Wcvson Hja799-V- U58 ^s\^ imiVERSITY LIBRARY CORNELL UNIVERSITY LIBRARY THE CHARLES WILLIAM WASON COLLECTION ON CHINA AND THE CHINESE Date Due ^uly 9 July 10 ...do... ...do... ...do... July 11 ...do... ...do... ...do... July 15 ...do... ...do... ...do... ...do... July 16 July 17 States reasons why the group can not at the present time and under existing conditions consider a loan of $5,000,000 to China as suggested by the Department. Reviews former loan negotiations. Suggests the formation of a new banking group for the purpose of making loans to China. Approves the above suggestion Outlines conditions under which a financial group could be organized to make loans to China. Approves the above-mentioned conditions and outlines the support this Government will give to the undertaking. Submits correspondence with certain l!!ai^ers. July 20 July 23 July 25 July 26 July 30 July 31 ...do.... .do. .do. liftBd tenor. RiJsumd of correspondence with certain bankers.. do .do. .do. Incloses correspondence with certain bankers. . ...do .do. .do. Accepts terms of letter of July 9, 1918, and discusses details. Submits list of banking firms who will be asked to join the American group. Information contained in Department's note of the 10th instant has been sent to his Government. Requests information whether it is the inten- tion to undertake administrative loans only or whether industrial and railway enter- prises are to be included. Communicate Department's telegram of the 11th instant to the Japanese Government and request its cooperation. Approves list of banking firms submitted July 16, 1918. The American group expects to consider in- dustrial loans as well as administrative loans. Incloses copy of further correspondence with the American group. Advises that a managing committee has been appointed and that the group is ready to enter upon active discussions. Suggests that the headquarters of the four power group be made m the United States. Instructs to inquire the amount of loan desired by China; also for what purpose and upon what security. (3) 17 20 21 21 i 23 24 24 24 24 25 25 25 25 25 &(S 25 25 25- 26 26 ' 27 27 2& 28 28 29 29 30 List of papers — Continued. From and to whom. Date. Subject. CP-f 9710 883 5382 1280 2249 277 82 760 Acting Secretary of State to American Group. Charge MacMurray to Secre- tary of State (telegram). American Group to Acting Sec- retary of State. Memorandum from Third As- sistant Secretary of State. Acting Secretary of State to American Group. Ambassador Page to Secretary of State. Tlie President to Secretary of State. Secretary of State to Ambassa- dor Page (telegram). Secretary of State to Ambassa- dor Sharp (telegram). Ambassador Page to Secretary of State (telegram). Secretary of State to President. . Ambassador Morris to Secretary of State (telegram). 1918. Aug. 2 Aug. 4 Aug. 6 Aug. 8 ..do.... >4ug. 16 Aug. 22 Aug. 21 ..do... Aug. 22 Aug. 24 Aug. 26 Secretary of State to French l^Oct. 8 Ambassador. i Secretary of State to British Ghargl. Secretary of State to Japanese Ambassador. Secretary of State to Chinese Minister. Secretary of State to Charg6 Laughlin. Secretary of State to Ambassa- dor Sharp. Secretary of State to Charg(5 MacMurray. Secretary of State to ChargiS Spencer. Minister Reinsch to Secretary of State (telegram). Acting Secretary of State to Minister Reinsch (telegram). Minister Reinsch to Secretary of State (telegram). Acting Secretary of State to Minister Reinsch (telegram). American Commission to Nego- tiate Peace to Acting Secre- tary of State (telegram). ...do... ...do... ...do... Oct. 9 ...do..., ...do.... ...do.... Dec. 10 Dec. 18 Dec. 27 1919. Jan. 4 Feb. 15 The Department has not heard from all the interested Governments and it would be premature to put the group in touch with the representatives of other groups. Is unable to secure concrete information re- quested in Departjment's telegram of July 31 . Comments on conditions in (Jhina. Incloses copy of the agreement signed by the members of the new American group. Incloses a note from the Belgian Minister re- questing that effecti^•o participation in the consortium be reserved to the Belgian group. There is no immediate prospect that the De- partment can furnish the group with such definite information as to enable it to begin negotiations. Incloses a memorandum from the British For- eign Office requesting further information on certain points concerning the formation of the consortium. Incloses a memorandum of conversation had with Mr. Reinsch, the American Minister to China, on present conditions in China and the needs of China. This Government hopes that the British Gov- ernment will be disposed to cooperate in the proposed consortium. ....do The British Government is disposed to assent in principle to the proposed new four power consortium. Acknowledges receipt of letter of the 22d inst. . Quotes a memorandum from the Japanese Foreign Office requesting further informa- tion on points in the American plan which are not clear. Restates the attitude of this Government and replies to tlie (juestions raised by the other interested Governments in a separate memo- randum. .. -do .do. Incloses for the information of hia Government copy of above note and memorandum. Incloses copy of above note and memorandum . . .do. .do. .do. Comments on conditions in China, recites the urgent needs of the Chinese Govern- ment, and requests information as to the status of the financial negotiations. The policy of this Government at this time is not to take any independent action but to await the agreement of the other powers and to do everything possible to expedite such agreement. Asks whether arrangements have been made for American bankers to carry the British share of financing. Urges that an American representative be sent to Peking without de- lay. The American group agreed to assist in carry- ing the British and French share of financing China. J. J. Abbott will soon leave for China as the representative of the American group. Working details of the consortium could be most easily settled through negotiations be- tween the four groups. Approves adoption of such plan. List of papers — Continued. No. From and to whom. Date. Subject. Page. 818 2590 7488 432 221 4984 8029 7216 7975 Chai^6 MacMurray to Secretary of State (telegram). American Commission to Nego- tiate Peace to Acting Secre- tary of State (telegram). Acting Secretary of State to Ambassador Page (telegram). Acting Secretary of State to Am- bassador Sharp (telegram). Acting Secretary of State to Am- bassador Morris (telegram). Charge MacMurray to Secretary of State (telegram). Ambassador Davie to Secretary of State. The British Embassy to the De- partment of State (memoran- dum). Department of State to British Embassy (memorandum). Ambassador Morris to Secretary of State (telegram). Acting Secretary of State to Ambassador Morris (telegram). Acting Secretary of State to Ambassador Davis (telegram) . Acting Secretary of State to Ambassador Sharp (telegram). Ambassador Morris to Secretary of State (telegram). Ambassador Sharp to Secretary of State (telegram). 1919. Feb. 16 Feb. 18 Feb. 21 ..do... ...do... Mar. 11 t^iar. 19 Same to same. Acting Secretary of State to Ambassador Sharp (telegram). Acting Secretary of State to Ambassador Davis (telegram). Acting Secretary of State to Ambassador Morris (telegram). Acting Secretary of State to Minister Beinsch (telegram). French Gharg6 to Third Assist- ant Secretary of State. Mar. 24 Mar. 27 ..do. Mar. 29 ..do.... ..do.... Apr. 2 Apr. 5 Apr. 7 Apr. 8 ..do. .-do. ■■ ..do. .. Apr. 9 The Acting Minister for Foreign Affairs and the Minister of Finance approve of the Apierican plan in principle. They will recommend concurrence to the Cabinet. The financial groups should be allowed to un- dertake the discussion of the questions as to options, etc., and suggests that diplomatic oflBcers at London, Paris, and Tokyo be in- structed to request the Governments to take similar action in regard to their groups. Instruction in the sense of above telegram Same, mutatis mutandis as above do The Vice Minister for Foreign Affairs has in- trusted to the Japanese group the working out of the technical details in consultation with the other groups. Incloses a note from the Foreign Office advising that the British Government accepts the pro- posal for a consortium and giving its under- standing of the agreement. Advises that Belgium is forming a financial group with the object of participating in loans to China, and that the British Govern- ment is bound by promises made in 1917 to admit that group to the consortium. Expresses the view that the consortium should be completed before considering the admis- sion of another national group. The Vice Minister for Foreign Affairs states his belief that the Japanese Government will ac- cept in principle the American plan, but will consult the British and French Governments before accepting invitation for the Japanese group to take part in the proposed bankers' conference. It seems to be the unanimous opinion of the several groups that a conference of all the groups is necessary to discuss details and to report conclusions to their respective Gov- ernments. Inquire whether May 15 will be sttitable to the Japanese group. Quotes above telegram and instructs to inquire whether the date stated will suit the British group. Same, mutatis mutandis as above The Japanese grotip can not be authorized to participate in the proposed bankers' con- ference before the Cabinet has come to a decision concerning the American plan. Japan is bound to support the claim of Bel- gium for admission to the consortium. The French Minister for Foreign Affairs sug- gests that the decision as to the place of meeting of the bankers' conference be left to the groups instead of fixing New York as the place. Incloses a note from the Foreign Ofiice upon which above telegram was based. The Department agrees with the suggestion that the groups arrange the place and date of their meeting. Same as above Quotes telegram from Ambassador Sharp of Apr. 5, 1919, and informs him that the De- partment agrees to the suggestion contained therein. Same as above 43 43 44 ,/:' 44 44 44 44 r-ii:, 45 46 46 Advises that the French Government has given its adhesion to the formation of the new Chinese consortium. 47 47 47 47 43 48 49 49 49 49 49 List of papers — Continued. From and to whom. Date. Subject. 5144 8041 8248 413 8362 1C9 431 Acting Secretary of State to Ambassador Davis (telegram) Acting Secretary of State to Ambassador Wallace (tele- gram) . Acting Secretary of State to Ambassador Morris(telegram), Acting Secretary of State to Minister Reinsch (telegram). Ambassador Morris to Secretary of State (telegram). Acting Secretary of State to Ambassador Wallace (tele- gram). Acting Secretary of State to Ambassador Davis (telegram). Ambassador Wallace to Secre- tary of State (telegram). Acting Secretary of State to Ambassador Wallace (tele- gram). 1919. Apr. 1.5 ..do. .do. -do. Acting Secretary of State to i^ay 31 Ambassador Morris (tele- gram ) . Acting ^>ei"retar5- of State to ...do. ilinistcr Keiiiscli iteU'grani). Acting Secretary of State to the . . .do. liritish Charge. May 3 May 8 ...do.... May 20 May 21 Informs him that the French Government has agreed to the new consortium and leave the decision as to the inclusion of industrial loans to the bankers' conference. Same as above do do Quotes note from the Foreign OfEce stating that the Japanese Government will issue instructions to the Japanese group to par- ticipate in the bankers' conference. Quotes above telegram Same as above Acting Serrelary of State to P'rench Ambassador. Acting Secretary of State to Japanese Ambassador. Acting Secretary of State to < 'liincFp < i large. ■Aml.iassador Wallace to Secre- tary of State. British Charge to the Acting Secretary of State. Acting Secretary of State to Ambassador Morris i tele- gram). Minister Reinsch to Secretary of State (telegram). Mr. Odagiri to Mr. Lament. --.do. ...do. ...do.. June Chinese Chargi^' to Secretary of State (memorandum). .^.do. June 9 June 11 Quotes resolutions passed at the meeting of the four groups for the organization of the inter- national consortium. Directs to send text of the resolutions and draft of agreement mentioned in section 8 of the resolutions to the Secretary of State with the reque.'-t that he take the matter up ■» ith the President. If the President approves the Department is ready to approve also, and attempt to make it effective \\ ithin the next :>0 days. Quotes resolutions passed at the meeting of the four groups as reported by Ambassador Wallace in liis telegram of May 20, 1919. Same as above Incloses copy of the resolutions passed at the meeting of the lour groups. The Govern- ment of the United States accepts and con- firms the resolutions, and it is hoped that the British Government \\ ill do likewise. Same, mutatis mutandis as above -do. June 18 June 20 Incloses copy of above note Incloses translation of a note from the French Foreign Office raising the question of "ex- clusi\e support" and suggesting a formula covering the interpretation of the French Ciovernment of that clause. The British Government has approved the resolutions passed at the meeting of the tour groups with the exception of the statement in the preamble of the agreement that the groups are entitled to the exclusive support of their respective Governments. The British and French Governments have approved the resolutions and agreements adopted at the meeting of the four groups subject to reservations in regard to "exclu- Bi\ e diplomatic support. ' ' Report promptly views of the Japanese Government. The Chinese Government will instruct its Charge at Washington to open negotiation rmmediately ivith the consortium to obtain an advance of 550,000,000. Informs him that the Japanese group has in- structed him that all the rights and options held by Japan in Manchuiia and Mongolia should be excluded from the arrangement for pooling provided for in the proposed agi-eement. Quotes a telegram from the Chinese Ministry of Finance stating that the Chinese Govern- ment desires to negotiate with the con- sortium a loan for $50,000,000. 50 50 50 50 50 50 50 50 52 52 52 52 52 52 52 53 54 54 54 55 56 List of papers — Continued. No. Fiom and to whom. Date. Subject. Page. 891 8699 8704 252 2578 5696 1152 2618 2429 2799 Ambassador Wallace to Secre- tary of State (telegram). 1919. June 21 Mr. Lamont to Mr. Odagiri. Acting Secretary oi State to Ambassador Wallace (tele- gram). June 23 .do. Same to same (telegram) . .do. American Group to Secretary of State. Department of State to Chinese Charge (memorandum). Acting Secretary of State to French Ambassador. Acting Secretary of State to British Ambassador. Acting Secretary of State to Japanese Ambassador. Ambassador Wallace to Secre- tary of State. Ambassador Davis to Secretary of State (telegram). Acting Secretary of State to Ambassador Davis (telegram). Ambassador Wallace to Secre- tary of State (telegram). Ambassador Davis to Secretary of State (telegram). Acting Secretary of State to American Commission to Ne- gotiate Peace (telegram). Department of State to Japa- nese Embassy (memorandum) Ambassador Davis to Secretary of State (telegram). June 26 July 2 4uly 3 ..do.... ..do.... July 17 July 18 July 19 July 24 July 25 July 26 /July 30 4ug. 14 It was suggested at a conference between Secretary Lansing, Ambassador Wallace, Mr. Lamont, and Mr. Marshall that a joint reply be sent by the American, British, and French Governments in the sense that the contention of the Japanese Government in regard to exclusion of Manchuria and Mon- golia from the scope of the consortium can not be admitted. The question raised in Mr. Odagiri 's letter of the 18th instant is of such grave import that the financial groups are unable to discuss it, and it has, therefore, been referred to the Department of State. The reply to be sent to Japan will probably be considered at the meeting of the American group next Thursday. Report attitude of the British and French Governments. The Department is not informed that the Japanese Government has given its formal approval to the consortium, only certain high officials have done so, and the Japanese group has committed itself by signing the resolutions of May 12, 1919. Gives views of the Department. The American group agrees with the Depart- ment that no loan to China can be consid- ered until the formation of the consortium is completed. The American group advises the Department that no loan can be considered until the formation of the consortium is completed. The Department adds that a substantial agreement between the contending political parties in China would also be required. Quotes the formula acceptable to the Depart- ment concerning the support to be given to the financial groups. Same as above .do. Incloses a copy of a note from the Minister for Foreign Affairs quoting the formula accept- able to the French Government concerning the support to be given to the financial gi'oups. The British Foreign Office regards Japan's claim to exclude Manchuria and Mongolia from the scope of the consortium as inadmis- sible. Repeat your 2578 to the Embassy at Paris and request that Embassy expedite French reply. The French Foreign Office regards Japan's claim to exclude Manchuria and Mongolia from the scope of the consortium as wholly inadmissible, but does not want Japan eliminated from participation in the con- sortium. A note from the British Foreign Office, dated July 22, 1919, states that the British group is to be considered the representative British partner in the consortium even if the British Government can not promise it exclusive official support. The American group is willing to proceed as outlined in telegram No. 891 of June 21, 1919. This Government can not accept the reserva- tions concerning Manchuria and Mongolia as made by the Japanese group at the bank- ers ' conference last May and June, and hopes that the Japanese Government will instruct the Japanese group to recede from its stand. Quotes memorandum addressed by the British Foreign Office to the Japanese Ambassador urging the withdrawal of the reservations of the Japanese group. 