at Shanghai on September 23 was reported in detail by the Embassy’s despatch No. 757, October 6. (893.51 Con. Ob. Continental/162)↩