493.11/842
The American Group to the Secretary of State
[Received August 9.]
Sir: Acknowledging further your esteemed favor of July 29th, (FE–493.11/835),41 with its enclosure, we hand you herewith for your information copy of cable42 just sent to London in which, as you will note, we approved the form of reply which the British Group, in behalf of all the Groups, proposed in its cable42 (copy of which we sent you with our letter of August 1st42) to transmit to Peking; and we have added to our approval of such message the [Page 784] reiteration of the position of the American Group on the subject of possible banking advances.
The Department is already fully aware of the fact that, as hitherto frequently explained, the American Group is able to advance money to the Government of China only by means of loans, the character of which renders it possible, properly and successfully, to offer them to American investors.
Speaking in general, we trust that the conversations at Peking will continue and that it will be possible to work out the details of some consolidation and refunding plan which will serve to bring an end to the present vicious circle which, for a long period past, the Chinese Government has followed.
We are convinced that, as to Chinese finance, no palliative measures are either feasible or useful. To make our point clear, for instance, we refer to the expression in the American Minister’s cable of May 24th last,43 in which he indicated the feeling of the Ministers in Peking to the effect that unless advances were forthcoming to the Government the present administration would be likely to fall. Now, so far as the American Group is concerned, it should be made clear that it has no funds to advance in order to bolster up a tottering Chinese Government; nor, in any event, would the Group consider any such policy as within its province. It may well be that the other national banking groups are in a position different from that of the American Group. For instance, the British and French Groups are both composed of very few institutions, not over six in each Group, large, powerful banks, generally with long established businesses in the Far East, and with close political and governmental associations. For years, possibly for generations, such banks as these have perhaps been accustomed to make, from time to time, such advances as are suggested; being directly located on the ground and having means of security and payment not available to other banks not so local.
The American Group is in quite a different position. It is composed of approximately forty institutions and banking houses scattered throughout the country, few if any of which have any direct or active business in the Far East. The Group was formed at the instance of the Department of State for the purpose of endeavoring to serve [save?] the situation and to assist in maintaining the door in China open to American trade. To this end the Group is prepared to do all that it can within the limitations imposed upon it by the charters or traditions under which its members function. Its banks, for instance, cannot buy for their own account blocks of Chinese Government securities, unless they can see their way clear to an early resale of such securities to the American investing public. It is contrary [Page 785] to the sound practice of American banks to place their funds in uncurrent securities. They will not begin the practice now. Therefore, if they are to help the situation it must be, as we have stated, through the medium of such loans as they can properly sell to American investors.
The upshot of all of this is that if and when there is a Chinese Government that is able to discuss with the Peking representatives (including the representative of the American Group) some tangible consolidation plan which takes care of Chinese Government obligations, due and overdue, and which provides for a reasonable scheme of sound finance for the future, then and only then we feel that the American Group is in a position to render a very large service to the situation. As we see it, however, it is worse than useless to give any Chinese Government the impression that we can interest ourselves actively in half-way measures that really fail to meet the situation.
We apologize for having written at such length, but inasmuch as the Department requested our comment we feel that the opportunity is open to give it in some detail, so that the Department could in due course, if it desires, forward the gist of these views for the consideration of the American Minister.
Respectfully,
For the American Group