56 57 58 58 58 59 59 59 '^f-- 59 59 60 Gv(«, 60 60 61 61 61 62 List of papers — Continued. No. 1325 5900 1394 31fil 607.3 6072 6114 From and to whom. Minister Eeinsch to Secretary of State (telegram) . Ambassador Wallace to Secre- tary of State (telegram). Japanese Charg^ to Department of State. Memorandum from Third As- sistant Secretary of State. Secretary of State to Ambas- sador bsivis (telegram). Secretary of State to Ambas- sador Wallace (telegram). Minister Reinsch to Secretary of State (telegram). Ambassador \Vallai-c to Secre- tary of State (telegram). Ambassador Da\'is to Secretary of State (telegram). Japanese Charge to Secretary of State. Secretary of State to Ambas- sador Davis (telegram). Secretary of State to Ambassa- dor Wallace ftelegram). Secretary of State to Ambassa- dor Da^T-s (telegram). Secretary of State to Ambassa- dor Wallace (telegram). Secretary of State to Ambassa- dor Morris (telegram). Memorandum from tlie Division of Far Eastern Affairs. Secretary of State to Ambassa- dor Da\ds (telegram). Date. 191E Aug. 26 ...do. ^ng. 27 ...do. Aug. 29 ...do. Sept. 7 Sept. 16 Oct. 2 Oct. 8 Subject. The Chinese Government is sending a repre- sentative to the United States to reopen nego- tiations with the Continental and Commercial Bank in connection with the wine and tobacco tax option. Quotes note from the French Foreign Office to the Japanese Ambassador dated Aug. 23, 1919, stating that the claim of the Japanese group for the exclusion of Manchuria and Slongolia from the scope of the consortium is not justified, and hoping that the Japanese Government will instruct the group to relin- quish its reservations. The Japanese Government accepts and con- firms the resolutions adopted at the bankers' conference in May last, with reservations in regard to Manchuria and Mongolia. Memorandum of conversation with the Japa- nese Charg6 who read a statement from his Government giving the attitude of that Gov- ernment in regard to the reservations in Man- churia and Mongolia. Gives a resum^ of the note from the Japanese Charge of the 27th instant and of the conver- sation of the Third Assistant Secretary of State with the Japanese Charge. Same as above Oct. 11 ..do... ..do... ..do. ..do. ..do- Oct. 22 The President of China has informed him that China will be compelled to negotiate loans with Japan unless the consortium can come to its aid at once. The Minister of the Navy has resigned. The Jlinister for Foreign Affairs has received information from the French Embassy at London that the British Government does not favor the suggestion to form a consortium without Japan, and the French Government holds the same view. Quotes territorial definition of the Japanese reservations as given to the Foreign Office by the Japanese Ambassador. Gives views of the British Foreign Office. The Japanese Government will accept as an interpretation of the bankers' agreement of May 12, the formula suggested by the Ameri- can Government. Outlines fully Department's attitude with reference to Japan's reservations, refuses to agree to the suggestions of the British Foreign Office as to accepting Japan's views, and re- peats the terms upon which it would favor an immediate advance to China. Same as above Advise the Government to which you are ac- credited that the Continental and Commer- cial Trust & Sa^^ngs Bank of Oiicago is con- cluding an agreement with the Chinese Gov- ernment for a loan of $5, -500,000 to meet an obligation to that bank which matures November 1, 1919. Same as above .do. Memorandum of conversation with Mr. Hsu Un Yuen on the proposed loan of $25,000,000 to the CJiinese Government gi\'ing estimates of receipts and expenditures of that Govern- ment. Advise the Government to which you are ac- credited that this Government has approved a loan of $30,000,000 by the Chicago Conti- nental & Commercial IBank to the Chinese Government in place of the loan reported in Department's telegram of October 11, with the understanding that, if the consortium is concluded this contract will be transferred to the consortium. Page. 63 64 64 64 65 65 66 66 67 68 68 70 70 70 71 72 List of papers — Continued. No. From and to whom. 9206 3318 435 258 245 1056 812 Secretary of State to Ambassa- dor Wallace (telegram). Secretary of State to Ambassa- dor Morris (telegram). Ambassador Morris to Secretary of State (telegram). Department of State to Japanese Embassy (memorandum). Britisli Embassy to Depart- ment of State (memoran- dum). Ambassador Davis to Secretary of State (telegram). Secretary of State to Ambassa- dor Morris (telegram). Secretary of State to Minister Reinsch (telegram). Secretary of State to American Group (telegram). The Secretary of State to Am- bassador Davis. Secretary of State to Ambassa- dor Wallace. Secretary of State to Ambassa- dor Morris. Secretary of State to ChargI Tenney. Acting Secretary of State to Con- tinental and Commercial Trust and Saxdngs Bank (telegram) American Group to Secretary of State (telegram). Continental and Commercial Trust and Savings Bank to Secretary of State (telegram). British Ambassador to Secre- tary of State. Department of State to British Embassy (memorandum). Secretary of State to British Ambassador. 35283—21- ,..do-... Oct. 27 \>Oct. 28 Oct. 29 Date. 1919. Oct. 22 ..do. ...do.... ...do.... Oct. 30 ...do.... ...do.... ...do.... ...do.... Oct. 31 ...do... Nov. 1 Nov. 8 Nov. 11 ..do.... Subject. Advise the Government to whiijh you are ac- credited that this Government has approved a loan of $30,000,000 by the Chicago Conti- nental & Commercial Bank to the Chinese Government in place of the loan reported in Department's telegram of Oclnber 11, with the understanding that, if the consortium is concluded, this contract will be transferred to the consortium. Same as above Upon being advised of the above telegram the Vice Minister for Foreign Affairs expressed surprise and stated that this particular loan would prove a serious embarrassment to the Japanese Foreigto OfRce. The Government of the United States is unable to accept the reservations of the Japanese Government concerning Manchuria and Mongolia and hopes that it will authorize the Japanese group to enter the consortium with the full assurance that no legitimate Japanese right or interest will be jeopardized. The British Government agrees that every effort should be made to induce Japan to enter the consortium witiwut reservations, but suggests that the reservation concerning Southern Manchuria be accepted, also that a loan of £5,000,000 be made to China imme- diately. The British Foreign Office fears that the action of the Chicago bank may cause Japan to ex- tend anew financial assistance to China. The Foreign Office is willing to renew efforts to induce Japan to enter the consortium with- out reservations. R&ume of Department's note to the Japanese Embassy of October 28, 1919. Same as above The British Government suggests an immediate loan of £5,000,000 to China. Would the American group be prepared to participate in this loan and if necessary carry a share of the British and French participation? Incloses copy of Department's note to the Jap- anese Embassy of October 28, 1919. Same as above do do Requests that the bank postpone its loan con- tract of October 20, 1919. Agrees to join British, French, and Japanese groups to make a loan of $20,800,000 to China, and with the Japanese group to carry the participation of the British and French groups. This bank will return to the American group the option which was released to this bank October 20, 1919. The British Government is gratified that the independent loan by the Chicago bank has been abandoned. Makes suggestions con- cerning an immediate loan of £5,000,000 to China by the four groups. Replies to memorandum of October 29, 1919, and states that the Department has re- quested the Chicago bank to withhold its confirmation of the contract of October 20, 1919, for a loan of ?30,000,000. Replies to note No. 812 of the 8th instant, and advises him that the suggestions contained in that note have been communicated to the American group with the Department's ap- proval. Page. 72 72 73 73 74 74 75 75 76 76 76 76 76 76 77 78 78 78 79 10 List of papers — Continued. No. From and to whom. Date. Subject. Page. 3447 6227 899 S17 ChargiS Tenney to the Secretary of State (telegram). Ambassador Da-\d8 to Secretary of State (telegram). Secretary of State to Ambassa- dor Morris (telegram ) . 1919. Nov. 20 '''nov. 2o Nov. 29 Secretary of State to Charge Tenney (telegram). Secretary of State to Ambassa- dor Davis. Secretary of State to Ambassa- dor Wallace (telegram). Secretary of State to Ambassa- dor Morris (telegram). Secretary of State to Charg^ Tenney (telegram). Charge Tenney to Secretary of State (telegram). British Ambassador to Secre- tary of State. Ambassador Morris to Secretary of State (telegram). jlemorandum from Third As- sistant Secretary of State. Secretary of State to Ambassa- dor Morris (telegram). Ambassador Morris to the Sec- retary of State (telegram). Memorandum from Third As- sistant Secretary of State. British Charge to Secretary of State. ..do... ...do... ...do... Dec. 2 ...do... Dec. 9 Dec. 20 ..do... Dec. 23 .do. Dec. 25 Dec. 27 Dec. 31 Reports that the Pacific Development Corpora- tion has made a contract with the Chinese Government for a loan of ?5, 000,000 and an option of a further loan of $20,000,000. Quotes text of memorandum from the Foreign OfEce to the Japanese Ambassador, giving the attitude of the British Government in regard to the Japanese reservations and ex- pressing the hope that the Japanese group will be authorized to enter the consortium without reservations. Informs him that the Pacific Development Corporation made a contract for the loan with the Chinese Government without hav- ing consulted the Department, and that dip- lomatic support must under present circum- stances be withheld from this transaction. If hope of completing the consortium must be abandoned, this Govorument will have to withdraw its restrictions on independent activity of American financiers in China. Same as above Repeats above telegram Same as above Transiiiits substance of the memorandum from the British l^oreign Office to the Japanese Ambassador with which this Government is in accord, and instructs to emphasize to the Japanese Foreign Office the distinction be- tween territorial and vest'.Ml interests. Same as above The representatives of the Pacific Develop- ment Corporation were informed that no dip- lomatic support could 1 .e given to their con- tract without instruction from the Depart- ment. Thev decided to proceed, and .?.5, 000,000 have been paid. The British Government is still pressing the Japanese Government to agree to an imme- diate loan of £5,000,000 to China. Quotes memorandum received yesterday from the Japanese Foreign Office concerning the Pacific Development Corporation loan to (.'liina. The Japanese Government desires to know what steps the American Govern- ment is going to take in regard to this un- authorized loan. Conversation with Dr. Debuchi of the Japanese Emliassy in regard to the Pacific Develop- ment Corporation loan to China and the ap- pointment of Mr. Williams as director of the Chinese As-ine and tobacco revenue. Quotes reply to be made to the .lapanese mem- orandum of December 19, 1919. Outlines attitude of this Government concerning the Pacific De^^elopment Corporation loan and again expresses hope that Japan will indi- cate its adherance to the consortium. The Japanese Government has informed the British Ambassador that the Japanese (',o\'- ernment agrees to make disbandment of Chinese troops a condition of the urgent em- ergency loan which the British Government suggested. Conversation with the French Ambassador in regard to the Pacific Development Corpora- tion loan to ( 'hina and the appointment of a director of the Chinese wine and tobacco revenue. The Japanese Government now agrees with the ^'iews of the British Go^-ernment in regard to the gradual disbandment of superfluous Chinese troops. 80 80 81 81 82 82 82 82 83 83 84 84 85 85 86 86 11 List of papers — Continued. No. From and to whom. Date. Subject. 28 124 25 29 35 35 37 Secretary of State to British Charge. Messrs. Sullivan and Cromwell to Secretary of State. British Embassy to Depart- ment of State (memorandum). American Group to Secretary of State. French Ambassador to Secre- tary of State. Ambassador Davis to Secre- tary of State (telegram). Acting Secretary of State to Charg^ Tenney (telegram). Acting Secretary of State to Ambassador Morris (tele- gram). Secretary of State to Charg6 Tenney (telegram). Secretary of State to French Ambassador. Secretary of State to Charge Tenney (telegram). C harge Tenney to the Secretary of State (telegram). Same to same (telegram). 1920. Jan. 5 Jan. 8 Jan. 12 Jan. 13 Jan. 17 Jan. 23 Jan. 28 ...do... Feb. 2 Feb. 4 Feb. 7 Same to same (telegram). ...do.. Feb. 8 Feb. 10 The French and Japanese Governments having withdrawn their objections to an immediate loan to China the Department has informed the American group to that effect. Incloses a copy of the contract between the Republic of China and the Pacific Develop- ment Corporation of November 26, 1919. Advises that the Chinese Government has threatened to raise an independent loan on the revenue of the salt tax in defiance of pre- vious stipulations unless an advance is made by January 16, 1920. Asks that the Depart- ment instruct the American Minister at Peking to cooperate with the representatives of the other Powers to resist this intervention. According to a telegram from Morgan, Grenf ell & Co., copy inclosed, the Chinese Govern- ment has served notice that it will borrow wherever possible on the security of the salt revenue unless the four groups make a loan to it by .January 16, 1920. Asks that this Government join in a protest to the Chinese Government against its intention to borrow wherever it can on security of the salt revenue which was pledged to the for- mer consortium. The British Minister at Peking reports difH- culties in the way of the immediate emer- gency loan, especially the matter of dis- bandment of troops. He has been advised to inform the Chinese Government of the terms of the loan and that the British Gov- ernment will insist that the terms are com- plied with. Transmits telegram from Morgan & Co., stating that the American group has decided to make the emergency loan of £5,000,000 provided the .Japanese group joins in this transaction, and that these two groups will assume the share of the French and British groups. Same as above In view of the commitments in connection with the emergency loan and the negotia- tions for the formation of the consortium, the Department has to withhold its support from the Pacific Development Corporation. Acknowledges his note of January 17, 1920, and states that the matter communicated therein is not considered of great importance in view of the pending negotiations for an advance by the four groups. The American group is negotiating with the Pacific Development Corporation for the transfer of its contract to the American group, and the Department desires that the Chinese Government be advised to let this matter rest^ for the present and thus refrain from negotiating with the Japanese Okura firm. The Prime Minister states that he will give more time for a further advance from the Pacific Development Corporation if he can obtain an advance from the consortium before New Year. Four Ministers offered £5,000,000 loan on three conditions which were accepted by the Chinese Government. China asks for an immediate advance of $7,000,000. The Japanese Legation and bank insist upon separate agreements with the American and Japanese groups and exclusion of the French and British groups from the emergency loan. I insist upon joint agreement with the four groups. 87 87 91 91 93. 94 94 94 95 95 95 96 96 96 12 List of papers — Continued. No. 39 40 44 44 51 65 51 227 476 77 From and to whom. Secretary of State to Charg6 Tenney (telegram). Same to same (telegram) French Ambassador to Secre- tary of Stale. Acting Secretary of State to (_'harge Tenney (telegram). Charge Tenney to Secretary of State (telegram). Acting Secretary of State to Oharg^ Tenney (telegram). Ambassador Morris to Secretary of State (telegram). Charge Tenney to Secretary of State (telegram). Acting Secretary of State to Ambassador Morris (telegram). Acting Secretary of State to Ambassador Da^•is ftelegram). Acting Secretary of State to Ambassador Wallace (tele- gram). Acting Secretary of State to Charge Tenney (telegram). Acting Secretary of State to French Ambassador. Japanese Embassy to Depart- ment of State (memorandum). Acting Secretary of State to Ambassador Morris (telegram). Acting Secretary of State to Ambassador Davis (telegram). Acting Secretary of State to Ambassador Wallace (tele- gram). Acting Secretary of State to Ambassador Morris (telegram). Japanese Embassy to Depart- ment of State (memorandum). Memorandum from Third As- sistant Secretary of State. Date. 1920. Feb. 12 ...do... Feb. 14 Feb. 16 Feb. 19 Feb. 24 Feb. 25 Feb. 27 Feb. 2S ...do. ...do. Subject. ...do... >*lar. 2 ...do... Mar. 5 Mar. 6 ...do.... ...do.... Mar. 9.. ..do.... Appro^'es action reported in his No. 37 i^u'ther explains Department's attitude to- ward the Pacific Development Corpora- tion loan. The American and Japanese groups have ad- vised the French group that they will assume for the present all the financial burden which the French and Dritish groups are unalile to bear. .\Jvise the International Banking Corpora- tion to draw on J. P. Morgan & Co. for the share of the .A.merican group in the 57,000,000 advance to the Chinese < iovernment. Reports advance of 13.000.000 yen by the Japanese to the < hine.=o (.iovernment. Asks for detailed information in regard to the Japanese loan to the i 'liinese (.^o\ornment. The Minister for Foreign Affairs explains that the temporary advance of 9,000,000 yen to the Chinese (Ui\ ernmout represents one half of the amount asked for and leaves open the question of a further advance of the other half by the American group. CiA'es facts connected ^\ ith the ad^'ance of 9,000,000 yen, not 13,000,000 as at first re- ported, ti the Chinese Gu.ernment by the Ja])anese [rniiip. Reviews cuu.sur(ium negotiations and ad\ises that Mr. Lamont, the representative of the American group, i.3 gcing to Tokyo to consult with the Japanese group m order to arrive, if possible, at an agreement with that group and instructs to give to !Mr. Lamont all the assistance possible. Same, mutatis mutandis, as above ....do ....do The American and French groups have agreed that the French group is to carry one-fourth of the preliminary advance of $7,000,000. Submits formula covering Japanese acceptance of the consortium and list of contracts and options held by Japan in Manchuria and ]\fongolia wjiich it is desired to exclude from the scope of the consortium. Transmits formula contained in abov e memo- randum and instructs to obtain the entire memorandum from the Foreign Otfice and to report his ^ iews on the proposals made therein. Transmits resum^ of the Japanese memoran- dum of March 2, 1920, quotes formula con- tained therein and statement annexed there- in for communication to the Foreign Office and instructs to ask the Foreign Office for an informal oiiinion concerning the Japanese proposals. Same, mutatis mutandis, as above Gi-i-es Department's attitude toward the Pacific Development Corporation loan to China. Explains the Japanese loan of 9,000,000 yen to the Chinese Government and states i)rovi- sions for the participation of the American group for the balance of the S7, 000,000 ad- A auce . Conversation with the Japanese Ambassador on certain phrases in the memorandum of the Japanese Embassy of this date. Page. 97 97 97 98 98 98 99 100 100 100 100 101 102 104 104 104 106 106 107 13 List of papers — Continued. No. From and to whom. Date. Subject. Page. Department of State to Japanese Embassy (memorandum). 