893.51/3825
The British Ambassador (Geddes) to the Secretary of State
Sir: With reference to your note of March 14th18 in regard to the salt revenues of China, I have the honour to inform you that among [Page 768] the difficulties which have recently arisen in connection with the Chinese financial situation, is the question of securing loans on the salt surplus. You will be aware that the salt revenues constitute, under the agreement of 1913,19 the security for the service of the Reorganisation Loan. But when this claim has been met there remains a considerable surplus, and the Chinese Government have recently adopted the practice of securing outside loans in advance on this surplus. In particular, a considerable number of Japanese loans are secured in this way with the approval and support of the Japanese Government.
From the strictly legal point of view it may be difficult to take exception to this practice, since it is not possible, under the 1913 agreement, to dictate to the Chinese Government regarding the utilisation of the surplus which remains after the service of the Reorganisation Loan has been met.
Nevertheless, the practice appears to His Majesty’s Government to be open to serious objections. The Loan Agreement provides clearly that the group banks have a first option on the raising of loans secured on salt revenue, and the securing of outside loans on salt surplus is certainly an evasion of the spirit, even if not of the letter, of the agreement.
Such action seems also contrary to the Consortium policy, which was to concentrate financial assistance involving public loans to China as far as possible in the hands of one group, and prevent the unsound financial methods which had been brought into play by indiscriminate competition. It is clear that if the powers who were parties to the Consortium agreement were all to support their nationals in making independent loans to the Chinese Government on the security of the salt surplus, the position of the Consortium would be weakened.
In this spirit His Majesty’s Government have recently refused to support the securing on the salt surplus of two loans made by British companies, the so-called Vickers and Marconi loans, and the proposals for securing these loans consequently fell through.
Although His Majesty’s Government are aware that the United States Government did not participate in the Reorganisation Loan of 1913 they feel that the United States Government are nevertheless interested in a matter which so closely affects the present Consortium and the policy of which it is the embodiment. The attitude of His Majesty’s Government in regard to this matter is briefly that, while the Chinese Government are free to deal with released surplus payments as they please, no facilities should be given, for the reasons explained above, to enable them to mortgage future releases except to the Consortium, who may be taken for [Page 769] this purpose as the successors of the Reorganisation Loan group banks. It is clear, however, that this policy adopted by His Majesty’s Government can only be maintained by them if the other governments concerned are prepared to maintain the same attitude.
I should be most grateful, therefore, if you would be good enough to inform me of the views of the United States Government on the various questions in connection with this matter to which I have drawn attention.
I have [etc.]