811.42700 SE/7–847: Telegram

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

1483. Foreign Office has now repudiated the agreements made by Minister of Education as contained in Embassy’s 1350, June 20 and has proposed number of additional changes as follows:

Article I—The name of the Foundation “United States Education Foundation in China” to be changed to read “Sino-American Educational Foundation in China”.
Article II—Section 5 to be deleted to ensure that the entire fund of $20,000,000 be spent within 20 years. It is the Foreign Minister’s fear that the holding of property by the Foundation would leave a residue which the Chinese Govt would consider undesirable. Minister further states that he sees no reason why Foundation should hold real property in any event.
Article IV—To insert at the beginning of article IV the following paragraph: “The Foundation shall plan its annual programs in such a way that use shall as far as possible be made of the funds made available for each year. In case of a surplus from the funds of any one year, it shall be devoted to the program for the following year”. Also, in view of the deletion of section 5 of article II also to delete that phrase in article IV which reads “nor acquire, hold or dispose of property except for the purpose authorized in present agreement”.
Foreign Minister further proposes that the Chief of Mission shall be chairman of the board rather than honorary chairman in order to lend the Foundation the necessary prestige. He fears that if the chief public affairs officer of the Embassy is chairman, the Foundation will not be taken with sufficient seriousness by Chinese public opinion. Minister further proposes that the board shall be composed as follows: “The other six members of the board shall be as follows: (a) Two members of the Embassy staff, one of whom shall serve as treasurer; (b) one citizen of the U. S. of America; and (c) three citizens of the Republic of China, two of whom shall be prominent in the field of education”.
Minister proposes following additional changes in article V, paragraph 2, after the phrase “U. S. members shall be designated by the Chief of Mission,” the following to be added, “and may be removed at his discretion”; phrase “Chinese members by the Chief of Mission from a list of names submitted by the Govt of the Republic of China” be amended to read “Chinese members shall be selected by the Chief of Mission from a list of names recommended by the Ministry of Education [Page 1280] of the Republic of China and may be removed only after consultation with the said Ministry”.
Article XI—The last sentence therein to be amended to read “The rate of exchange to be used in determining the amount of national currency which shall be considered equivalent to $250,000 (U. S. currency) shall be the official rate of exchange prevailing at the time each deposit is made.” Minister states that Chinese law cannot permit an exchange rate other than the official one to be quoted in any written agreement.
Articles XII and XIII to be deleted since the Chinese Govt cannot agree to tax exemption for persons or property other than diplomatic.

It is apparent from the proposed changes that the only really serious point of difference is on the composition of the board of directors. Foreign Minister states that he feels very strongly on this point, that he can under no circumstances accept agreement made by the Minister of Education. He says he realizes that this Foundation differs from the Boxer indemnity remissions and that the funds to be utilized are credits of the U. S. Govt for which the Govt of China has no direct responsibility, but that it will be impossible to explain these distinctions to Chinese public opinion which will consider the Chinese Govt has in fact a direct responsibility since the credits (sic) were made available by the Chinese Govt and further that a lack of Chinese vote on the board would be interpreted as a lack of interest. He therefore insists that there shall be three Chinese votes and states that he cannot entertain a proposal that Chinese participation be solely advisory.

Embassy believes there are actually two considerations involved in his thinking; one is the question of face and the second is that of extremely heavy pressure from the various Chinese organizations to have a hand in expenditures from this fund. The Chinese ability to influence the uses to which the fund would be put would be seriously weakened should Chinese participation be purely advisory, whereas having 3 out of 7 votes—the seventh being that of the Chief of Mission—would enable them to present to their own countrymen a Chinese versus American bloc with readily exploitable possibilities.

It is precisely this sort of position which reinforces the Embassy’s conviction that the Chinese vote on the board could only be productive of conflict and embarrassment. The Embassy’s position at the present moment is admittedly weak and difficult since, as the Minister was quick to point out, the stand which he is taking is only a mild variant of the original Departmental proposal to the Chinese Embassy in Washington, on which Embassy was not consulted and from which Dept and Embassy now wish to withdraw. It is further apparent that the Embassy’s position is made more difficult by the fact that the Dept has been holding conversations on this question with the Chinese Embassy [Page 1281] in Washington, the nature of which the Embassy is unaware, and which the Chinese are now attempting to exploit for their own ends. It is the Embassy’s conviction, therefore, that the present impasse can only be resolved by the Dept in Washington or else that the Embassy should be given full authority to continue the negotiations in Nanking with a consequent elimination of Chinese officials in Washington from the picture.

Dept’s instructions are requested.