1920. m.sx. 16 278 107 485 111 116 796 124 125 134 139 140 Acting Secretary of State to Ambassador Davis (telegram) . Mar. 17 Ambassador Morris to Secretary Mar. 18 of State (telegram). Acting Secretary of State to Ambassador Morris (telegram). Acting Secretary of State to Oharg6 Tenney (telegram). Charg6 Wright to Secretary of State (telegram). Ambassador Morris to Secretary of State (telegram). Same to same . Ambassador Wallace to Secre- tary of State (telegram). Ambassador Morris to Secretary of State (telegram). Same to same (telegram) Same to same (telegram) . Same to same (telegram) . Same to same (telegram) Japanese Embassy to Depart- ment of State (memorandum) Mar. 19 ..do.... vilar. 20 Mar. 21 Mar. 23 ..do... Mar. 26 ..do.... Mar. 29 Mar. 30 .^.do /Apr. 3 Department declines to accept the formula con- tained in the memorandum of the Japanese Embassy of March 2, 1920, and expresses the hope that the conferences between Mr. Jjamont and the Japanese group may result in an understanding on the cjuestion of specific enterprises in Manchuria and Mon- golia which it may be found mutually satis- factory to exclude from the scope of the consortium. The American group has advised the Depart- ment that the British group desires the co- operation of the American group in making protest to Japan because of the premature Japanese advance to China. Department feels that it would be unfortunate to compli- cate matters by such protest. Transmit telegram from Lamont to J. P. Mor- gan & Co. concerning exchange of letters with the Japanese group covering contracts and options to be excluded from the scope of the consortium. Repeats telegram No. 278 of March 17, 1920, to Ambassador Davis. Same as above Quotes memorandum of the Foreign Office to the Japanese Ambassador dated March 19, 1920, on the question of reservations in Manchuria and Mongolia which the British Government is unable to accept. Mr. Lamont agrees with the Department that it would be unwise to protest against the premature advance of the Japanese group to the Chinese Government. Quotes tele- gram from Mr. Lamont to the American group. If the note from the British Government to the Japanese Ambassador at London, which has not yet reached the Tokyo Foreign Office, is as precise as the American note of March 16, 1920, there is no doubt that the nego- tiation for the consortium can be completed. Text of Department's reply to the Japanese memorandum of March 2, 1920, was given to the Foreign Office, also the British reply. The Foreign Office jdas never received the Japanese memorandum, and if it is received reply will be made in the same sense as the American and British. Telegram from Mr. Lamont to the American group quoting letters to be exchanged with the Japanese group and stating that he is leaving Tokyo for Shanghai. Advises that Mr. Lamont has left for Peking and that every effort is being made to bring the consortium negotiation to a successful conclusion. Reliable information has reached him that the diplomatic advisory council approved the withdrawal of the reservations concerning Manchuria and Mongolia and that the Cabinet has also approved their recom- mendation. The Minister for Foreign Affairs has confirmed the withdrawal of the reservations by the advisory council and has handed me copy of a note which is to be sent to the Japanese Ambassador at Washington for presentation to the American Government. Quotes note. Comments on note quoted in above telegram. . The Japanese Government has decided to accept the assurances of the United States and will forego its request for the acceptance of its formula. If the Taonanfu-Jehol Rail- way is to be extended at any time in the future, consent for such extension must be obtained from the Japanese Government beforehand. 108 109 109 109 109 110 110 111 111 111 112 113 114 115 116 14 List of papers — Continued. No. From and to whom. Date. Subject. 559 212 131 159 2671 181 85 1183 257 265 268 217 222 Ambassador Davis to Secretary o£ State (telegram). 1920. Apr. 6 British Cliarg^ to the Secretary of State. Secretary of State to Ambassa- dor Morris (telegram). Ambassador Morris to Secretary of State (telegram). Ambassador Davis to Secretary of State. American Group to Secretary of State. Ambassador Morris to Secretary of State (telegram). Secretary of State to Charg(5 Tenney (telegram). Same to same British Ambassador to Secretary of State. Department of State to Japanese Embassy (memorandum). British Ambassador to the Sec- retary of State. Memorandum from Third As- sistant Secretary of State. British Ambassador to Secre- tary of State. Ambassador Morris to Secretary of State (telegram). Memorandum from the Divi- sion of Far Eastern Affairs. Ambassador Morris to Secretary of State (telegram). Apr. 7 Apr. 8 ..-do.... Apr. 16 Apr. 17 Apr. 19 Apr. 20 Apr. 23 Apr. 26 >^pr. 29 Apr. 30 ...do.... Vmy 1 May 5 May 6 Japanese Embassy to Iif-|io,t- "ilav 8 mentof State (iiiuiiuii-nndiiiu!. ' Department of State to Japanese Embassy (memorandum). Meinorandum from Third As- sistant Secretary of State. Japanese Group to Mr. Lament . American Group to Mr. Kaji- "vvara. .'.do. May 11 ..do. /..do... The British Government is willing to agree to exchange of letters suggested by Mr. Lament, provided the American and French Govern- ments approve likewise. Same tenor as above Advise Mr. Lament that the representative of the British group accepts without qualifica- tion the draft of proposed interchange of letters between the American and Japanese groups. Transmits comment of Mr. Lament on the Japanese memorandum. Transmits copy of the Japanese Ambassador 's memorandum to the Foreign Office, dated the 14th instant, replying to the British memorandum of March 19, 1920. Incloses copy of a letter to the iN'ew York Stock Exchange in regard to the payment of in- terest on the German-owned iDonds of the Hukuang Railway loan. Quotes telegrams exchanged between the Embassy and Mr. Lament. Transmits telegram from the American group to Mr. Lament explaining the attitude ef the group toward the Japanese reservations. Incloses copy of the agreement between the Chinese Go^'ernment and the Yokohama Specie Bank for theadvanceef yen9,000,000 made by the Japanese bankers to the Chi- nese Cxovernment. Gives an outline ef the reply of the British Go^'ernment to the Japanese memorandum ef April 14, 1920, which was similar to that handed to the American Go^-emment April 3, 1920. Reply to the Japanese memorandum of April 3, 1920. This Government is unable to accept the first proposition, and the second seems to be covered bj- Article 1\ of the intergreup agreement of May 12, 1920. The British Government is in accord with the French Government on the proposed reply to the Japanese Government. Conversation with the Japantso Ambassador en the note of April 29, 1920. Gi"\-es an outline on the note addressed by the British Government to the Japanese Ambas- sador at London under date of April 28, 1920. Transmits draft of a memorandum proposed to be sent liy the Foreign Ofiice to the Japanese Amljafsador at Washington for delivery to the American Government. Comments on the proposed memorandum con- tained in aljove telegram. Mr. Lament retujned to Tok> o and is in accord with the Japanese memorandum. He plans to exchange letters with the Japanese group next week, iiciiioraiiduni, draft of which was contained in telfgrani of Ambassador Morris No. 217 of May 5, l!i20. The GoA-CinnK-nt ef the United Slates is gi-ati- fied that the Japanese Government does not intend to insist upon explitit assurances ef this Government in regard to the points at issue concerning the Taonanfu-Jehol Rail- way. Conversation ^rith the Counselor o; the Italian Embassy in regard to an application of the Italian Government to participate in the consortium. The Japanese group withdraws its letter of June 18, 1919, and accepts the consortium agree- ment on like terms with the American, Brit- ish, and French groups. Acknowledges above letter and confirms agree- ment concerning specific railwaA enter- prises. 117 117 118 118 119 120 121 122 122 126 126 127 128 128 129 130 130 131 132 132 132 133 15 List of papers — Continued. No. From and to whom. 238 643 405 1114 1598 998 408 1115 1600 311 409 1116 1601 396 579 1146 1634 588 1615 1154 426 1641 336 Amhassador Morris to Secretary of State (telegram). American Group to Secretary of State. Secretary of State to Ambassa- dor Wallace. Acting Secretary of State to Charg^ Bell (telegram). Acting Secretary of State to Charg6 Wright (telegram). Acting Secretary of State to Am- bassador Wallace (telegram). Secretary of State to Charg6 Wright. Secretary of State to Charg6 Bell. Secretary of State to Charg^ Wright (telegram). Secretary of State to Ambassador Wallace (telegram). Secretary of State to Minister Crane (telegram). Secretary of State to Charg6 Bell (telegram). Secretary of State to Charge Wright (telegram). Secretary of State to Ambassa- dor Wallace (telegram). Secretary of State to Minister Crane (telegram). Belgian Charg6 to Secretary of State. Secretary of State to Charg6 Bell. Charge Bell to Secretary of State (telegram). Secretary of State to Ambassa- dor Davis (telegram). Secretary of State to Ambassa- dor Wallace (telegram). Charge Bell to Secretary of State (telegram). Ambassador Davis to Secretary of State (telegram). The Secretary of State to Am- bassador Davis (telegram). Secretary of State to Charg6 Bell (telegram). Secretary of State to Ambassa- dor Wallace (telegram). Secretary of State to Minister Crane (telegram). Date. 1920. May 14 Oct. 23 Oct. 29 Nov. 2 .do. .do. Nov. 3 ...do. ...do. ...do. ...do. ...do. ...do.... ...do.... ...do.... Nov. 4 Nov. 8 Nov. 9 Nov. 12 ...do.... Nov. 13 Nov. 15 Nov. 16 ...do. ...do. ...do. Subject, Transmits report of ilr. Lament to the Ameri- can group m regard to his artivitics in Japan and China. Quotes resolution passed at the consortium conference in regard to the inclusion of a Belgian group in the consortium. Incloses copy of the consortium agreement, signed at New York OctoTer 15, 1920, to- gether with the minutes of the consortium meetings. Quotes public announcement the Department intends to issue to the press concerning the consortium. Same as above .do. Incloses copy of the consortium agreement, signed at New York October 15, 1920, to- gether with the minutes of the consortium meetings. This Government approves the admission of a Belgian group to the consortium. Same as above do do The resolutions adopted at the consortium meeting provided that all resolutions taken as recorded in the minutes require the ap- proval of the four Governments. This Gov- ernment has approved. Same as above do do Requests inclusion of a Belgian banking group in the Chinese consortium. Incloses copy of the consortium agreement, signed at New York October 15, 1920, to- gether with the minutes of the consortium meetings. Quotes note from the Japanese Foreign Office suggesting that an identic note be sent to the Belgian Government advising it of the admission of a Belgian group to the con- sortium. Quotes note this Government proposes to send to the Belgian Government announcing the approval of this Government of the admis- sion of a Belgian group to the consortium. It is hoped that the other interested Govern- ments will send identic notes. Same as above Quotes note from the Foreign Office stating that the Japanese Government will shortly approve the resolutions passed at the con- sortium meeting. The British Government states that it will concur if the other Governments agree re- garding announcement of consortium agree- ment. The Department will issue a statement to the press November 20, announcing consortium agreement. The American Minister at Peldng is being advised to inform the Chinese Government. Same as above .do. Instructs to advise the Chinese Government of the approval by the four Governments of the consortium agreement. Page. 134 136 137 143 143 143 137 144 144 144 144 144 144 144 144 144 137 144 145 145 145 146 146 146 146 147 16 List of papers — Continued. No. 1627 1934 601 1174 1652 437 734 From and to whom. Minister Crane to Secretary of State. Ameiican Group to Secretary of State. Secretary of State to American Group. Subject. Ambassador Davis to Secretary of State (telegram). Ambassador AVallace to Secre- tary of State (telegram). Charge Bell to Secretary of State (telegram). Secretary of State to Ambassa- dor Davis (telegram). American Group to Secretary of State. Ambassador Da-^ds to Secretary of State (telegram). Secretary of State to Charge Bell (telegram). Acting Secretary of State to i Belgian Chai'n'-. ' 1920. Nov. 17 j\'ov. 18 Ivov 21 Nov 23 Nov 24 Nov. 27 Nov. 30 Dec. 13 1921. P^an. 19 ^lar. 10 '^lar. Quotes change suggested by the British For- eign Office in the note to be sent to the Bel- gian Government advising it of the approval of the admission of a Belgian group to the consortium. Agreement of the French Government to the admif.sion of a Belgian group to the con- sortium has already been sent to the Belgian Government. The Japanese Government issued a statement to the press identical with the American statement. Quotes paragraph suggested to be substituted for a paragraph in note to the Belgian Gov- ernment as stated in Department's telegram No. 1146 of Nov. 12, 6 p. m. Suggests change in the note to be sent to the Belgian Government advising it of the ad- mission of a Belgian group to the consortium. The British Foreign Office adopted the word- ing of the suggested identic note as stated in Department's No. 1146, with slight addi- tion. Note was sent about the 2.5th instant. Quotes paragraph to be substitulcil for a para- graph in the proposed note to the Belgian Government. The Government of the United States approves of the admission to the consortium of a Belgian group on the same terms as the American, Eiiti.'sh, French, and Japanese groups. Incloses copy of a note to the Chinese Foreign Ofiice signed by representatives of the four Powers signifjong full approval to the new consortiulm. Gives brief summary of consortium negotia- tions and asks to be informed whether the international consortium has the approval of the new American administration. The principle of the cooperati\-e effort for the assistance of China has the approval of this CTOvernment. Page. 147 147 1^8 148 148 149 149 149 150 150 151 17 File No. 893.51/1670. TTie American Group to the Secretary of State. New Yoek, July 26, 1916. Dear Sir : At a meeting of the American group this afternoon earnest considera- tion was given to the request which you made through our representative, who called upon you yesterday in response to your suggestion, that the American group at once loan or advance to the Chinese Government, to relieve their present admin- istrative necessities, the sum of $4,000,000 or $5,000,000. Because of our strong desire that our position should be clearly understood, we are taking the liberty of rehearsing briefly the circumstances attending our entrance into the field of Chinese business, as well as those which attended our withdrawal; it is, of course, true that all these matters are of record in your Department, but, nevertheless, it may not be inappropriate to refer to them again at this time in con- nection with the particular proposal now under discussion. The American group (consisting of our respective houses and institutions) was formed at the direct instance of the United States Government during the Taft administration. At that time (in 1909) British, French and German banking groups had practically completed and had initialed a loan agreement with the then Chinese Imperial Government designed to provide funds for the construction of the so- called Hukuang Railways. Our Government, on its own initiative, suggested to the Chinese Government that the American group be invited to participate in this Hukuang Railways loan. Finally, after direct telegraphic communication between President Taft and Prince Ching had been resorted to, it was arranged that Ameri- can capital should have one-fourth participation in the financing of the railways to be built under the Hukuang loan agreement. The American group was then formed, at the request of our Government, to undertake this financing. After long and complicated negotiations, dealing largely with the question of the allocation of engineering rights on the various sections of the railway among the several interested powers, final agreement with the Chinese Government signed by the four banking groups was reached on May 20, 1911, and, on June 15, 1911, the first series of the Hukuang Railways loan was issued to the public, one-fourth of the total amount, the equivalent of £1,500,000, being issued in America and being taken in the first instance by American investors. The issue price of these bonds ( was 99^ : they are now quoted in the market at a fraction over 72. Various other ] loans were discussed by the American group with the Chinese Government, but none came to fruition until finally, in 1912, just after the revolution in China, the new Chinese Government approached the four banking groups who had been signatories of the Hukuang loan with a request that they enter into an agreement with the Chinese Government to loan £60,000,000 for administrative and reorganization purposes. Very soon after this request was made, the four banking groups referred to were approached by Russian and Japanese banking groups, who, with the support of their Government, suggested that they be included in a new six Power group to be organized for the express purpose of making the above referred to £60,000,000 reorganization loan. Such a new group was formed under an agreement, dated June 18, 1912, the provisions of which were that the six members of the international group so formed should consider themselves bound to each other not to do singly any administrative loan business in China until the entire £60,000,000 of the re- organization loan had been issued, until a majority of the group should decide not to go further with the reorganization loan, or until a period of five years had elapsed, whichever should first happen. This mutual obligation which we entered into with the knowledge and approval of your Department was designed to protect the Chinese Government from the onerous terms which their necessities might otherwise have exacted; only to this extent was the six Power agreement intended to limit or cur- tail Chinese borrowing facilities, and we believe that the provision preventing sepa- 35283—21 3 18 rate action of the bankers of any one Power was considered by our Government the provision best calculated to strengthen the hands of those Governments like our own which were seeking an open door on equal terms to all the Powers. A total of £25,000,000 only was loaned by this international group, or has been loaned to date (the American group, however, were