800.503193/19
Memorandum by Mr. Raymond C. Mackay of the Division of Far Eastern Affairs
Mr. Monnet99 stated that the China Development Finance Corporation is progressing favorably; that an example of the sort of service which the Corporation intends to render may be found in its present participation, in conjunction with the Hong Kong and Shanghai Banking Corporation, in the flotation, on behalf of the Ministry of [Page 422] Railways, of a $16,000,000 bond issue for the completion of the Shanghai–Hangchow–Ningpo Railway; that the bonds, which bear interest at 5½ per cent, will be issued at 95 or 96; and that applications already received indicate that the issue will be greatly over-subscribed on the Shanghai market.
Mr. Monnet stated that the Corporation is also giving careful consideration to the question of facilitating the purchase by China of urgently required materials of foreign manufacture such as, for example, those now needed for the rehabilitation of Chinese railways; that due, on the one hand, to the Chinese Government’s failure to effect payment of its long outstanding obligations and, on the other hand, to the fact that only through the extension to it of credits is the Chinese Government able to effect large-scale purchases, an impasse has been reached which the Corporation aims to eliminate; that the plan which the Corporation now has under consideration would operate somewhat as follows: an American firm, for example, would sell to China, subsequent to investigation and approval by the Corporation, a substantial order of goods on a five-year credit basis; the Corporation, which would make the necessary arrangements for such sale and for the collection of monies as due, would discount with its member banks sufficient of the buyer’s obligations to obtain a cash payment of approximately one-third of the amount of the transaction, which payment would at once be transmitted to the American seller; the American seller would go to the Export-Import Bank, where, if the project received approval, the seller would receive a cash advance of possibly another one-third, or more, of the amount of the transaction, thus requiring the seller to finance the deal only in such part as would not greatly exceed the profits involved. Mr. Monnet stated that he had today discussed with Mr. Talley1 and Mr. Peek and others the question of obtaining the cooperation of the Export-Import Bank as above indicated and that approval in principle had been expressed to him (Mr. Monnet) although it was stated that each particular case as it arose would require individual study and sanction by the Bank.
Mr. Monnet expressed the feeling that the Corporation would prove of great benefit to all concerned; that it would assume a very important role in the future development of China; and that opportunities for its development are almost limitless. Mr. Monnet cited, as an indication of the scope of the activities which the Corporation proposes to undertake, the extremely important and troublesome subject of China’s outstanding railway obligations which, in no small measure, represent materials supplied by American and other foreign creditors. Mr. Monnet stated that the Corporation, due to its efficient [Page 423] organization and effective control over its own activities and those of enterprises to which it lends its support, will inspire confidence to an extent which (in the opinion of Mr. Monnet) would render possible, within the not too distant future, a complete refinancing of China’s railway debts due to the fact that, with any sort of a reliable guarantee of an efficient, businesslike administration of Chinese railways, at least half of the required $200,000,000 can be obtained on the Shanghai market.
Mr. Mackay asked if Japanese interests are offering any serious objection to the Corporation. Mr. Monnet replied that at the time of its inception the project had been definitely and strongly opposed by the Japanese; that such opposition was due in a large measure to misunderstanding; that when the matter was explained in detail all serious opposition ceased; and that the Rengo news service was instructed to publish no press items which might react unfavorably on the Corporation. Mr. Monnet also stated that the Corporation had informed Japanese interests of the fact that, on “appropriate” projects, Japanese capital would be welcome.
Mr. Hamilton asked if the Corporation would conflict in any way with the China Consortium. Mr. Monnet replied that it would not; that the Consortium applied only to “public offerings abroad”; that the Corporation is “wholly within China”; and that even if, as is anticipated, foreign financial interests assist, collaborate, and provide funds for enterprises aimed at the development of China’s commerce and industry for which long-term credits are required, such action would in no way conflict with the provisions of the Consortium Agreement.
Mr. Monnet stated that he would sail for Europe tonight and that he planned to return to the United States in about six weeks for a further brief sojourn before proceeding to China.2
- Jean Monnet, accompanied by his assistant, Mr. Howe, conversed with Mr. Hamilton, Assistant Chief of the Division of Far Eastern Affairs, and Mr. Mackay.↩
- Lynn Porter Talley, treasurer, trustee, and member of executive committee of the Export-Import Bank of Washington.↩
- For memorandum of conversation on December 28, see p. 459.↩