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The Legation will regard the foregoing as fundamental and will use every effort to combat anything tending to jeopardize a policy of long standing and so clearly set forth in previous instructions.

The initiative in any joint protest may well be left to Great Britain. Among possible bases of protest it may be opportune to consider the moral obligations of China and the effect of the recently negotiated loan upon the Hukuang Railway bonds, upon the currency-reform loan, and upon China's credit in the future and its ability to meet its international obligations, which may be pressed at any moment.

HUNTINGTON WILSON.

File No. 893.51/1075.

The American Ambassador to Great Britain to the Secretary of

State.

(Telegram.-Extract.-Paraphrase.)

AMERICAN EMBASSY,

London, September 26, 1912. The British request for the cancellation of the new loan has been positively refused by Yuan Shih Kai.

REID,

File No. 893.51/1076.

The American Minister to the Secretary of State.

(Telegram.- Paraphrase.)

AMERICAN LEGATION,

Peking, September 27, 1919. Consulate at Canton telegraphs that Los Angeles firm have arranged a $5,000,000 loan with the Government of the Province, secured by provincial direct taxes, primarily on land. Assembly has approved.

CALHOUX.

File No. 893.51/1083.

The British Chargé d'Affaires to the Secretary of State.

[Extract.) No. 192.]

British EMBASSY,

Kineo, Me., September 28, 1912. . Sir: With reference to previous correspondence on the subject of the Chinese loan I have the honor to inform you that my Governinent learns from His Majesty's Minister at Peking that the Chinese Government have broken off negotiations with the six-power consortium. The issue of the prospectus of a loan of ten millions by a London financial house has immediately followed this action, subscriptions for half the loan having been invited in London on the 27th instant.

In justification of their action the Chinese Government declare that the unbending attitude of the groups has made it impossible to arrive at any settlement; that they regard as unacceptable the original

*

conditions demanded by the groups, and the latter categorically refuse to consider any modifications of their conditions. **

Ilis Majesty's Government are of opinion that a relaxation of conditions would be justified by (1) the indications of improvement in the general situation in China; (2) the evident determination of the Chinese Government at all costs to resist any proposal that the pledged security be subject to foreign administration; (3) the fact that it is already agreed to substitute a reduced loan for the £60,000,000 loan already contemplated, a circumstance which would justify a less stringent system of control.

His Majesty's Government pledged themselves to give to the groups their exclusive support in and during the negotiations, the definite failure of which has completely changed the situation. In view of the altered circumstances the powers will no doubt continue to withhold their support from any loan floated by their respective subjects unless adequate security and suitable guaranties for the proper expenditure of the proceeds are given. As a condition of approving any such loan they will also insist upon the repayment to the groups of the advances already made. But if the possibility of an agreement with the groups be precluded there could be no question of forbidding China to obtain financial assistance on any terms from outside. His Majesty's Government would find it difficult to defend such a prohibition even in theory, while it would, as is clearly demonstrated by the present regrettable experience, be ineffective in practice.

It is therefore for consideration whether the groups should not make a last effort to come to terms with the Chinese Government. The British group in London do not consider the latest Chinese proposals unreasonable and they are surprised and deeply regret that these proposals were summarily rejected at Peking without any reference home. The British group in London are now urging the other groups to reopen immediate negotiations at Peking on the basis of the proposals of the Chinese Government, and it is the hope of His Majesty's Government that the Governments concerned will speedily approve this course, since unless an agreement is concluded without delay there will be no alternative but the final abandonment of the negotiations, with the consequences already indicated. I have [etc.]

A. MITCHELL INNES. File No. 893.51/1083. The Acting Secretary of State to the Ambassador of Great Britain."

DEPARTMENT OF STATE,

Washington, October 4, 1912. EXCELLENCY: I have the honor to acknowledge the receipt of your excellency's note No. 192 of the 28th ultimo, which concludes with ;? intimation that His Britannic Majesty's Government hopes that the other Governments concerned in the international understanding with regard to the Chinese loans may early approve the reopening of negotiations by the representatives of the groups at Peking on the basis of the most recent proposals of the Chinese Government.

1 Copies mailed to Paris, Berlin, St. Petersburg, and, for their information, to Tokyo and Peking

1

I receive your excellency's communication as inviting a statement of the position of the Federal Government upon this particular point, but the extreme gravity of the questions involved, like the extensive context of this one phase thereof, makes me feel it my duty first to attempt some broader elucidation of the views of this Government upon the general subject and upon some of the other points set forth in your excellency's note under acknowledgment.

The Government of the United States would be sorry to discover in the real position of the British Government any material divergence from the accordant fundamental views hitherto shared by both Governments with so happy effect, I believe, upon the common interest and the general course of events. The exchanges of views between first the four and later the six Governments, the painstaking negotiations with successive Chinese Governments, and the tireless efforts of the bankers of the six groups, have extended in one form or another over a period of three or four years. The result has been an agreement between the powers upon the broad principle of international cooperation and concerted action in favor of international loans to China upon thoroughly sound and helpful bases as best alike for China and the powers, the six Governments being in accord upon the principle of insistence upon adequate provisions for audit and control of expenditures which shall have the effect of protecting China from improvident extravagances, of maintaining China's credit, and of assuring the value of bonds to be issued.