not signatories of the £25,000,000 loan agreement with China because of circumstances to which we shall refer later) and four years of time have elapsed. We consider, therefore, that this six Power agreement is binding upon all its members until June 18, 1917, or until the remainder of the £60,000,000 reorganization loan shall have been issued, unless a majority of the subscribers shall in the meantime decide not to proceed further with the business. The Department of State was kept fully advised of our negotiations both with respect to the Hukuang Railway and the reorganization loan; all cables received or sent were submitted to the Department; advice of the Department was taken in all matters in which our group was concerned in any way involving the inter- national relations of the United States or in the remotest degree affecting the wel- fare of China: and no step was taken by the American group in any instance except with the approval of the Department of State, secured in advance. Our repre- sentative in Pekin participated actively in the negotiations for the £25,000,000 loan above referred to, initialed the agreement for this loan in its final and definite form along with the representatives of the other five interested groups. After the agreement for the £25,000,000 loan had been initialed, but before it was finally signed, the administration in the United States changed, and shortly thereafter there was issued to the public press by President AVilson his statement of March 19, 1913, in which he made clear that he was not in accord with the funda- mental policy of the international group as organized. Promptly upon the appear- ance of this statement in the public press, we notified the other parties to the six Power agreement, our colleagues, and the Chinese Government that under the cir- cumstances we felt compelled to -withdraw from all further negotiations in connec- tion with the £25,000,000 loan. After our withdrawal, the participation of the American group in the loan was taken up among the other five banking groups who had initialed the loan agreement, the loan agreement was promptly completed, and the loan was issued in the foreign markets. One of the securities specifically assigned to this £25,000,000 loan was the salt gabelle, the administration of which was reor- ganized under a plan advised and proposed by the lending bankers and approved not only by the Chinese Government but by our own State Department and by the other Governments interested. At once, after withdrawing from tliis £25,000,000 loan, we closed our offices in China, sold our property there, and withdrew our representative. Since our with- drawal the Chinese Government has negotiated loans with others in this country, and, indeed, established a fiscal agency here. ViTiile, by reason of our part in issu- ing the Hukuang loan we felt that we could not completely dissolve the American group, divesting ourselves of all interest in Chinese affairs, nevertheless, we expected not to undertake any new Chinese business; the work had been burdensome because of the obligations incident to its international character and because of the frequent conferences in Europe which we were called upon to attend at short notice and without regard to our engagements and responsibilities at the time at home. As we have pointed out, we have considered that we, like the other members of the six Power group which we entered into with the approval of our Government, are still bound by our mutual obligations under the agreement of June 18, 1912, above referred to. The provisions of this agreement are not entirely clear, but we believe that we can not conclude singly any administrative loan to China unless it can be shown to be a loan which is not in the scope of the reorganization loan which was the object of the six Power agreement, and unless its purposes are not the pur- poses contemplated and mentioned in the £25,000,000 loan agreement signed by 19 tne banking groups of the other five Powers; in the case of an administrative loan which could be shown not to be within the scope of the reorganization loan or the purposes contemplated in the £25,000,000 loan agreement, we conceive that we are permitted by our mutual arrangements with the other banking groups to make such a loan, but only with the understanding that the covering loan agreement shall provide that participation is opeji to all the other five Powers interested in the six Power agreement, and that we must offer such participation to them either at the time of making the loan or subsequently. You did not state to us in the interview which our representative had with you yesterday for what specific purpose the present loan of 14,000,000 or $5,000,000 is intended, or whether it is contemplated by China that it will be taken up and repaid from a larger administrative loan to be negotiated and made later. In our opinion, the loan now requested would be unavailing unless followed by a larger reorganization loan which would aid China to rehabilitate her financial position. If such a larger loan were to be undertaken by the members of the six Power consortium, the Amer- ican group would be called to consider taking our share of it, but we realize that certainly weeks and perhaps months must elapse in the present conditions of the world's finances before any proposition of this kind could be seriously developed by the foreign banking groups. If, on the other hand, the present loan or advance of $4,000,000 or $5,000,000 is to be considered as a separate venture, without any definite plan looking toward the rehabilitation of the finances of China, it would become necessary to know just what specific security the Chinese Government is prepared to offer, how and for whose benefit such security is to be administered, by whom it would be collected in case of default, and various other details which have not yet been made clear to us. As your Department was informed, we, some weeks ago, started negotiations, with other interests in New York having offices in Peking to take our position in the Hukuang contract, which, if accepted, would have enabled us to dissolve the group. For your information, it was not until today that we felt ourselves in a position to consider that the interests with whom we were negotiating had definitely decided not to consummate the negotiations. We now respectfully suggest that, if the present designated fiscal agent of the Chinese Government in this country or if any other American bankers desire to undertake the loan or advance to the Chinese Government now suggested, we shall be very glad to place at their disposal all the data and information with respect to the Chinese business which we have at hand. However, if it is the desire of our Government that the American group under- take negotiations with the Chinese Government with respect to this $4,000,000 or $5,000,000 loan now desired, we shall, of course, be prepared to do so. We should expect the Chinese Government to offer a loan of such a character not only as to yield but as to security and method of administration of the security, that we would be justified in offering it to American investors. We think it fair to say that in view of our present commitments to the European groups as indicated above, the present condition of the world's money markets, and the uncertain economic and pohtical situation in China itself, we are not hopeful of a favorable outcome of such negotiations. We are, [etc.] J. P. Morgan & Co. KUHN, LOEB & Co. First National Bank, By Charles D. Norton, Vice-Pres. The National City Bank of N. Y., By J. H. Perkins, Vice-Pres. 20 File No. 893.5I/2513a. The Secretary of State to President Wilson. Department of State, Washington, June 20, 1918. My dear Me. President: The subject of making a loan or loans to China again presents itself. Conditions are different at present from what they were when this subject was up a while ago, and entirely different from what they were \vhen the American group withdrew from the consortium. The last time it was under discussion the Secretary of the Treasury expressed the feeling that our com- mitments to European countries and our needs in America were such as to make a loan to China then impracticable. I have recently been advised by the Secretary of the Treasury that the affairs of the Treasury will probably permit some such loans to be made, provided the diplomatic situation warrants so doing, and I feel that it does. The question imme- diately arises as to the nature of the loans, the purposes for which they are to be used and the character of the loan, that is, as to whether it shall bo a governmental loan or one by private bankers. After consultation between the officials of this Department and of the Treasury, it is felt that loans for war purposes by private bankers would bo best under the circumstances. V,'ith that object in view, it is being proposed to call together the representatives of a few of the banks which have been interested in making loans in the Far East, and that they, or an}' of them, and such others as they may desire, form an American group. Those who would fall in this category are the officers of the Guaranty Trust Company, J. P. Morgan and Company, Kuhn, Loeb and Company, of New Yorl-:, the Continental and Com- mercial Trust and Savings Bank of Chicago, and Leo, Higginson and Company of Boston. There are three matters in prospect which offer opportunities for such a group to operate in, in which it will 1)0 very advisable to have American financiers interested. They are as follows : 1st. The Continental and Commercial Trust and flavins;-- Eunk of Chicago made a loan to China some time ago, taking as security the income from the wine and tobacco tax. As part of the contract they obtained a preference on any additional loans looking to the same security up to twenty-five million dollars. Japanese interests are at present negotiating with China to make a loan on the same security, having in contemplation a liquidation of the existing five million dollar loan above referred to, and including in the contract provision for the organization and control of the whole tobacco and wine industry of China — its manufacture, production and sale. Consummation of this loan under those conditions would mean the establishment in China in favor of Japanese interests of a monopoly of the tobacco business, and would automatically exclude the verj' large American interests now existing there in the form of the British- American Tobacco Companj-, which, though organized under the laws of Hongkong, is officered, controlled and almost entirely capitalized by Americans. The Chicago Bank has loss than sixty days in which to exercise its option to make additional loans but the exercise of it would prevent the execution of the proposed loan by Japan and would automatically protect the British-American Tobacco Company's interests. The Chicago Bank has graciously oft'ered its option to the Department to be used in any way wo choose, to be exercised either by the bank or by the Government, or by any group of bankers we may designate, or to let it expire. 2nd. The railroad service projected from Canton to Hankow was under British control. The line is not completed. It will take about thirty million dollars to finish it. The British financiers have not been able to proceed with it and have called in the American International Corporation and their subsidiary, the Siems- Carey Company, and have asked them to proceed A\ith the construction. The Siems-Carey Company is unable to finance it, but is able, in case they can make financial arrangements, to agree with the British interests that American engineers shall be used and American control exercised over the road during the period of 2] the contract existing between the British interests and the Chinese Government which extends over a number of years. The financing of the road at this time would enable American interests to control a very important railroad. It is under- stood between the Siems-Carey Company and the British and French interests concerned that their Governments would, because of such aid, be likely to with- draw their claims to the spheres of influence in the regions affected. 3rd. The loan for currency reform purposes, which will amount to a sum va- riously estimated between one hundred million and two hundred million must under the contract, be made with the old consortium from which the American group with- drew, and with which neither the British nor the French groups are now able to proceed. That leaves Japanese capital in control. They have several times re- quested American participation and have expressed a real desire to have us join them. This is not imminent but will become active within the next three or four months. China has renewed the option several times but has declined to extend it again so that unless we are able to participate Japan can and probably will proceed alone with this large and important loan. China has expected some financial assistance from the United States. Japan has made her many loans recently. We have made none. It was at our invitation she entered the war, and it is to us that she is looking for some financial help to guard against possibilities now that the scenes of war are nearing her borders. The indica- tions are that her disappointment at not receiving what she has felt she had reason to expect has made her somewhat resentful against this country. If we are able to give permission to American banks to make the loans in connection with the tobacco tax and with the raihoad, and to cooperate with Japan on the question of currency reform, it will be pleasing no doubt both to China and Japan. The proposal is made to form an American group, composed of interests which have made loans in the Orient and to allow them to carry out the details. It would be necessary to assure them of the support of the Government for these three projects, and for such other legitimate and non-political enterprises upon which they may enter. In view of the present circumstances and of the situation in China, and of the conversations which have been had with the Treasury Department and their in- formal and verbal assm-ances that the plan above suggested would be feasible, I have the honor to request whether it receives your approval that we organize an American group for the pmpose indicated and have your permission to proceed therewith subject to consultation and agreement with the Treasury. Faithfully yours, Robert Lansing. rile No. 893.51/2513. President Wilson to the Secretary of State. The White House, WasMngton, June 21, 1918. My dear Mr. Secretary: I approve of the course proposed in this letter. I take it for granted that everything necessary would be done to protect the Chinese Government against such unconscionable arrangements as were contemplated by the former consortium, because I am afraid it is not less but rather more likely that the Chinese Government would permit unfair advantage to be taken of it at the present time of stress then formerly. Cordially and sincerely yours, WooDRow Wilson. File No. 893.61/2176. Certain American BanTcers to the Secretary of State. New York City, July 8, 1918. Sir : We have been giving very earnest consideration to the suggestion you made in Washington respecting a loan to China, and wish in the first place to assure you of our disposition to be of service in the matter, and to help in finding some way in -which the wishes of the administration can be carried out. 22 In the course of our discussion the following points have seemed to us to be fundamental : First. An arrangement of this sort which contemplates transactions spread over a considerable period of time, in our opinion should be made on the broadest basis in order to give the best protection to our investors, and with the right founda- tion established confidence would follow and anxiety and jealousy disappear. At the conference held in Washington recently there was mentioned as a course perhaps advisable that Americans and Japanese cooperate in a loan to China. We are dis- posed to believe that it would be better if such international cooperation were to be made broader. We suggest therefore, that this can best be accomplished if a four Power group be constituted consisting of financial members to be recognized by the respective Governments of Great Britain, France, Japan and the United States; our Government to recognize as their member of such group the American banks or firms which may become associated for this purpose, and which we should hope to have representative of the whole country. Although under the present circumstances it would be expected that Japan and the United States should carry England and France, such carrying should not diminish the vitality of their member- ships in the four Power group. One of the conditions of membership in such a four Power group should be that there should be a relinquishment by the members of the group either to China or to the group of any options to make loans which they now hold, and all loans to China by any of them should be considered as four Power group business. Through cooperation of England, Franco, Japan and the United States much can be accom- plished for the maintenance of Chinese sovereignty and the preservation of the "Open door"; and, furthermore, such cooperation might greatly facilitate the full development of the large revenue sources from only a very few of which China at present realizes a satisfactoTv income. It would seem to be necessary if now and after the war we are successfully to carry out the responsibilities imposed upon us by our new international position that our Government should be prepared in principle to recognize the chano-e in our international relati(jns, both diplomatic and commercial, brought about by the war. Second. We have considerable doubt whether under the present circumstances the people of the United States could be induced to buy the debt of any foreio-n country on any terms. We feel quite certain that no loan could be sold unless the Government would be wilhng at the time of issue to make it clear to the pubhc that the loan is made at the suggestion of the Government; with such an announcement we think it possible that a reasonable amount of Chinese loan could be placed in this country. If these two funchimental conditions are agreed to by our Government we hold ourselves at your disposal to go further into the details of any proposed loan, and will cooperate with you most earnestly and sympathetically. Yours, very truly, J. P. Morgan & Co., KUHN, LOEB & Co., The National City Bank of New York, By F. A. Vanderlip, President. First National Bank, New York, By Geo. F. ,Sabix, Jr., Vice Pres. Chase National Bank, By E. A. Tinker, Vice Pres. Continental & Commercial Trust & Savings Bank, Chicago By John Jay Abbott, V. P. ' Lee, Higginson & Co., Guaranty Trust Co., of New York, By Charles H. Sabin, Pt. 23 File No. 893.51/2176. The Secretary of State