893.51/6296: Telegram

The Chargé in the United Kingdom ( Atherton ) to the Secretary of State

57. Cadogan30 sent for me today and said he wanted to discuss the China Consortium,31 the formation and purpose of which he developed at some length adding that in its present form, instead of promoting the economic progress of China as its authors intended it was an obstacle which stood in the way of such action. He then went on to explain the reasons for which the Chinese have always regarded it with dislike and suspicion and pointed out that ways were now open to the Chinese to obtain money outside the Consortium. He mentioned a number of agreements for financing the import of materials signed with German, French and Belgian groups.

He then pointed out that Sir Charles Addis32 after consultation with the British Government had addressed to the other members of the Consortium on October 1st last (and again on January 20 [21?] of this year) a letter33 regarding the rescission of the open tender resolution adopted by the Consortium Council on May 15, 1922;34 today the principle of open tender conflicted with the existing restrictions on foreign lending in the United Kingdom. He then handed me a lengthy memorandum which covered the same ground as his remarks and which ends as follows:

“Therefore it seemed to His Majesty’s Government that if the Consortium were to be free to negotiate loans with China, an essential preliminary must be the rescission of the resolution relating to open tender. The other groups have either not yet replied to Addis’ proposal or have refused to accept it.

[Page 569]

While this point yet remained unsettled the Chinese Government put the whole question of the Consortium in issue by making an offer to British interests of a contract for the construction of a railway line from Canton to Meihsien a town near the Fukien border not far from Swatow. On being informed that the British Group would have to offer a share of this contract to its Consortium partners the Chinese authorities expressed strong objection to any dealings whatever with the Consortium and, after hearing from Japanese sources that the Japanese wished to participate, refused to continue discussions on these lines. They have indicated that if the British interests approached are not willing to negotiate a purely British loan to China they will open negotiations with German or French groups.

It would seem therefore that the continued existence of the Consortium in its present form is in fact defeating its own object. It is preventing the members of the Consortium from participating in the economic rehabilitation of China and it is impeding instead of assisting such rehabilitation. In these circumstances His Majesty’s Government desire to consult frankly with the United States Government in order to ascertain their views on the whole subject and discover whether there is any method by which, while restoring to its individual members the required liberty of action as regards industrial enterprises, the major object of the Consortium could be attained by keeping in being cooperation between the governments concerned (including the Chinese Government).

An additional reason for entering upon a full consideration of a frank consultation as regards the policy which the United States Government and His Majesty’s Government should now pursue in regard to the Consortium is to be found in the fact that, as His Majesty’s Government understand, the American Group, at any rate as at present constituted, could not in fact take any active share in a Consortium operation.

His Majesty’s Government for their part would have been willing to cooperate in attempting to revise the existing Consortium agreement to take account of the actual conditions that prevail today if there were any prospect of obtaining the good will of the Chinese Government for such revised arrangement. Having regard, however, to the attitude of the Chinese Government it appears to them that no good purpose would be served by attempting to proceed on these lines and in their opinion the agreement should now be dissolved by mutual consent. They understand that in the view of the banking groups the initiative in this matter should come from the governments concerned and His Majesty’s Government hope that they may be acceptable to you to obtain the agreement of the Government of the United States.

His Majesty’s Government have thought it desirable to submit the whole position to the United States Government before approaching the other governments concerned and they hope to be favored with an early expression of the views of the United States Government.”

The full text35 goes forward in next pouch Steamship Bremen, February 13.

  1. Sir Alexander Cadogan, British Deputy Under Secretary of State for Foreign Affairs.
  2. For the China Consortium Agreement of October 15, 1920, see Foreign Relations, 1920, vol. i, p. 576.
  3. Representative of the British Group of the China Consortium.
  4. Neither printed.
  5. See report of the Council of the Consortium, paragraph 30, Foreign Relations, 1922, vol. i, pp. 773, 778.
  6. Not printed.