893.51/4951: Telegram
The Minister in China (MacMurray) to the Secretary of State
[Received 9:10 p.m.]
346. My 324, August 12, 11 a.m., paragraph number 4.36
1. Following note has been transmitted to the Ministry for Foreign Affairitem: [Page 958]
“The American Legation presents its compliments to the Ministry of Foreign Affairs and has the honor to state that it has received information indicating an intention on the part of the Chinese authorities concerned to issue now [new?] domestic loan bonds to a par value of silver dollars 25,000,000 for the purpose of meeting administrative expenses and for the redemption of certain short-term domestic debts. It is understood that the security for this loan is to be approximately silver dollars 11,000,000 per year at present paid from the Maritime Customs revenues for the service of the 9th-year domestic loan which, allowing for the postponement of amortization dates, is due to become extinguished in 1927.
In these circumstances the Legation finds it necessary to remind the Chinese authorities once again of the unfulfilled liabilities in respect of the arrears of service of the Chinese governmental obligations due to American citizens and companies. The list is long and should be well known. It includes the American share in the Hukuang Railway loan; also loans made by the Continental and Commercial Trust and Savings Bank, the Pacific Development Corporation, the Riggs National Bank and the Munsey Trust Company. Other accounts which are entirely in arrears are also due to the following American creditors: American International Corporation; American Locomotive Company; American Metals Company; American Trading Company; Anderson, Mayer and Company, Limited; Ault and Wiborg China Company; Baldwin Locomotive Works; China American Trading Company; China Electric Company; Fearon Daniel and Company; Fowler and Company, W. W.; Frazer and Company, E. W.; General American Car Company; Robert Dollar Company; United States Steel Products Company; Wilkinson and Company, T. M. These creditors whose claims are long past due have all either supplied materials to various departments of the Chinese Government or made advances to them. In addition to the above list there are also a large number of American firms and individuals to whom are owed various sums in compensation for looting outrages committed by military and bandits for damages to property and for loss of life.
The Legation would also remind the Chinese authorities that under the terms of the agreements for many of the American obligations the Chinese Government engaged, in the event of a default or of the specific security pledged becoming ineffective, to provide from other sources the sums necessary for payment of principal and interest. The Legation must therefore point out to the Chinese authorities that these debts to American citizens and organizations are thus entitled to an automatic priority over debts subsequently contracted respecting the use of any customs surplus funds which may become available as a result of the retirement of loans hitherto secured on customs revenues. The Chinese authorities, having failed to make effective the guarantees provided in various loan agreements and contracts for the purchase of materials, now rest under the manifest duty to make provision for the defaulted payments from any available excess of customs surplus resulting from the extinction of a consolidated loan charge such as the 9th-year domestic loan.
The Legation specifically denies the justice of the position adopted by the Chinese Government to the effect that the consolidated domestic [Page 959] loans enjoy a preferential right to the use of customs surplus funds after services of the pre-Boxer loans, the Boxer indemnities and the reorganization loan of 1913 have been met.
The American Legation therefore insists that the Chinese authorities concerned have no right to utilize as the security for new domestic financing the amount of approximately eleven million dollars per annum to become available upon the extinction of the 9th-year domestic loan and could only regard any such action taken by the Chinese authorities as a further failure to observe good faith towards the American creditors of China. The American Legation therefore emphatically protests against the issuance of the reported $25,000,000 domestic loan bonds.”
2. Copies of note have been sent to British, French and Japanese Legations for identic action if they feel so inclined. Copies will be given to press tomorrow.
3. Repeated by telegraph to Tokyo.