to certain American BanTcers. Department of State, Washington, July 9, 1918. Messrs. J. P. Morgan and Company, Messrs. Kuhn, Loeb and Company, National City Bank of New York, First National Bank of New York, Chase National Bank, Continental & Commercial Trust & Savings Bank, Messrs. Lee, Higginson and Company, Guaranty Trust Company of New York, New Yorlc City. Gentlemen: Your letter of July 8, 1918, has had my very careful consideration. It contains several elements of an important nature which I will take up in order. This war has brought the countries of Great Britain, France, Japan, the United States, and some others into a state of harmony and helpfulness, and has supplanted an intense spirit of competition by a spirit of mutuality and cooperation in matters relating to their interests abroad. Doubtless this situation is in a measure due to the absence of capital seeking foreign investment at the present time because of the demands upon it for war purposes. If international cooperation is necessary, as seems to be the case, for the successful flotation of the proposed loan, I realize that the support of Great Britain and France would be desirable even if it should be necessary for the United States and Japan to carry for the time being their respective portions of the loan. All four Powers are of course deeply interested in any measures taken to strengthen China and fit her for a more active part in the war against the Central European Powers. Japan is already considering rendering financial assistance, while two of the loans that have been mentioned as desirable are loans by which the interests of British and French citizens would be directly affected and it would, of course, be unwise to undertake their negotiation without consulting parties so immediately concerned. In these circumstances the formation of a four Power group, to consist of financial interests of the United States, Great Britain, France, and Japan to deal with the Government of China for purposes of making loans to that Government seems advisable, and it is my hope that in this way the whole subject of finance in China can ultimately be treated in a broad way. If the terms and conditions of each loan are submitted to and approved by this Government, and the other cooperating Governments and by the Government of China, this Government would not only interpose no objection, but, on the contrary, would consider such an arrange- ment an assurance that the welfare of China and the proper interests of the other Governments were of such a mutual character as to permit of close and friendly intercourse for their common good. I think that I should say frankly that this Government would be opposed to any terms or conditions of a loan which sought to impair the political control of China or lessened the sovereign rights of that Kepublic. In response to your inquiry, as to whether the Government would be willing at the time of its issue to state that the loan was being made at the suggestion of the Government, I will say that the Government has suggested that this loan be made and would have no hesitancy in formally stating that fact at the time of issue. The question of relinquishment by the members of the American group of any options to make loans now existing in favor of any of them seems to be a reasonable condition of membership in that group. Such relinquishment by a member of a foreign group is a matter over which this Government would have no control. However, I may say that if the members of the American group come to the con- clusion that they desire it, this Government will use its good offices, in so far as it can properly do so to bring about such relinquishment. 24 The war has created a community of interest between certain Governments and their citizens and those of other Governments and has broken do^^Ti barriers that once have existed and made easier the intercourse between them. With the consequent expansion of our interests abroad there must be considered also the element of risk which sometimes enters into the making of loans to foreign Governments and which is always inseparable from investments in foreign countries where reliance must be placed on the borrower's good faith and ability to carry out the terms of the contract. This Government realizes fully that condition and in order to encourage and facilitate that free intercourse between American citizens and foreign States which is mutually advantageous is willing to aid in every proper way and to make prompt and vigorous representations and to take every possible step to insure the execution of equitable contracts made in good faith by its citizens in foreign lands. Your suggestion that the members of the proposed American group may be representative of the whole country is one which is entirely satisfactory since it re- moves a possible ground of objection. Various sections of the country are interested in enterprises of this character and undoubtedly would be glad to join any constructive movement such as is proposed. As so much depends upon the proper organization of the American financial group I assume that in the event of its formation you will submit the names of the proposed members to the Government before a final organi- zation is made. The spirit of cooperation you manifest is very gratifying and you are assured of the interest of the Government and of all proper aid which it can render in bringing this matter to a satisfactory conclusion. I am, [etc.] ROBEUT Laxsixg. File No. 893.51/1923C. The Secretary of State tr ilie Brit'ish Arithassai'or} Xo. 150 Confidential.] Depar.tm?:nt of State, 'WasUne made so comprehensive as to include all those parties interested in the former consortium and such others, not so associated, who are engaged, or might engage, in loans to China, as well as any others whose partici- pation might be desired. Nor did the American Government, in making its proposal, have any specific loan in mind, but was endeavoring to lay down some general rule for future activities which might, in a broad way, meet the financial needs and opportunities in China. It was for this reason that no specific reference was made to the amount of the loan or loans to be raised, the revenues to be pledged or to the precise objects of the proposed loan. It was contemplated that these questions would be determined in respect to each ca-e as it might arise. With respect to the second or supplementary reorganization loan for purposes of currency reform, this Government is prepared to state in advance that it would be ready to recommend to the American group that it should not only take a part in that loan but be prepared to carry also, in conjunction with the Japanese group, the shares of the British and French groups, not only in this particular loan should it be included in the business of the new international group, but in such other loans as may develop while circumstances are such as to prevent their more active partici- pation. 2. The reference to "a relinquishment by the members of the group either to China or to the group of any options to make loans which they now hold" apphed primarily to the American group alone and to an agreement between the banks and the United States Government, whereby all preferences and options for future loans in China having any Governmental guarantee and held by the individual members of the American group should be relinquished to the group which should, in turn, share them with the international group. Such relinquishment of options was considered by this Government to be a reasonable condition of membership in the American group; and while it is recognized that such interested Government must necessarily make its own arrangements with its own national group; it is submitted that it is possible properly to conduct the business of the international group only by similar relinquishment to the respective national groups by the individual banks forming those groups, without distinction as to the nature of the options held. 39 3. The proposal of the Government of the United States contemplated that industrial, as well as administrative loans should be included in the new arrange- ment for the reason that, in practice, the line of demarcation between these various classes of loans often is not easy to draw. Both alike are essential fields for legiti- mate financial enterprise and both alike should be removed from the sphere of unsound speculation and of destructive competition. The intention of this Gov- ernment was to suggest, as a means to that end, that the interested Governments should, by common consent, endeavor so to broaden the membership in the newly formed national groups that all financial firms of good standing interested in such loans might be included in the respective groups, and should withhold their sup- port from independent financial operations without previous agreement of the interested Governments. As regards the inter-group conference held in Paris, September 26, 1913, and the agreement to which the Am.erican group adhered, stating that they had no objec- tion to the elimination of industrial loans, it can only be said that the American group prior to that had withdrawn from active participation on the consortium and was, therefore, not in a position to object; but that it is now felt that with the establishment of a new group, the question may properly be reconsidered. 4. The expression "any terms or conditions of a loan which sought to impair the political control of China or lessen the sovereign rights of that Republic" had reference only to the future activities of the American group and was not intended to call in question the propriety of any specific arrangement in operation between the former consortium and the Chinese Government, or between any other Govern- mient and the Chinese. It can be definitely stated that the United States Govern- ment did not mean to imply that foreign control of the collection of revenues or other specific security pledged by mutual consent would necessarily be objectionable, nor would the appointment under the terms of some specific loan of a foreign adviser, — as, for instance, to supervise the introduction of currency reform. 5. With respect to the Russian and Belgian groups and their rights in the former consortium, no present action is contemplated either by way of reservation as to the old or of participation in the new group. As previously stated, it is not anticipated that the existing consortium will necessarily be dissolved nor, on the other hand, do present conditions warrant the expectation that effective Russian and Belgian national groups could readily be formed at this time. It is not the intention, however, of this Government to ignore, much less to exclude, any just claim of participation in the new international group, but merely, for practical considerations arising out of the war, to associate the interests of the Governments now so closely and actively associated and most able to finance the proposed loans to China, and to reserve for future consideration the inclusion of any other groups of friendly Powers which may, at a later time, be in a position effectively to cooperate. File No. 893.51/20420. TTie Secretary of State to the Chinese Minister. No. 82.] Department of State, Washington, October 8, 1918. Sie: On July 10, 1918, I had the honor to communicate to you copies of con- fidential letters exchanged between certain American bankers and myseH on the subject of the formation of an American group for the purpose of rendering financial assistance to China. I have the honor now to inclose herewith for your information and for the information of your Government copy of an identic note with accompanying memo- randum on the above-mentioned subject, which I have to-day handed to the repre- sentatives of Great Britain, France and Japan. Accept, [etc.] Robert Lansing. 40 File No. 893.51/2042a. r n . , j-n ' T XT 7 The Secretary of State to Charge LaugUtn.J Department of State, Washington, Octoler 9, 1918. Sir: Adverting to the Department's telegram No. 1878 of October 8, 1918, 2 p. m.' on the subject of the proposed organization of a consortium for the purpose of making a loan to China, there is enclosed herewith for your information, a copy of an identic note with accompanying memorandum relative to this matter, which was handed on October 8, 1918, to the Ambassadors of Great Britain, France and Japan. The Chinese Minister here has been furnished also with a copy of this note and memorandum. I am, [etc.] p o^ x For the Secretary ot state: Alvey a. Adee. rile No. 893.51/2079. „ . -, -, r, j- a^ ^ Minister Retnsch to the Secretary of State. (Telegram— Paraphrase.] American Legation, PeHng, December 10, 1918 — 5 p. m. I have the honor to request information as to whether the negotiations for American participation in Chinese finances have been entirely completed and also whether a representative is to be sent here to participate in negotiations and study the situation. I urgently recommend that such action may be delayed no longer, for, unless special attention can be given now to the situation in China it is to be feared that greater dangers will develop than those which it has been necessary to overcome in Europe. The present is the time to work out a policy in this matter even though the transfer of reorganization loan funds must await complete reconciliation. No beneficial effects can be expected unless we have a definite policy based upon first hand knowledge of the essential facts, and moreover it is indispensable to the pro- tection of American interests that an American representative participate in the preliminary currency reform loan negotiations. The present situation may be outlined somewhat as follows: Although the President is thoroughly devoted to a policy of civilian representa- tive Government and peace he needs support because of the debauched condition of the Government due to military rivalries. The President's policy will be left hanging in the air due to the opposition of the radical extremists of the South and the mili- tary extremists of the North unless the laying of the foundation of a sound con- structive system immediately follows assurances of financial support after reunion which will probably be given bj' the four representatives within a few days. The Japanese having left the door open for so-called industrial loans all reactionary destructive elements will be encouraged because old intrigues are not dead. Private assurances have been given to me by the President to the effect that in connection with a reorganization loan he will accept control of sources of revenue, ! international auditing and the control of the application of funds. In order to avoid the recurrence of the fraudulent practices which accompanied the so-called dis- armament of 1913 and in order to make the military police and reduced army more efficient and protective to the people, desiring as he does a real disbandment of the troops, he is willing to place the matter in the hands of a military commission com- I posed of Chinese and foreign members. The President, aided by international sup- port, will be able to exclude notoriously corrupt military governors, placing the power in the hands of generals whose efficiency has won respect. It is necessary that funds be made available for the paying off of troops and, to give them employment thereafter, for all necessary public works and colonization. ' Not printed. ' Same to the Ameriean Ambassador at Paris and the American Charges at Peking and Tokyo. 41 The basis for all reform in China is to be found in the suppression of the military nuisance when the revenues of the country will be sufficient for all public purposes, representative Government revived, industry and prosperity will be secure and foreign intrigue difficult. I have the honor to submit that the most important object to be achieved in order to make the world safe is the freeing of 400,000,000 of people from this curse, the protection of free Government in China and the defeat of infamous military intrigue. The bringing about of this achievement of justice and peace is in the hands of the American Government cooperating with Great Britain, France and Japan. The British hope for American leadership as Great Britain can not take the lead because of the Anglo-Japanese alliance. If this matter can not be settled right the sacrifices made in Europe would have been made in vain. The essential things are the purposes and effect of financial support. In the public statement made on December 3rd the Japanese Government has left open the door for the old system of double dealing when it says. The Japanese Government can not undertake to discourage financial and economic continuity of their nationals in China so long as those enterprises are the natural and legitimate outgrowth of special relations between the two neighboring and friendly nations. Therefore the only way to suppress the present intolerable intrigue is for the United States assisted by Great Britain, France and Japan to establish a sound system the very strength of which will discourage and eliminate underhand intrigue of the two Japanese policies, one to be repressed and the other encouraged. This can be done by the energetic participation of America in Chinese finances. I have the honor to request that I be given complete information as to the policy of the American Government and action immediately proposed. Reinsch. FUe No. 893.51/2079. Tlie Acting Secretary of State to Minister ReinscTi. [Telegram.— Paraphrase.] Department of State, WasJiington, Decemher 18, 1918 — 8 p. m. Your December 10, 5 p. m. Preparations for American participation in Chinese finances are completed as far as the United States is concerned and the policy of this Government as to the essential bases of financial assistance to China is unchanged (see Department's mail instruction of October 9, 1918). Untfi. the Governments of France, Great Britain and Japan agree the Government of the United States does not feel that it should independently proceed with general loan propositions. An independent policy pursued by the United States at this time would result in com- petition with other Governments and would endanger the successful formation of the international group as proposed. Consequently it is the policy of this Goven- ment at this time not to take any such action but to await the agreement of the other Governments to the proposed plan and to do all in its power to expedite such agreement. The matter is being pressed in Washington through the representatives here of the various Governments mentioned. The currency reform and reconstruction loans are included under the general terms as proposed by the United States to the other Governments. ConfidentiaL Eussia is included under the present option for currency reform and under the cir- cumstances it might be advisable that that option be allowed to expire because Russia is to be excluded from the new group. If Russia and Belgium were included it is felt that France and Great Britain would practically have two votes each in the- international group. Such matters as the demobilization of troops and the formation of a military police force may demand consideration in the near future as a result of the progress^ towards reconciliation, but it is felt that any such assistance should be restricted to the immediate needs and should be entirely consistent with the larger compre- 35283—21 6 42 hensive plans under consideration. The Department will accordingly recommend to the American group that it meet the request of the representatives of the British and French groups as transmitted in your November 8, 5 p m.