File No. 893.51/843.
The American Minister to the Secretary of State.
Peking, March 21, 1912.
Sir: Referring to my telegram of March 16, I have the honor to report that the representatives of the four groups, having been informed by Mr. Tong Shao-yi that the Nanking Government was in urgent need of funds, held a meeting to consider the possibility of making an advance of 7,000,000 taels. It was decided to supply the Nanking Government with 5,000,000 taels in March and the balance of 2,000,000 taels in April. On February 28, therefore, with the consent of Yuan Shih-kai, the President-elect of the Provisional Government, the interested banks at Shanghai paid 2,000,000 taels to the Nanking Minister of Finance, as part of the advance promised for March.
Tong Shao-yi asked the groups to advance a further sum during the month of March of 3,000,000 taels for the relief of the Peking Government, and 6,400,000 taels monthly for April, May, and June, and possibly for July and August, to be equally divided between Peking and Nanking.
For the repayment of these advances Mr. Tong stated that by July next the Government expected to be in a position to conclude a comprehensive reorganization loan which would probably be for £60,000,000, to be spread over five years—i. e., £12,000,000 each year—the security for which would be the salt gabelle, which it was proposed to reorganize on modern lines. The present income from the salt gabelle was stated to be about 47,000,000 taels per annum, which sum it was believed could easily be doubled under proper management.
It was agreed that the monthly advances requested be made against sterling treasury bills to be redeemed from the proposed loan, and that they should be secured upon the salt revenues. Mr. Tong requested the groups to prepare a draft agreement as soon as possible to cover all the requirements mentioned.
With respect to the proposed reorganization loan, the groups’ representatives pointed out that it would first be necessary to reassure the markets by a declaration of the Government’s financial policy, but agreed to refer the matter to their principals.
On March 2 President Yuan, through the Peking Acting Minister of Finance, represented to the groups’ representatives that the Peking Government was in immediate need of 1,185,000 taels, to meet which there were in the treasury but 170,000 taels.
On March 5 the four groups informed their representatives here that they would advance the required sum, 1,015,000 taels, and would concede Russian and Japanese participation in the same, but stipulated that they must have an option on further monthly requirements and on the proposed reorganization loan.
[Page 118]The telegram communicating these terms stated further that the Eastern Bank of London was trying to secure participation in the temporary advance at 8 per cent with an option on a large loan and that this was making it difficult for the groups to do the business. The groups therefore insisted that President Yuan should negotiate with them alone.
On the 9th of March the groups’ representatives addressed a letter to President Yuan, stating the terms upon which they would advance his Government 1,015,000 taels, for which he had asked to meet immediate requirements. I have the honor to inclose a copy of this letter and of President Yuan’s reply to it, dated March 9, in which he accepted the terms offered. It will be noted that the third condition provides for a firm option on the further monthly requirements of the Chinese Government, and that the fourth stipulates that the Chinese Government shall assure to the groups, provided that their terms are equally advantageous with those otherwise obtainable, the firm option of undertaking the comprehensive loan for general reorganization purposes.
On the 11th of March the groups’ representatives informed their principals that Yuan had requested a further loan of 5,000,000 taels to meet the urgent needs of Wuchang. Of this sum it was intended to employ 2,000,000 taels to pay troops and 3,000,000 taels to protect the Hupei notes issued by the former provincial government.
On March 12 the groups’ representatives were informed by a telegram from London that the four groups would advance the 2,000,000 taels required for the pay of the troops at Wuchang, but that the provincial note issue ought not to be protected by any such temporary advance.
The same day the four groups informed their representatives here of the terms on which they would agree to finance China’s monthly requirements—i. e., nine months’ treasury bills at 95½, less 1 per cent for charges other than those for printing and engraving; the groups to have preference on the £60,000,000 loan, control of the expenditures thereunder, and a stipulation that while preliminary advances were being made and until the redemption of the treasury bills and issue of the reorganization loan China should not negotiate nor contract except through the four groups.
On March 13 the group’s representatives in a telegram to their principals called attention to this last-mentioned stipulation as being capable of an interpretation that would conflict with the wording of the option—that is to say, that since the proposed loan was to be spread over five years, China by the stipulation proposed would be bound until all five series of bonds were issued not to negotiate with others than the four groups. This, it was stated, would constitute a monopoly and could be secured only by the support of the four Governments concerned.
On March 15 Mr. W. D. Straight addressed a note to the legation stating that Mr. Tong had confirmed the report that on the 14th of March an Anglo-Belgian syndicate had signed an agreement with President Yuan providing for an advance of £1,000,000 for one year at 97, with interest at 5 per cent per annum, subject to the approval of the National Assembly and to be repaid out of a larger loan to be floated later by the syndicate. The amount of this loan Mr. Tong refused to disclose. Mr. Straight requested me to protest [Page 119] formally to the President against this action as a clear breach of the engagement contained in articles 3 and 4 of the letters exchanged between the groups’ representatives and President Yuan on March 9. * * *
In compliance with your instructions, as contained in your telegram of March 16, 6 p.m., I attended a meeting yesterday of the ministers of the interested powers to consider the request of the groups that a formal protest be made. It was decided to arrange an early audience with President Yuan and to formally protest against the action taken by the President in signing the agreement with the Anglo-Belgian syndicate. Such protest seems to be imperatively demanded by the situation.
Politically, China is in a frightful condition of disorder, and financially is in danger of bankruptcy. * * * In such condition the only hope of a restoration of order is in the possibility of borrowing money abroad. On the other hand, if the Provisional Government is permitted to borrow money here and there and everywhere without check or control, there can be but one result and that an early one—national bankruptcy. There may be those who would not be sorry to see such a condition brought about, because it would compel foreign intervention, but the policy consistently advocated by our own Government rather demands the adoption of measures which will tend to save the Chinese Government from itself, prevent foolish borrowing and reckless expenditure, and assist it to maintain its credit and build up prosperity upon a solid foundation.
I have, etc.,