File No. 893.51/1427.
The American Chargé d’Affaires to the Secretary of State.
Peking, May 6, 1913.
Sir: Supplementary to my telegram of April 27th, 10 a.m., I have the honor to report that the reorganization-loan contract, the negotiation of which has occupied over a year, was signed by the representatives of the Chinese Government and those of the Quintuple Group of Bankers on Sunday morning, May 4th,1 between three and four o’clock, at the local office of the Hongkong and Shanghai Banking Corporation.
The amount of the loan is £25,000,000; the term 47 years, and the interest is 5 per cent per annum. Amortization is to begin in the eleventh year. The issue price to the public is to be not less than 90 and the amount to be paid to the Chinese is to be not less than 84. £500,000 was to have been paid over to the Chinese Government immediately.
The contract provides for a British associate chief inspector of the salt gabelle, for a French and a Russian adviser to the bureau of audit, for a German director of the bureau of foreign loans, and for a German deputy inspector of the salt gabelle to reside at Shanghai.
The first-named position will be filled by Sir Richard Dane, who has been inspector general of salt excise for India since 1907. The Russian adviser to the bureau of audit is to be a Mr. Konovalof, a commissioner of customs in China for some years past and now stationed at Harbin. The French adviser who will be recommended to fill the proposed position in the audit bureau will be M. Padoux, a former member of the French consular service and is now ranked as Minister Plenipotentiary and is legal adviser to the Siamese Government. I understand, however, that there still remain a few minor conditions to be settled before M. Padoux definitely accepts the appointment. The German director of the bureau of foreign loans will be Herr Rumpf of the Chinese customs service, who was employed in a similar capacity during the expenditure of the advances made by the sextuple group last year. Mr. Rumpf is in Peking ready to assume office as soon as the initial payment has been made by the bankers. The German deputy inspector of the salt gabelle with station at Shanghai has not been selected. I am confidentially informed that the candidate of the Chinese for this position is a Mr. Arnold of the Reichsbank, Berlin. Pie knows nothing about China or the Chinese, nor has he had any experience in salt administration. The Chinese state, however, they favor him for his financial experience. Herr von Strauch, who has been in the Chinese customs service since 1899, and is now commissioner of customs at Chungking is the German preferred by the German Legation here for the position.
The signing of the loan at such an unseemly hour as three a.m. was evidently due to the fear of the bankers that delay might result in the conclusion of a loan or loans with other banks. It was known that other loans were under consideration. One, a six per cent £3,200,000 loan with an Austrian syndicate, or an Austro-Belgian syndicate, [Page 181] had already been signed; and one for £30,000,000 with certain British banks was said to have been initialed.
When the bank representatives connected with the quintuple loan learned of the last mentioned loan they began at once to urge the Chinese to sign the contract with them, and the interested Governments also brought pressure to bear upon the Chinese officials. In the meantime, the Minister of Finance, as reported in my number 827 of April 25, 1913,1 disappeared, and rumors of flight caused by fear of assassination became current. It appears, however, that Mr. Chou had gone to Tientsin to negotiate other loans. Among these, it is said, he signed one with an American syndicate for £6,000,000 at 5 per cent and to be secured upon the wane and tea taxes. I am unable to confirm this report at present. The same American syndicate is reported to have undertaken the negotiation of a large loan, namely £20,000,000.
The Minister of Finance returned by special train to Peking on Friday night, May 25th, and the next day resumed negotiations with the quintuple group. When the contract was about to be initialed he presented a list of outstanding loans, as he was required to do; and this created such consternation among the bankers that for a time it seemed possible that the contract might not be signed. The group representatives were not at all pleased with the evidence that the Minister of Finance had signed loans with other banks while negotiating with them. Eventually, however, the group representatives yielded and the contract was initialed. It was then arranged that the instrument should be formally signed at ten o’clock that evening.
When the President and the Vice-President of the newly organized Senate, both members of the Kuomintang, heard, on Friday night, of the return of the Minister of Finance, they sought an interview with President Yuan, but they were told that the President had retired and therefore was unable to receive them. These two officers of the Senate then wrote letters to the President and to the Minister of Finance protesting against the signing of the loan contract before it had been submitted to the National Assembly for approval.
The next morning the President sent his Secretary, Mr. Liang Shih-yi, to labor with the two presiding officers of the Senate, in an endeavor to dissuade them from making further trouble regarding the completion of the contract. Mr. Liang said that the loan contract was already signed and that the Government was badly in need of the money. It was also pointed out that the loan contract was substantially the same as the one which had already received the approval of the Advisory Council, whose obligations had now passed to the National Assembly. This, however, did not satisfy the two senators. Later, when it developed that the contract had not been signed, but had been initialed only, the two senators were furious. They called at the offices of the Hongkong and Shanghai Banking Corporation at 10 p.m., and urged the bankers not to sign a contract which without the approval of the Assembly would be unconstitutional, but the bankers refused to be moved by these protests.
The President and Vice-President of the Senate then went away and gathered a delegation of senators of their own party with whom they returned, to make further objections. They were, however, refused [Page 182] admission to the bank, and, as a measure of precaution, the bank telephoned for extra police. There was really no need of such action, since the visitors were gentlemen, unarmed, and they had no intention or desire to create disorder. At about 3.40 a.m. the contract was signed and the crowd dispersed.
The leaders of the opposition, namely, the Kuomintang, promptly telegraphed to their party associates throughout the country, and the next day telegrams denouncing the Government for its alleged unconstitutional action began to arrive. This action apparently made no impression on the central authorities. They appeared to be ready and willing that the terms of the contract should be fulfilled.
I am informed that the £500,000 which was to have been immediately advanced to the Chinese has not yet been handed over. One reason given for the non-fulfillment of this feature of the contract is that the Chinese Government has already received $5,000,000, local currency, from the Austrian or Austro-Belgian syndicate, and will receive two more weekly installments of the same amount. The group representatives, fearing that this six per cent loan will be placed on the market ahead of their own five per cent loan, to the detriment of their loan, desire to reach an understanding which will delay the issue of the six per cent loan.
Another reason advanced is that the quintuple syndicate is awaiting the outcome of the Balkan situation before making any advance whatever.
With reference to the attitude of the south towards the loan, the Legation learns through the several consulates that, with the exception of Canton, the opposition seems to be confined to the political leaders of the opposition party. The Consul General at Canton telegraphs that the loan meets with much opposition officially.
Since writing the above, I have been confidentially informed that on account of the delay of the quintuple group in making the initial payment of £500,000, the Chinese have resumed secret negotiations with the local representative of the group of British banks outside of the consortium, for the loan of £30,000,000, mention of which is made earlier in this despatch. My informant states that if the British banks are able to make an immediate payment of the £500,000 required, that no further efforts will be made by the Chinese to satisfy the conditions of the quintuple group which require the shelving of the Austrian or Austro-Belgian loan until the quintuple loan has been marketed.
On account of the opposition to the loan in the south, and since both the Senate and the House of Representatives have disapproved of the irregularity on the part of the Government in signing the loan without referring it to the Assembly, it is possible that the Government will be glad of an opportunity to break with the quintuple group, and seek funds elsewhere.
I have [etc.]