^' by sending a repre- sentative to Peking for the purpose of obtaining information and advising as to the measures to be taken to meet conditions as they arise. Polk. File No. 893.51/2082. Minister Reinsch to the Secretary of State. [Telegram.] American Legation, Pel-ing, December 27, 1918, 6 p. m. The British Government has instructed the British Minister that the Treasury is not in a position at the present time to make any engagements with respect to giving financial assistance China. Japanese and French Ministers are ready to join in a promise of assistance. I had understood that arrangements had been made for America, temporarily, to carry the British share of public financing in China. Unless such an arrangement has been or can be completed it would be necessary for the United States, France, and Japan to do the large financing, which will shortly be necessary upon restoration of Chinese unity, in order to place Chinese pubhc affairs on the firm basis. As everything here depends on such effective action the definite information of this question is of the utmost importance. I have the honor to urge that the representative of the American Government proceed to China without delaj*. Reinsch. File No. 893.51/2082. The Acting Secretary of State to Minister Reinsch. [Telegram.] Department of State, Washington, January 4, 1919. — 2 p. m. Your December 27, 6 p. m. The American group in October last stated their willingness to assist in carrying the shares of the British and French groups in con- nection with loans to be made to China by the new international consortium whole circumstances were such as to prevent their more active participation. Any financial assistance to China must of course be through the American group acting in conjunc- tion with the British, French and Japanese groups as already fully set forth in previous instructions. Mr. John Jay Abbott has been chosen by the American group to represent it and he will leave for China in the near future. This is for your confidential informa- tion until formal announcement is made by the bankers. Please cable fully all information available concerning terms under which Baron Sakatani has assumed office of financial adviser. Japanese have said nothing to this Government on the subject. Also advise that reply has been received from Minister of Finance to Legation's communication of September 27, 1918, concerning foreign loans based on the security of the wine and tobacco revenue. Polk. File No. 893.51/2116. The American Commission to Negotiate Peace to the Acting Secretary of State. [Telegram-Paraphrase.] Paris, Fehruary 15, 1919. — 5 p. m. 760. The London representatives of J. P. Morgan and Company and the repre- sentatives of the British Banking Establishment wore consulted by Mr. Strauss, while he was in London. They reached the agreement that the question concern- ing the joint agreement to be included in the business of the proposed new con- ' Not printed. 43 sortium and the surrender of options could be attained most easily through negotia- tions between the four groups, it being understood, of course, that their conclusions would be subject to the approval of their respective Governments. It was believed that it would be possible by this procedure to obtain in a very short time the consent of Japan to pool the loans and options in a manner that no unfair advantages would be obtained by any of the four countries over the others. The adoption of this procedure is urged by Mr. Strauss, I also approve this course. On account of the present situation in the Far East it is more important than ever that a general agreement be concluded concerning financial aid to China. A memorandum of the conversation which Mr. Strauss had in London will be for- warded to you by mail. Lansing. FUe No. 893.51/2117. (Jharge Mac Murray to the Secretary of State. [Telegram-Paraphrase.] American Embassy, ToTcyo, February 16, 1919 — Midnight. From Abbot. After conferences with the Acting Minister for Foreign Affairs and the Minister of Finance they made the statement that there was no diplomatic objection against the American plan and they cordially approve of it in principle. They will recommend concurrence to the Cabinet and that appropriate action be taken referring the subject to the bankers that the details may be worked out and that London, Paris, and Washington be advised. An agreement was reached that industrial and political loans should be included and that options should be sur- rendered and unfair agreements should be recast. All undertakings are to be super- vised by the four Power group, and details are to be arranged by a conference of group representatives at New York. After the establishment of a recognized Government in Russia provision must be made for the Russian group. Last September the Russian Ambassador protested vigorously and the Japanese Government took note of the protest. Small undertakings, to be limited by the amount of the contract of about $250,000 are to be excepted, subject to the regulations of the four Power group. I expect to have a conference with Premier Hara to-morrow and will leave for Shanghai about the 21st. Request that Lamont be advised and that suggestions may be cabled. Large failures are expected in Tokyo and Osaka, including perhaps some banks, due to drop in material values, unexpected armistice and overextension of credit. MacMurray. File No. 893.51/2123. The American Commission to Negotiate Peace to the Acting Secretary of State. [Telegram.] Paris, Fehruary 18, 1919 — 8 p. m. 818. Supplementing my number 760 I wish to emphasize the point that in the judgment of the various financial groups the method which we have hitherto fol- lowed of attempting to have the Governments settle beforehand questions as to options and so forth may result in still further delay in the active work of the pro- posed consortium. Therefore I advocate allowing the financial groups to undertake the discussion of these matters and specially suggest that if you concur you com- municate this decision to J. P. Morgan and .Company in New York, who are the head of the American financial group, and instruct the Ambassador at London, Paris and Tokyo to request the Governments to which they are accredited to take similar action as regards their respective financial groups, if those Governments see na objection to the proposed procedure. Lansing. 44 Tile No. 893.51/2132d. The Acting Secretary of State to Ambassador Page.^ [Telegram— Paraphrase] Department of State, Washington, February 21, 1919 — 4 V- fn- 4590. After a number of conferences in regard to the practical working of the proposed international consortium the suggestion was made that the question con- cerning the joint agreements and the surrender of options could be settled most easily through negotiations between the four groups, it being understood, of course, that their conclusions would be subject to the approval of their respective Govern- ments. The Department approves this suggestion and the representative of the American group has been advised in that sense. Impart this information to the British Government, and request that if it sees no objection to this plan, similar action be taken concerning its financial group. It is believed that this is a practical advance when conditions in the Far East make it more important than ever that a general agreement be concluded concerning financial aid to China, and the Depart- ment desires to emphasize the point that it is the judgment of the different financial groups that the method which has been followed heretofore of attempting to settle in advance questions as to options, etc., is liable to cause further delay in the con- structive work of the proposed consortium. Phillips. File No. 893.51/2149. Charge Maci^urray to the Secretary of State. [Telegram.] American Embassy, Tolyo, March 11, 1919—6 p. m. Your telegram of February 21, 4 p. m. Vice Minister for Foreign Affairs advises me that his Government has entrusted to the Japanese financial group the working out in the first instance in consultation with the other groups of the technical details of their cooperation in China business. MacMurray. rile No. 893.51/2161. Ambassador Davis to the Secretary of State. No. 432.] American Embassy, London, March 19, 1919. Sir: With reference to the Department telegram No. 4590 of February 21, 4 p. m., and previous correspondence respecting the formation of a new international consortium to provide loans to China, I have the honor to transmit herewith enclosed a copy of a note I have just received from the Foreign Office, to the effect that the British Government have decided to authorize a British group to enter the con- sortium under the conditions suggested by the Government of the United States, -and setting forth the scheme as it is understood by the British Government. In dealing with the conditions under which the British Government accept the proposals reference is made to a note, dated the 14th of August last from the Eoreign Office and for the guidance of the Department I venture to point out that a copy of that note was transmitted to Washington under cover of despatch No 9710 of August 16th last. A copy of the attached note has been forwarded to the American Commission to Negotiate Peace to-day, despatch No. 102. I have, [etc.] John W. Davis. " Mutatis mutandis to the American Ambassadors at Paris and Tokyo. 45 [Inclosure.) The Secretary of State for Foreign Affairs to Charge Wright. No. 37459/lO.P.] Foreign Office, London, March I'!, 1919. Sir: With reference to the note from the United States Ambassador of the 24th ultimo and to pre- vious correspondence respecting the proposal of the United States Government for the formation of a new international consortium to provide loans to China, I have the honour to inform you that His Majesty's Government have, after careful consideration, decided to authorize a British group to enter the consortium under the conditions suggested by the United States Government. The United States scheme as understood by His Majesty's Government may be summarised as follows: — 1. It is proposed to establish a system of international cooperation in Chinese finance in the shape of a four Power consortium, comprising Great Britain, France, the United States and Japan, each Power constituting a representative group of banks and financial houses, without prejudice to the claims of Belgium and Russia to be included at a later date. 2. The four groups will share equally in all Chinese Government guaranteed loans, industrial as well as administrative and financial, which involve a public issue, but financial operations not involving a Chinese Government guarantee or a public issue will remain open to all. 3. The groups will pool all existing and future options, except such concessions as may be already in operation. 4. Each national group will receive the active and exclusive support of its Government in the sphere thus indicated. The acceptance of these proposals, as was pointed out to the late Mr. Page by Mr. Balfour in a note dated August 14th, 1918, involves a complete reversal of the policy adopted by His Majesty's Government in 1913 when it was decided to exclude industrial loans from the scope of the consortium's activities, but so convinced are His Majesty's Government of the urgency, in the interests not only of China herself, but also of foreign trade and finance, of adopting some system to insure the proper control of loans to the Chinese Government, that they have determined to depart from their previous attitude and to authorize on certain conditions the participation of a British group in a consortium constituted on the lines sug- gested by the United States Government. These conditions comprise the enlargement of the British group in such a manner as to make it rep- resentative of the banks and financial houses of this country interested in loans to China and the pooling by the various members of the group of all their existing as well as future options for such loans. Further the inclusion of industrial loans in group business is subject to the understanding that the promise of support by His Majesty's Government applies solely to the financial side of such loans, that the British group is prepared — as is also, I am given to understand, the United States group — to dissociate itself from the industrial side and while providing for the flotation of the loans, to put up to public tender the con- tracts for the execution of the engineering or other works to be built out of the proceeds of the loans and for the supply of the necessary materials. On these conditions His Majesty's Government have authorized the British group to participate in the operations of the proposed international consortium and have guaranteed to it exclusive ofiicial support as regards all future public loans to China which involve a Government guarantee and a public issue, whether for industrial, administrative or financial purposes. At the same time I must add that any financial assistance to China on a large scale from this country can not be looked for at the present moment, as, having regard to the heavy pressure on the capital resources of this country for reconstruction purposes and to the consequent restrictions imposed on capital borrowing in the London market, His Majesty's Government have only been able to assent to British participation in the consortium on the understanding that any loan to China in the near future must be of very moderate dimensions and that the share of the British group should be carried by the United States group, in conjunction with the Japanese group, in the manner suggested in the memorandum which formed the annex to the note addressed by Mr. Lansing to the British Charg6 d 'Affaires on October 8th, 1918. Finally I beg to state that I am in complete agreement with the view expressed in Mr. Davis' note of the 24th, ultimo, that the question as to what joint agreements should be included in the practical working of the consortium and what options smrrendered could be most easily settled through negotia- tions between the groups, subject of course to the approval of the respective Governments and I am instructing the representative of the British group accordingly. I have, [etc.] For Earl Curzon of Kedleston: J. A. C. TiLLEY. Tile No. 893.51/2152. The British Embassy to the Department of State. [Memorandum.] No. 221.] His Majesty's Government have been informed by tbe Belgian Government that a Belgian financial group is being formed with the object of participating in the new international consortium for Chinese loans. The Belgian Government add that 46 the group is most anxious to be invited to tlie group meetings that will be held shortly to organize the scheme. His Majesty's Government hold that, although the admission at the early stage of the proceedings of a fifth group may tend to complicate the negotiations, they are bound to admit the Belgian group in accordance with the promise made in 1917. His Majesty's Government would be grateful for an expression of the views of the United States Government in the matter before replying to the Belgian Govern- ment. British Embassy, Washington, March 21^., 1919. File No. 893.51/2152. The Department of State to the British Embassy. [Memorandum.] Concerning the information received through the Embassy's memorandum No. 221 of March 2-1, 1919, that a Belgian financial group is being formed with the object of participating in the new international consortium for Chinese loans and the state- ment that the group is most anxious to be invited to the group meetings that will be held shortly to organize the scheme, the American Government agrees with His Britannic Majesty's Government that the admission of a fifth group at this time will tend to complicate the negotiations. Subsequent events have tended to strengthen the view of this Government as expressed on October S, 1918, to the effect that, It is not the intention, however, of thia Government to ignore, much less to exclude, any just claim of participation in the new international group, but merely, for practical considerations arising out of the war, to asso iite the interests of the Governments now so closely and actively associated and most aljle to finance the proposed losns to China, and to reserve for future consideration the inclusion of any other groups of fneadly powers whii.li may, at a later time, be in a position effectively to cooperate. The position of the United States Government has not changed from that expressed above but conditions in China now render time a more important factor than ever and it T\'0uld seem most necessary that the four Powers which have conducted nego- tiations to practical completion should proceed to active operation rather than at this time to invite the inevitable delay which the consideration of the admission of another national group would cause. Depart.mext of State, Washington, March 27 , 1919. File No. 893.51/2153. Ambassador Morris to the Secretary of State. [Telegram — Paraphrase.] American Embassy, Tohjo, March 27, 1919— 4 p. m. The invitation contained in your March 19, 7 p. m., has been conveyed to the Vice Minister for Foreign Affairs. He stated his belief that the Japanese Government will arrive at the decision to accept in principle the American plan for the proposed reconstructed consortium. As the Cabinet has been too much preoccupied during the session of Parliament that deci-sion has not yet been taken. The question wiU be taken up promptly after adjournment of ParUament. He also stated that, if his Government approved the American plan, consultation would have to be had ^\-ith the British and French Governments before accepting proposal that Japanese group take part in the proposed bankers conference. He asked whether the British and French Governments had been given the same invitation, and was informed that the Embassy was without advice. Is it desired that the Japanese Government be informed that it is being consulted in advance of the others ? Morris. 