Foreign Relations of the United States Diplomatic Papers, 1939, The Far East, Volume III

893.51/6876

The Chinese Ambassador (Hu Shih) to the Secretary of State ⁷⁵

Washington, April 26, 1939.

My Dear Mr. Secretary: Referring to a Statement issued by His Excellency Dr. H. H. Kung, Minister of Finance, on January 15, 1939, and the Memorandum of the Chinese Embassy under date of March 23, 1939, concerning the service of the loans secured by the customs and salt revenues, I beg to enclose herewith for your information and consideration copies of telegraphic messages from His Excellency Dr. H. H. Kung, dated Chungking, April 14, 1939, and April 20, 1939, respectively.

I am [etc.]

Hu Shih

[Enclosure 1]

Text of a Telegraphic Message Received by the Chinese Embassy From His Excellency Dr. H. H. Kung, Minister of Finance, Dated Chungking, April 14, 1939

The Chinese Government will, as previously stated, meet the unpaid service as soon as conditions permit. However, the Japanese are detaining and interfering with the pledged customs and salt revenues in the occupied areas which action, together with their interference with the Chinese currency, is responsible for the suspension of loan payments and the temporary inability to pay more than fifty percent of the interest. The Chinese Government, therefore, hopes that the friendly foreign governments can prevail upon the Japanese to allow the utilization for debt service of the pledged revenues collected in the occupied areas.

The Chinese Government proposes the following temporary plan in respect of the unpaid service:

(1) The Chinese Government to issue non-interest-bearing Treasury Bills for the total amount of the unpaid service of the loan covered by the proposal. The Treasury Bills are to be considered as interim payment and not as creating an obligation additional to the coupons and drawn bonds unpaid.

(2) The Treasury Bills to be replaced by cash in proportion to the difference, if any, between the payment in foreign exchange to the bondholders and the share of the area not subject to Japanese interference.

(3) The Treasury Bills also to be replaced by cash derived from the occupied areas. It would be understood that the creditor governments in pressing the Japanese to allow the utilization for loan service of the revenues derived from the occupied areas would avoid any action—such as, acceptance of the puppet Treasury Bills or other-wise,—that might imply any question as to the maintenance of China’s sovereign rights or recognition of the bogus regime. The Treasury Bills and cash, if any, would be held by the Inspector-General of Customs and Associate Director-General of Salt as the joint trustees and would be locked up in vault under their joint control.

(4) No payment of foreign exchange would be made directly or indirectly from the trust fund without the consent of the Chinese Government.

(5) The Treasury Bills and cash would be paid on the basis of the open market rate of exchange and would be adjusted from time to time.

The Chinese Government earnestly hopes that an early agreement can be reached on the basis of the proposal in the Memorandum of the Chinese Embassy under date of March 23, 1939, supplemented by the above plan.

[Enclosure 2]

Text of a Telegraphic Message Received by the Chinese Embassy From His Excellency Dr. H. H. Kung, Minister of Finance, Dated Chungking, April 20, 1939

The proposal communicated in my telegram of April 14, 1939, enumerates various safeguards in connection with the suggested method of handling unpaid debt service. The Chinese Government attaches particular importance to the avoidance of any action that might imply any question as to China’s sovereign rights in the occupied areas or the recognition of the bogus regime. In addition, the Chinese Government would desire the friendly governments to keep in mind the points hereinafter stated in connection with any representations to Japan to allow the release of the pledged revenues in the occupied areas:

(1) In the event that the payments from these revenues fall short of covering the proportionate service of all debts outstanding before the hostilities, any payments to be received are to be considered as on account and not as full payment, thus preserving the position as to internal loans.

(2) The Chinese Government is to receive as much as possible of the pledged revenues detained by the Japanese prior to January 15, 1939, when the debt measures were announced. It will be recalled that the Chinese Government has advanced 175 million dollars to the Customs for debt service.

(3) Payment in respect of the period subsequent to January 15, 1939, is to be turned over to the Trustees mentioned in the telegraphic message of April 14, 1939, and under the conditions specified therein.

(4) In case the Japanese raise the question of the Japanese portion of the Boxer Indemnity, it should be noted that the Chinese (Government cannot pay it especially since the Japanese in effect have taken customs funds from which the Japanese portion is payable. It is, therefore, considered that they have paid themselves and, furthermore, they are holding and using the revenues rightfully belonging to the creditors of other nationalities.

(5) Payments from the pledged revenues of the occupied areas in respect of the period since January 15, 1939, should be figured at the market, rather than the official, rate of exchange.

(6) It is hoped that any negotiations undertaken by the friendly governments with Japan will be on the basis of efforts to prevail upon the Japanese to allow the utilization of the pledged revenues detained rather than the implementation of the Customs Agreement.

75. This note from the Chinese Ambassador was acknowledged by the Under Secretary of State on May 15, stating that the matter was under consideration.