Office of the Historian

693.002/669: Telegram

The Consul General at Shanghai (Lockhart) to the Secretary of State

Shanghai, May 27, 1938—6 p.m.
[Received May 27—2:15 p.m.]

726. My 723, May 26, midnight.

1. Inspector General of Customs informs me that new rules concerning the depositing and remittance of customs revenues have been promulgated by the Minister of Finance and that these rules which are applicable to those provinces in which the customs are functioning purely under Chinese control provide that as from June 1, 1938, the ports concerned are to remit to the Inspector General’s revenue account in the Hong Kong and Shanghai Bank, Shanghai, only their exact quota of the cost of meeting the installments of the foreign loan [Page 719] and indemnity obligations secured on the customs revenue (based on the percentage duties for the preceding month), the service expenditure of the Inspectorate General of Customs and the grants regularly paid from the net revenue collected, and that the balance of the revenue collection of these ports after making these payments is to be remitted direct to Hankow for the service of internal loans.

2. The Inspector General has commented on the above in writing as follows:

“The significance of these instructions is that from 1st June 1938 revenue collected in the Chinese controlled areas will be available to meet only a part of China’s foreign commitments secured on the customs revenue and that, unless I receive in time from foreign loan and indemnity quotas from ports in the Japanese controlled areas, I shall find myself unable to provide the full service of the foreign loans and the indemnity.

I propose to make during this month provision in advance for the June installment of the 4½% Anglo-German loan of 1898, due on the 4th June 1938, from revenue remittances already to hand from ports in Chinese areas, on the understanding that a proper adjustment of this operation will be made subsequently. Unless, however, in the meantime, full quotas come forward from Japanese controlled ports it will be impossible for me to meet on the 17th June 1938 the July installment of the Reorganization loan of 1913, or on the last of the month the obligations of the Boxer indemnity and the consolidation note of the United States Commodity loan of 1925 [1931] and 1933. In this connection I desire to point out that, whereas the estimated cost of meeting the foreign loan and indemnity obligations during July 1938, at present exchange rates, is $8,953,000, the Shanghai customs have a balance of $3,703,286.86 deposited in the Yokohama Specie Bank and of $25,287,184.68 in the Hong Kong and Shanghai Bank, the latter representing collections made prior to the 3d instant; and that at other ports in Japanese controlled areas the customs had on deposit on the 30th ultimo $16,868,367.20 in the Yokohama Specie Bank and $2,381,106.51 in the Hong Kong and Shanghai Bank. It will be understood, therefore, that if these balances could be drawn upon for remittance to my accounts there would be no immediate fear of default on the foreign loan service. I accordingly suggest for your consideration the advisability of making this situation clear to the Japanese authorities.”

3. The above information was also communicated to the British and French Ambassadors at Shanghai.

4. I learn from the British Embassy that the British may propose a modification of the Anglo-Japanese agreement on the customs. I have been informed that the British Embassy made the following proposals to the Foreign Office in London under date of May [no date]:

  • “(1) Transfer immediately from these balances to the Central Bank the agreed quotas for Shanghai for January and February (see 5 c of [Page 720] the arrangement) and the quotas from March 1st to date for all the occupied ports as determined by the Inspector General following the agreed procedure.
  • (2) Inspector General to withdraw at short intervals from the balances remaining the quota due under the arrangement from the occupied ports.
  • (3) Until these balances have been exhausted in this manner, nothing to be drawn from Yokohama Specie Bank on account of foreign loan quotas.
  • (4) Costs of collection and ‘customary payments’ to be drawn meanwhile from the Yokohama Specie Bank.
  • (5) On exhaustion of the balances, further loan quota to be drawn from Yokohama Specie Bank following the agreed procedure.”

5. I made no comment to the Inspector General on the matter mentioned in paragraphs 1, 2 or 4 above.

Repeated to Hankow, Peiping and Tokyo.

Lockhart