47 rile No. 893.51/2153. The Acting Secretary of State to Ambassador Morris. [Telegram— Paraphrase.] Department of State, Washington, March 29, 1919 — ^ V- w- Your March 27, 4 p. m. Personally advise the Vice Minister for Foreign Affairs that it seems to be the unanimous opinion resulting from recent discussion by repre- sentatives of British and French banking groups and those reported from Tokyo by Abbott, that an early meeting of the representatives of all the groups is necessary to discuss working details and to report provisional conclusions to their respective Governments. Refer to Department's telegram of February 21, 4 p. m., and Embassy's telegram of March 11, 6 p. m. Referring to the statement contained in Embassy's telegram of February 16, midnight, that it had the approval of the Minister of Finance and the Acting Minister for Foreign Affairs, "All undertakings are to be supervised by the four Power group, and details are to be arranged by a conference of group repre- sentatives at New York." This Government requests to be informed whether May 15, the date selected for such meeting, will be suitable for the Japanese representatives. This information has been requested from the other interested Governments also. The Department is advised that the British Government has finally decided that the British banking group may enter the international consortium under the sug- gestions made by this Government. Phillips. rUe No. 893.51/2153. The Acting Secretary of State to Ambassador Davis. [Telegram — Paraplirase.] Department of State, Washington, March 29, 1919 — 3 -p. m. 4984. The following is a paraphrase of a telegram which is being sent to the American Embassy at Tokyo : [Here follows Department's telegram of March 29, 1919, 4 p. m., to the American Embassy at Tokyo and explains reference to previous telegrams, printed ante. Department's telegram of February 21, 4 p. m., to the American Embassy at Tokyo and telegrams from the American Embassy at Tokyo of February 16, midnight, and March 11, 6 p. m.] You may also ask the foreign office for its approval of such a plan and request it to ascertain whether the date suggested for the meeting is agreeable to the British group. It is thought advisable to hold the meeting on the date suggested in order to complete details before Jime 18 next, the date of expiration of the existing con- sortium agreement. Repeat to the American Embassy at Paris for similar action. Phillips. File No. 893.51/2160. Ambassador Morris to the Secretary of State. [Telegram— Paraphrase.) American Embassy, ToTcyo, April 2, 1919—1 p. m. Replying to Department's telegram of March 29, 4 p. m., Mr Shidehara again stated to-day that authorization for the participation of the banking group in the proposed conference can not be given by the Japanese Government before the Cab- inet reaches a formal decision concerniug the American plan for the reconstruction of the consortium, steps have been taken to hasten that decision. He also stated that the Japanese Government would prefer London or Paris for the place of meeting because Tatsumi and Odagiri, one of whom would probably 48 represent the Japanese group at that conference, are both engaged at the Peace Conference at Paris. Mr. Shidehara also informed me that Japan is bound to support Belgium's claim for the admission of the Belgian group to the new consortium. Morris. File No. 893.51/2165. Ambassador Sharp to the Secretary of State. [Telegram.] American Embassy, Paris, April 5, 1919 — 8 p. m. Important. 8029. Your 4590 February 21 and 4984, March 29. Minister for Foreign Affairs replies that the only point on which some doubt had been entertained was the expediency of extending the scope of the new consortium to industrial loans which the agreements of the 1912 consortium had purposely excluded, but in order not to delay any longer the consideration of such an interesting proposition as that suggested by it the said point will be left to the decision of the representatives of the groups and therefore the Foreign Office has transmitted to the French group the suggestion contained in Department's 4984 of holding a meeting in New York on May 15th of the representatives of the different groups. However, Mr. Pichon raises the question as to the facility of reuniting in America at that date the various interested financial persons. He points out that the repre- sentative of the Japanese group, M. Odagiri, of Yokohama Specie Bank, is now at Paris; that Sir Charles Addis, who will doubtless, as usual represent the British group, is at London; that the directors of the Banque de L'Indo-Chine, who have always had charge of representing the French group, are in Paris. He further states that information has been received that a representative of the interested American banks had arrived or was on point of arriving in France and he asks therefore whether it would not be simpler to suggest to these gentlemen to arrange themselves the place and date of their meeting. Sharp. File Ko. S93.51/21S9. Ambassador Sharp to the Secretary of State. American Embassy, No. 7216.] Paris, April 7, 1919. Sir: Confirming my No. 8029 of the 5th instant 8 p. m. transmitting in substance the answer received from the Minister for Foreign Affairs in regard to the Depart- ment's suggestion -, the surplus of the salt tax is to be offered. As to supervision, the pro^dsiona of Article XIV of the reorganization loan of 1913 are to be followed. You will please lose no time in ascertaining confidentially the conditions for making this loan; and it is to be hoped that in consideration of the friendly relations between the two countries an advance of the above-mentioned amount can be quickly secured to tide over the present situation. The above has been communicated to the American Mini.ster. Mr. Yung Kwai would be greatly obliged if the Department of State would be so kind as to give him a reply for communication to the Ministry of Finance at Peking. Chinese Leg.vtion, WasMngtni,, June 20, 1919. File No. 99.3.51/2271 Ambassador Wallace to the Secretary of State. [Telegram-Paraphrase.] Ameeicax Embassy, Paris, June 31, 1919 — 12 p. m. 891. I had a conference with Secretary Lansing yesterday afternoon, Mr. Lamont and Ish. Marshall being present, concerning the messages of Mr. Lament of June 17 and IS to the American group. These messages were transmitted through the American lilmliassy at London. We agreed that Japan's attitude as stated in the letter of Odagiri to Lamont of the IStli is serious and possibly involves a break down of the new consortium, and for that reason every proper measure should be tal Not printed. 60 [Inclosure — Translation.] The Minister for Foreign Affairs to Ambassador Wallace. Ministry for Foreign Affairs, Pf/r/.s, Jvly 16, 1919. Mr. Ambassador: By a note dated the 7th of this month, your excellency was good enough to propose the following formula as interpreting the support which the American, French, British and Japanese Governments intend giving to the agreement concluded on May 12th last between the financial groups constituting the new consortium in China: "The Governments of each of the four participating groups undertake to give their complete support to their respective national groups, members of the consortium, in all operations undertaken pursuant to the resolutions and agreements of the eleventh and twelfth of May 1919 respectively, entered into by the bankers at Paris. In the e^•ent of competition in the obtaining of any specific loan contract, the collective support of the diplomatic representatives in Peking of the four Governments will be assured to the consortium for the purpose of obtaining such contract." I have the honor to inform your excellency that, in accordance with the communications exchanged recently with your Emlxissy, the above is indeed the interpretation of the support that the French Government gives to the arrangement which has been reached between the financial groups. It seems to it therefore that the above formula should be adopted. Kindly accept, [etc.] S. PiCHON. File No. 893.51/2315. Amlassador Darlts to tlie Secretary of State. [Telegram.] Amekicax Embas.sy, London, July IS, 1919^7 p. m. 257S. Confidential. Foreign Office regards the claim of Japanese group to exclude Manchuria and Mongolia from sphere of activities, of consortium as totally inadmissible. Davls. File No. 893.51/2315. The Acting Secretary of State to Amhassador Davis. [Telegram.] Department of State, Washington, July 19, 1919 — 6 p. m. 5696. Urgent. Repeat your 257S of July IS, 7 p. m. to Embassy Paris and request that the Embassy expedite reply of French Government on this point. Phillips. File No. 893.51/2334. Ambassador Wallace to the Secretary of State. [Telegram.] American Embassy, Paric, July :24, 1919—7 p. m. 1152. Foreign Ofiice considers that it is wholly inadmissible that Manchuria and Mongolia should be excluded from the sphere activities of the consortium but in making this oral statement insists that no use should be made thereof in any action or representations which would tend to eliminate Japan from participation m the consortium. In the conversation it developed that the French Foreign Ofiice is stron-^ly opposed to the elimination of Japan from the consortium, being apprehensive that should this occur Japan's isolation would impel her to seek alliance with Germany in financial and commercial matters in China, which if consummated would so influence Chmese Government that the interests of other powers in China would be seriously jeopardized. -Above repeated Embassy at London. Wallace. 61 File No. 893.51/2335. Ambassador Davis to the Secretary of State. [Telegram.] American Embassy, London, July 25, 1919 — 11 a. m. 2618. My despatch 432 March 19th regarding international consortium for providing loans to China. Earl Curzon in note dated July 22nd just received calls attention to fact that British group have unfortunately found it impossible to comply with the condition as to its enlargement, in such a manner as to render it sufficiently representative of British financial houses of good standing interested in loans to China to prevent criticism on the ground of exclusiveness, and states that he has reluctantly been forced to conclusion that in this matter it is not impossible to attain finality or to satisfy all present and future claimants to participation; that British Government would not feel justified in conferring a monopoly of official support on a group, the constitution of which conflicts with the most essential of the con- ditions laid down by them; that he has informed British group that British Gov- ernment will contmue as hitherto to afford them the fullest possible measure of support in all operations arising out of their connection with the consortium; and that the scope of that support is clearly defined in the formula contained in'your 8804 July first to Paris I and accepted by British Government as communicated in my telegram of July 18th, 2577,^ and my despatch 1061 July 21st.2 The note adds that for purpose of the consortium as proposed by the United States Government, British Government desire that British group as at present constituted should ori strength of their established and predominant position in China be regarded as the representative British partner in the consortium even though they are unable to give them a guarantee of exclusive official support. American Mission and American Embassy Paris informed to-day by my despatches numbers 171 and 151 respectively, Davis. File No. 893.51/2275. The Acting Secretary of State to the American Commission to Negotiate Peace. [Telegram.] Department of State, Washington, July 26, 1919 — 1 p. m. 2429. Your No. 891 June 21, 12 p. m. For Marshall: American group is willing to proceed as outlined. Department will proceed as soon as we hear from the British provided their answer is favorable. Polk. File No. 893.51/2383. The Department of State to the Japanese Embassy. [Memorandum.] The Government of the United States is informed that, at the bankers con- ference held in Paris during May and June last to discuss matters relating to the new consortium for China, the Japanese financial delegates, acting under instructions from their principals, asserted that all the rights and options held by Japan in the regions of Manchuria and Mongolia where Japan has special interests should be excluded from the arrangements for pooling provided for in the proposed agreement because of the very special relations which Japan enjoys geographically and historically with the regions referred to and which have been recognized by Great Britain, the United States, France, and Russia on many occasions. The Government of the United States is further informed that the position taken by the representative of the American group, with the approval of the British and French financial representatives, was that, so far as the banking groups were concerned, any attempt to exclude Mongolia and Manchuria from the scope of the consortium would be inadmissible; but that the whole question raised was one of such grave importance that it was felt to be beyond the immediate competence of ' Not printed. 62 the financial groups to discuss, and that he would, therefore, bring the matter to the attention of his Government. The Imperial Japanese Government has not indicated that it shares the opinion expressed by the Japanese bankers; but inasmuch as the question raised by the latter has been referred to this Government by the American representative, it is felt to be appropriate to bring the matter to the notice of the Imperial Government, It may be that the Japanese banking group is under a misapprehension as to the objects and purposes of the consortium, which are to make loans to the Central Government of China, or to the provincial governments, for administrative or indus- trial purposes and to include all such loans as have the guarantee of the Central Government or any of the provincial governments and which involve a public issue. They do not, however, contemplate the elimination of private enterprise or the activities of financial or industrial corporations, nor would it be the desire of this Government that they do so. The Imperial Japanese Government will readily understand that the Govern- ment of the United States could not consistently consent that the American bankers agree to the reservation proposed, for the reason that it is believed to be an essential prerequisite to the proper functioning of the consortium that all Chinese business of the classes proposed as appropriate for the activity of the consortium be available for it. Reservations of regions can only impair its usefulness as an instrument for good, and limitations on its activity can only detract from its utility as a means for promoting international cooperation among those most interested in China. More- over, as all other parties to the arrangement have agreed to pool their rights and options without other reservation than that contained in the terms of the agree- ment itself, it is only equitable that the same rule should apply to all alike. If the Government of Japan is unable to convince the Japanese bankers of the justness of adhering, without reservation, to the agreement as accepted by the bank- ers representing the groups of the United States, Great Britain and France, the Gov- ernment of the United States will receive the information with keen disappointment and sincere regret; for it is felt that the relations established during the Great War between these and other nations have laid a basis upon which the work of peace might be erected by cordial cooperation and to their mutual advantage. The Gov- ernment of the United States believes that the consortium is one of those mediums for constructive work, through which the helpful spirit of the relations which were so cemented during the war may be translated into cooperative action. That this view is not held alone by the Government of the United States is evidenced by the desire on the part of the British and the French Governments to cooperate in the consortium and by the requests for representation therein from the Government of Belgium, and from the bank of Russia, both of which are now under consideration. It is, therefore, the confident hope of this Government that the Imperial Japanese Government will also share this view, and will so inform the Japanese banking group. Department of State, Washington, July 30, 1919. File No. 893.51/2360. Amhassailor Davis to the Secretary of State. [Telegram.] AjiefvIcax Embassy, London, August 14, 1919—7 p. m. 2799. Following is the text of memorandum addressed ])y the British Foreign Office on the eleventh instant to the Japanese Ambassador urging the withdrawarof claim of Japanese group for the exclusion of ^lanchuria and Mongolia from the scope of the consortium. On the 22nd of last March Earl Curzon, of Kedleston, had the honor to address to the Japaneee Ambas- sador a note on the subject of the British participation in the international consortium for providing loans to China. This note will ha^•e made it clear to Viscount Ohinda that, with the exception of the condition concernmg exclusive official support to the British group-a point which has been satis factorilv settled by the adoption of the American formula defining the measures of support to be accorded by the Governments concerned to their respective national groups-His Majesty's Government have accepted, 63 in their entirety, the original proposals of the American Government for the formation of the international consortium as set out in a note addressed by Lord Curzon to the Japanese Charge d'Affaires on March 22nd last. This scheme, as Viscount Chinda is doubtless aware, comprises the pooling by the groups of all their existing and future options in China, except such concessions as may already be in operation. His excellency has probably also had occasion to study the minutes of the inter-group meetings held inParis on the eleventh and twelfth of May last, at which resolutions were unanimously adopted, subject, of course, to the approval of the Governments concerned, providing for the pooling by the groups of all their existing loan agreements and options involving a public issue and even pledging the groups to use their best endeavors to induce other parties who may possess or control any such agreements or options to surrender the same to the consortium. At the present moment the British, American and French Governments have all informed their respective groups of their approval of these minutes, subject always to the American definition of the measure of official support to be accorded to them, but, so far as Lord Curzon is aware, no such approval has as yet been intimated by the Japanese Government with the result that the urgent work of organizing the consortium has been brought to a standstill. His Majesty's Government have heard with the utmost regret that the Japanese financial delegates in Paris, acting under instructions from their principals, have informed their colleagues that all the rights and options held by Japan in the regions of Manchuria and Mongolia, where Japan has special interests, should be excluded from the arrangements for pooling provided for in the proposed agreement because of the very special