Foreign Relations of the United States Diplomatic Papers, 1937, The Far East, Volume IV

893.51 Con-Ob Continental/185: Telegram

The Ambassador in China (Johnson) to the Secretary of State

Nanking, March 23, 1937—noon.
[Received 3:05 p.m.]

131. My 122, March 19, 10 a.m.⁹⁵ Letter dated March 20 from Kung, Minister of Finance encloses draft offer for Chicago Bank loan settlement prepared in response to telegram dated March 15 from the Foreign Bondholders Protective Council and also an explanatory memorandum. He requests that these documents be communicated to the Council and to the Chinese Ambassador. Texts follow:

“March 20, 1937, draft Chicago loan announcement.

His Excellency the Minister of Finance (or the Chinese Ambassador under instructions from his Government) announces the following offer concerning service of the Treasury notes of 1919 (the so-called Chicago Bank loan) of United States dollars 5,500,000:

1. Interest is to be paid at the rate of 2½% per annum for the 3 year period commencing November 1, 1936, and at the rate of 5% per annum as from November 1, 1939, payable semiannually May 1 and November 1.

2. Noninterest bearing scrip is to be issued in respect of: (a) arrears of interest computed at one-fifth of the contractual rate, simple interest, from May 1, 1921, to November 1, 1936; and (b) one-fifth of the difference between 2½% interest to be paid for the period from November 1, 1936, to November 1, 1939, and 5% to be paid thereafter.

3. Payments of principal of the notes and of installments of the scrip are to be made on June 1 of each year beginning in 1942 according to the following schedule: in 1942 and 1943, 5% each; in 1944 and 1945, 6% each; in 1946 and 1947, 7% each; in 1948 and 1949, 8% each; in 1950 and 1951, 9% each; and in 1952 and 1953 and 1954, 10% each. The Government upon reasonable notice and without premium may increase the amount of principal to be retired on any payment date. The notes are to be retired by drawings at par to be effected by the fiscal agent of the loan in the month of August prior to each date on which drawn notes are to be paid.

4. Payment of interest and principal is to be made out of the salt revenue after making provision for charges existing as of blank (announcement date) and in priority to all charges that may be created subsequent to that date.

5. Holders accepting this offer will present their notes for attachment of new coupon sheets, on the stub of which the text of this offer will be printed. Since the new coupon sheets will not be ready by May 1, 1937, interest will be paid on that date against delivery of the last unpaid coupon attached to the notes.”

“March 20, 1937. Memorandum supplementing points contained in the draft announcement:

1. The text of the offer would be printed on the stub of the new coupon sheets and pasted on each note, the caption to be: ‘offer announced by the Chinese Government (blank) date. By presenting note number (blank) for the affixing of this sheet the holder accepts all the terms and conditions of this offer’. The new coupon sheets also scrip certificates would bear numbers corresponding to numbers of the original notes.

2. Coupons would contain the loan title with the following in parenthesis below: ‘payments in respect of this loan will be made in accordance with the offer announced by the Chinese Government (blank) date.’ The following also would appear on each coupon: ‘coupon for United States dollars (blank) payable to bearer on (blank) date at (blank) (name and address of paying agent)’, together with facsimile signature of the Minister of Finance.

3. In view of the history of these obligations the Government considers that the issuing bank’s successor would be the logical institution to act as fiscal agent for the notes, also as agent for stamping bonds and issuing new coupon sheets and scrip and further to assist Ambassador in meeting Stock Exchange requirements. Kindly ascertain informally and advise whether bank would accept invitation so to act. The Government would pay the expenses of engraving new coupon sheets and scrip.

4. Salt revenue collections are stated on page 7 of the Finance Ministry report published in 1936. Last year’s collection was dollars 205,433,000.

5. Apart from the 1898 Anglo-German loan, Boxer indemnity and 1930 reorganization loan which enjoy certain liens on salt revenue but are now paid from customs, the following loans charged on salt revenue are being paid therefrom: Anglo-French loan of 1908, pounds 4,000,000; Hukuang loan approximately pounds 5,650,000; Crisp loan of 1912 approximately pounds 3,900,000; Vickers and Marconi Treasury notes approximately pounds 3,400,000 (under 1936 settlement); total principal approximately pounds 12,450,000. Total yearly service requirements from salt revenue in respect of these loans assuming Hukuang settlement completed as agreed in principal would be about pounds 904,000 in 1937; pounds 912,000, 1938; pounds 812,000, 1939; pounds 834,000, 1940; and not exceeding pounds 750,000 thereafter. In addition there are loans not now being paid having claims on salt revenue, to wit, Tsingtao Treasury notes principal approximately 1,300,000 and Japanese portion of 96,000,000 loan principal approximately 32,000,000; and about Chinese dollars 48,000,000 in respect of certain internal obligations contracted by the former Peiping Government before 1925.

6. There are four other loans secured to some extent on other than salt revenue but predominantly on certain subsidies from salt revenue and/or on special salt taxes the proceeds of which subsidies and/or taxes the National Government granted to provincial authorities in consolidating its administration of salt taxation as a national revenue. These loans are thus of different category than those enumerated in paragraph 5. The outstanding total of these loans is approximately Chinese dollars 91,000,000.”

Sent to the Department, copy by mail to Peiping.

Johnson

95. Not printed.