693.002/864: Telegram

The Consul General at Shanghai ( Gauss ) to the Secretary of State

650. Charles R. Bennett, representative of American Group, has handed me the following memorandum prepared by Cassels of the British Group:

“Under present conditions it is fairly certain that before the end of this month the customs revenues will be insufficient to provide for more than the regular customs loans, that is, the foreign loans and indemnities, and there may even be a reorganization by the Chinese. It is suggested that representations should be made to urge that the whole of the customs revenues should from this date be paid directly to a foreign bank as trustees for bondholders. This, moreover, might have the effect of maintaining the integrity of the customs service should the Japanese propose to interfere. It could further be arranged that any surplus revenue over and above the foreign loans would be held either for the domestic loans and the other self-secured loans (railway loans) of [or?] revenues. The question of reserve of loans can perhaps be arranged by the trustees in consultation with the I. G.83 of Customs.

Representations of the above lines might be made to the best advantage by our Ambassadors and representations might also be made in Tokyo, asking the Japanese Government not to endanger the customs service and the loans which are held so widely in many countries.

Similar action might be recommended in regard to October salt quotas for loan service.”

Bennett states that this memorandum has been presented to the British Ambassador and is also to be presented to the French Ambassador who is due here today. He asks me to present it to you. Bennett is cabling the American Group requesting their authority to [Page 861] agree to the appointment of the Hong Kong and Shanghai Banking Corporation as trustee for the bondholders—both salt and customs loans—the Banque de l’Indo Chine and the National City Bank to participate equally as sub-depositaries and sub-trustees. He states that it is evident that a proposal of more than one main trustee which must then include the Japanese bank would be immediately refused by the Chinese Government. He has added a note that the matter of identity of the trustee in question is open, it having been suggested that Sir Frederick Maze84 be made trustee.

Sent to Nanking, repeated to the Department.

Gauss
  1. Inspector General.
  2. British Inspector General of Customs in China.