Attaching the most serious importance to what has thus been accomplished, and recognizing not only the good results already obtained but looking also to the great potentialities of future benefit from a continuance of this policy, the Government of the United States could hardly conceive for a moment of considering the question of abandoning so momentous and far reaching a policy merely because confronted from time to time with some temporary embarrassment or untoward incident.

China's rejection of the proposals of the groups, so far from being regarded as definitive, was unhesitatingly assumed by this Government to be nothing more than a not unnatural occurrence in the give and take of a negotiation whose very importance and intricacy would suggest most thorough deliberation and long duration. The rejection by the groups of China's counterproposal was quite similarly regarded by the Government of the United States.

As for the recent London loan, the Government of the United States appreciates fully the difficulties met by the British Government in seeking to deter its nationals from making loans to China inconsistent with the international understanding thereon and is very sensible of the great efforts made to that end. The information that has reached the Department has seemed to indicate that, doubtless due to the attitude of your excellency's Government, the success of that loan has been so slight as to make it at least as likely to operate in the future as a deterrent to future efforts to break down the principles which the powers have deemed it wise to favor in regard to Chinese loans as it would be to operate as an opening wedge for the breaking up of the international agreement. Moreover, while regretting, as does your excellency's Government, the inconvenience caused by that incident, the Government of the United States has felt every confidence in the ability of your excellency's Government ultimately to minimize any bad effect upon the fixity of the principles laid down, and this Government still hopes that, through bringing about a broader participation of divers British interests or by some other expedient which may suggest itself, your excellency's Government may still find itself as fully able to deal with this situation as have the other Governments of the six-power group been able able to deal with corresponding situations which have arisen in this country and elsewhere.

Indeed, the Government of the United States sees in the present situation no reason whatever why the international understanding should not continue quite as strong and effective as hitherto, Holding these views, this Government would be surprised to interpret as reflecting more than the temporary anxiety of the British group any suggestion that instant action is necessary to save the situation, that only one more effort could be made, or that there is any valid reason for an abandonment of the principles to which the six Governments and the six groups have agreed to adhere.

To return to the suggestion that the bankers should resume negotiations upon the basis of the latest counterproposal of the Chinese Government, the Government of the United States has no reason to doubt that the American group have been and still are quite ready to take any opportune occasion to resume discussions upon any reasonable basis. Inasmuch as the Chinese counterproposal appears to go rather far in the direction of admitting in principle the ideas of supervision and control of expenditures, it may be possible that something like that counterproposal could be taken as the point of departure in a resumption of discussions between the Chinese Government and the representatives of the bankers, especially if the Chinese Government would offer some satisfactory provision, corresponding to the option previously asked, which would assure absolute protection of the security previously given, or by other means give sufficient guaranty of the stability of the bonds which the six-power group might be asked to take from China.

I am unable to perceive that the size of a loan which might be proposed should affect the principles for which the powers contend and I am impressed with the desirability for the sake of the credit of China of establishing a precedent for conservative and safe provisions. The Department's advices indicate no change in the general situation in China of a character to affect its view of the importance of principles which are a part of the international understanding; nor is the Department prepared to believe that the ability of China just now to borrow a small amount on its own terms can, in view of the large financial needs of the future, place it in a position long to resist proposals involving principles upon which the six powers deem it their duty to insist.

Believing that your excellency's Government would be the first to deplore any rash or unnecessary abandonment of a great and useful policy, I hope that your excellency will be good enough to impress

I upon His Britannic Majesty's Government the great importance attached by the Government of the United States to the existing common accord.

In regard to the specific question raised by your excellency's note, I am happy to assure you that the Government of the United States

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will be glad to intimate to the American group the desirability of their holding themselves in readiness to resume at any opportune time discussions upon any basis generally consistent with the principles of the international accord and tending toward ultimate broad financial reform in China.

In making this response I trust it is unnecessary to say that the Government of the United States must rely upon your excellency's Government to make sure that no temporary exigency of the British group shall be allowed to jeopardize negotiations in which so many powers are so greatly interested and for the success of which surely the most patient efforts and much time would be well spent, while the lack of these could so easily make comparatively futile the work of so many years. I have [etc.],

HUNTINGTON WILSON.

File No. 893.77/1229.

The American Minister to the Secretary of State.

(Telegram.]

AMERICAN LEGATION,

Peking, October 5, 1912—3 p. m. On September 30 the Belgian company that constructed railway Kaifeng to Honan signed a new contract to build line from Haichou via Kaifeng to Lanchou, in Kansuh, for 215,000,000 francs, the railway to be security. When contract ratified, 5,000,000 taels will be paid China, nominally to purchase line already constructed.

CALHOUN.

File No. 893.51/1156.

The American Minister to the Secretary of State.

(Extract.)

AMERICAN LEGATION,
No. 645.]

Peking, October 22, 1912. SIR: I have the honor to report that the concession granted by the Chinese to the Belgians for the railroad from Lanchow in Kansu to Haichow on the sea continues to be a matter of interest and has had a disturbing effect upon the minds of the local representatives of the sextuple groups. They fear that a general campaign for concessions is about to be inaugurated by outsiders, which will prove detrimental to the interests of the groups in more ways than one.

The groups are in an embarrassing position. The conditions they imposed for the reorganization loan, so called, were approved by their respective Governments. They do not believe it safe or expedient to modify these conditions in any material degree and will not do so unless their Governments consent. Both the bankers and the powers supporting them, although actuated by different motives, are really working to the same ends. Those ends are: the control of the amount of the indebtedness that China is to contract, so as to

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