relations which Japan enjoys geographically and historically with the regions referred to and which have been recognized by Great Britain, the United States, France and Russia on many occasions. His Majesty's Government are further informed that the position taken by the British, American and French groups towards this claim of the Japanese group was that any attempt to exclude Manchuria and Mongolia from the scope of the consortium would be inadmissible, but that the whole question raised was one of such grave importance that it was felt to be beyond the immediate competence of the groups to discuss and must therefore be referred to the decision of the Governments. In these circumstances His Majesty's Government feel justified in bringing the matter to the notice of the Japanese Government, — as they hear has already been done by the American Government, — and requesting them to direct the Japanese group to modify their attitude on this all important point. One of the fundamental objects of the American proposals as accepted by the British, Japanese and French Governments, is to eliminate special claims in particular spheres of interest and to throw open the whole of China, without reserve, to the combined activities of an international consortiuBa. This object can not be achieved unless all the parties to the scheme agree to sacrifice all claims to enjoy any industrial preference within the boundaries of any political sphere of influence. Manchuria and Mongolia are important provinces of China and any attempt to exclude them from the scope of the consortium would constitute a direct negation of the principle on which the consortium is based, would provoke the revival of similar claims on the part of other nations and thus perpetuate the very difficulties which the consortium is designed to obviate. Moreover as all other parties to the arrangement, except the Japanese group, have agreed to pool their rights and options, without other reservation than that contained in the terms of the agreement itself, it is only equitable that the same rule should apply to all alike. His Majesty's Government have every reason to believe that the Japanese Government will share these views and will cause the Japanese group to withdraw their claim to the exclusion of Manchuria and Mongolia from the scope of the consortium. Foreign Office state that a copy of this memorandum has been communicated to the French Ambassador for the information of his Govenmient. Repeated to Paris. Davis. File No. 893.51/2385. Minister Eeinsch to tJie Secretary of State. [Telegram— Paraphrase.) Ameeican Legation, Peking, August 26, 1919 — 6 p. m. The Prime Minister and the Minister of Finance have authorized Hsu En Yuan, ■who is going to the United States on an official mission, to reopen negotiations with the Continental and Commercial Bank about the option on wine and tobacco tax. The Prime Minister requests that Abbott be advised of this so that negotiations may be resumed on the arrival of Hsu during the last week in September. This mission must not be made pubhc as it is confidential. It is not intended to ignore the con- sortium, but considering the uncertainty when the consortium will be ready to do business, and because of the urgent financial requirements by China it is desired to complete negotiations with the Continental Bank. Any desirable arrangements can be made by that bank vis a vis the consortium. This would seem to be a case in which action would be eminently proper because this option has continued in force despite considerable opposition. XvEINSCHi 64 File No. S93..5I/2386. Ambassador Wallace to the Secretary of State. [Telegram.] American Embassy, Paris, August 26, 1919 — 11 p. m. 1325. Following is translation of letter addressed to the Japanese Ambassador by the Minister of Foreign Affairs on August 23 relative to the Chinese consortium. Under date of July 7 last his excellency, Mr. Matsui, was advised that the Government of the Republic gave its adhesion to the formula suggested by the United States Government to define the support which the Japanese, French, American and British Governments agreed to give to the groups constituting the financial consortium in China. The solution of this interlocutory question justified the hope that the consortium might become effective and begin its long delayed operations. However, the Government of the Republic has been advised that a fresh difficulty has arisen. It appears indeed that the Japanese financial delegates have made request of the allied financial groups that their rights and options possessed by Japan in Manchuria and Mongolia be excluded from the arrangements provided in the consortium agreement. The Government of the Republic feels compelled to point out that such an exclusion assumes a political character and can neither be raised nor settled by the financial groups independently of the Governments. It esteems, in so far as it is concerned, that this exclusion is not justified at the present moment and that it was under control the policy followed by the allied and associated Governments in regard to China. They have indeed manifested their firm intention of opening the whole of China to the scope of the inter- national consortium and of no longer favoring in that country the creation of special status of influence, the first e'.'fect of which, would be to impede their efforts towards putting end to divisions between the Chinese parties. The Government of the Republic, therefore, hopes that the Japanese nation will be pledged to give such instructions to the Japanese financial delegates as will cause the latter to relinquish their request, that similarly to the British, French and American representatives they will bring about to the consortium all their rights and options according to the stipulations provided by the agreement reached at the meetings held by the groups on the eleventh and twelfth of ilay last at Paris. Copy sent American Embassy London as Embassy's number 261. Wallace. File No. .s9i.51/2405. The Ja'panese Charge d' Affaires to the Department of State. Japanese Embassy, Washington, August 27, 1919. The Japanese Government accept and confirm the resolution adopted at the meeting of the representatives of the bankers' groups of the United States, Great Britain, France and Japan at Paris on May 11 and 12, 1919, for the purpose of organ- izing an international consortium for financial business in China, provided, however, that the acceptance and confirmation of the said resolution shall not be held or construed to operate to the prejudice of the special rights and interests possessed by Japan in South Manchuria and Eastern Inner Mongolia. K. Debuchi. File No. 893..51/2413. Department of State, Office of the Third Assistant Secretary, Washington, August 27, 1919. MEMORANDUM. Mr. Debuchi called this afternoon and read me the following statement which he declared to be an official expression, but which he did not care to have left as an official document in writing: The Japanese Government deeply appreciates the friendly spirit in which the Government of the United States was pleased to set forth in a memorandum dated July 30th its frank views on the matter of the proposed international consortium for financial business in China. In accepting and confirming the resolutions adopted l)y tlie representatives of the banking gi-oups concerned at their meetings held in Paris on May 11 and 12, the Japanese Government have felt impelled to make certain reservations in regard to the special rights and interests enjoyed by Japan in South Man- churia and Eastern Inner Mongolia, for reasons plainly stated as follows. The enterprises to bo pooled in the new consortium, in so far as they concern the European and American nations, are matters primarily of purely private interest, while in regard to Japan they often invohe questions of vital national interest by reason of her geographical propinquity with China. As 65 regards South Manchuria and Eastern Inner Mongolia, above all, not only are interests of national defence and of the economic existence of the Japanese people deeply concerned, but the special position held by Japan in these regions is the natural fruition of the sacrifices both in blood and treasure which she was called upon to pay in self-defence, and is therefore entirely different in character and origin from any position that other Powers may possess in any locality of China. It is of course very desirable to the Japanese Government that the new consortium, duly organized, should be largely instrumental in promoting the investment and cooperation in China of the nations concerned. The general feeling of the Japanese people, however, is so sensitive vis-^-vis any question affecting their interest in the regions referred to that there is at present a widespread uneasiness on the part of the public as to the functioning in future of the proposed consortium, a state of mind which is freely finding utterance in public remarks and press comments. The fear is even entertained in some quarters that the possible developments of the new international financial scheme might prove funda- mentally destructive of the position which Japan enjoys in South Manchuria and Eastern Inner Mongolia, and certainly there are not a few who seem to feel that this alarming prospect has evidently been forced uppn Japan by the other Powers interested. The whole situation might fitly be compared to the rela- tionship between the United States and Mexico and other Central American states, where the American people evince such acute sensitiveness that the rumors circulated fronj time to time of Japan's business enterprises in these countries have been allowed to so exercise the public mind of the United States as to give rise to discussions and actions in Congress. In both cases it seems quite impossible to dis- regard the internal political significance. It is quite evident, therefore, how difficult it would be for the Japanese Government, in the face of the strongest disapproval on the part of the general public, to submit to an arrangement which will neces- sitate the pooling for common activity pi an international financial group of such enterprises as might affect the special rights and interests of Japan in these regions. The Japanese Government are confident that the Government of the United States will not fail to appreciate with sympathy the circumstances which have compelled them to make the reservations above mentioned, inasmuch as the special position of Japan in South Manchuria and Eastern Inner Mongolia has long been recognized by the United States. Mr. Debuchi reiterates his regret that this action should have been taken by the Japanese Government and stated that it was done as a matter of policy, but that in practice the Japanese Government did not care to take advantage of the priority which they would enjoy in the regions of Mongolia and Manchuria except in case of emergency. He said that it was done to satisfy public opinion in Japan. I told him that the reference to Mexico was entirely irrevelant and immaterial; that we did not object to any activity in Mexico on the part of Japan, or England or France except when there was an intimation that the Japanese Government was trying to get submarine bases near our border; that England and France each had very large holdings in Mexico ; and that we did not exert a political control there, nor did we like to see a political control exerted by one Government over another in other parts of the world. Breckinridge Long. File No. 893.51/2393a. The Secretary of State to Ambassador Davis. [Telegram— Paraphrase.] Department of State, Washington, August 29, 1919 — 6 p. m. 5900. The Department has received a communication from the Japanese Government in regard to the consortium which states that the resolutions adopted May 11 and 12, 1919, by the representatives of the financial groups of the United States, France, Great Britain and Japan for the organization of an international consortium to do financial business in China, are accepted and confirmed by the Japanese Government with the proviso that the special rights and interests of Japan in South Manchuria and Eastern Inner Mongolia shall not be prejudiced by the acceptance of said resolution. It is further stated as the reason for this decision that in the enterprises which are to be pooled under the operation of the new consortium, in so far as they con- cern Japan, questions of vital national interest are often involved because of the geographical nearness of Japan to China, whereas, in regard to the European and American nations they are primarily matters of purely private interest; that Japan in character and origin, stands in an entirely different position concerning South Manchuria and Eastern Inner Mongolia from that held by any other Power in any 35283—21 9 66 locality of China, not only because the national defense and the economic existence of the people of Japan are involved, but Japan is holding the special position in these regions through the sacrifices, both in blood and treasure, she was compelled to make in self-defense. It states that the Japanese people are so sensitive concerning any question which affects their interest in these regions that a widespread uneasiness exists in the public mind as to the scope of the proposed consortium, which is finding free utterance in press comments and public remarks. It is feared even in some quarters that there is a possibility that the developments of the new international financial arrangement may fundamentally destroy the position of Japan in South Manchuria and Eastern Inner Mongolia, and there are not a few who feel that the other inter- ested Powers have forced this alarming prospect upon Japan. It is surely evident, therefore, that it would be very difficult for the Japanese Government, facing the strongest disapproval by the general public to agree to any scheme which requires the pooling of such enterprises as might affect the special rights and interests of Japan in these provinces for the common activity of an international financial consortium. Repeat the above to the American Embassy at Paris. Lansing. rile No. 893.51/2407. Minister Reinsch to the Secretary of State. [Telegram— Pai-aphrase.l A.MERiCAN Legation, Peling, Septemher 7, 1919 — noon. A message has been received from the President to the effect that the Chinese Government will be compelled to make such arrangements with Japan as may be possible in order to avoid the consequences of the financial stringency in China unless financial assistance is obtained within a month from the United States or the consortium. It is reported that salaries of officers and men of the army and navy have not been paid for three months. Short term loans at disastrous rates have been obtained by the Minister of the Navy from different banks, but further credit has been refused and the Minister has resigned. His resignation has not been accepted by the Presi- dent, but he is not attending cabinet meetings. Reinsch. Tile No. 893.51/242.5. Ambassador Wallace to the Secretary of State. [Telegram — Paraphrase.] American Embassy, Paris, Septemher 16, 1919 — 7 p. m. 1394. The statement contained in your telegram No. 5900 of August 29 to London was communicated to the Minister for Foreign Affairs yesterday. He stated that the information he had received from the French Embassy at London concerning the proposal of forming at once a consortium leaving out Japan was of the tenor that the British Government did not favor this suggestion as the consequences of such action might possibly be very injurious to the interests of all concerned. He further stated that it was feared that if France, Great Britain and the United States organized the consortium without Japan the latter country might be thrown into the arms of Germany, and that it was the earnest desire of the British Government seriously to spare no effort to induce Japan to become a member of the consortium without reserving spheres of influence as this was contrary to the present international policy of the allies. The Minister for Foreign jVffairs added that his opinion coincided M'ith that of the British Government because he considered that it would be a grave and dangerous step to comply with the American suggestion. Mr. Pichon further said that Lord Curzon, Acting British Minister for Foreign Affairs was understood to be strongly urging the Japanese Government to withdraw their reservations of special rights and interests in the regions referred to. Wallace. 67 File No. 893.51/2451. Ambassador Davis to the Secretary of State. [Telegram.] American Embassy, London, October 2, 1919 — noon. 3161. Your 6005 September 26th 4 p. m.^ and previous correspondence regard- ing Chinese consortium. Japanese Ambassador recently returned from Paris has now furnished Foreign Office with territorial definition of reservations as follow: South Manchuria comprising a territory whose northern boundary is a line drawn through the point which the railroad line from Chang Chung crosses the lesser Sumgari River and east and west paralleling main Siberian railroad. ^ Eastern Inner Mongolia a territory difficult to define but comprising the greater portion of the four (tribal) leagues nearest to Manchuria which leagues are allied and constitute a quasi-independent district of their own. In view of the above an informal discussion at Foreign Office now reveals opinions regarding three possible alternatives: One, exclusion of Japan from consortium; two, continued pressure to induce Japan to withdraw all reservations; three, modification of present reservations as outlined below. The first appears injudicious as it would stimulate independent action by Japan, would free the hands of Japanese banks already coveting the Chinese field, would thereby create a rival to the consortium, would exclude from the guiding influence of the consortium and its pooled interests the existing Japanese concessions for railroads and other activities which arouse the embarassing question of the dispo- sition of the railroads in Shantung. The Foreign office does not appear to attach much importance to the French fear of German collusion with Japanese. The second alternative^ if the previous dilatory tactics of Japan have been correctly construed, would merely serve to prolong a delay which is advantageous only to Japan, would postpone a definite solution and will doubtless invoke most of the objections raised regarding point one. The Foreign Office would therefore welcome an immediate expression of our opinion regarding the following interpretation and application of the third alterna- tive; that the reservation regarding South Manchuria as above defined be accepted on account of its propinquity to Korea, its clear definition and the existence of recognized railroad and other concessions therein. (Confidential. The possible advisability of anticipating an invocation by Japan of the Lansing-Ishii agreement in this connection was intimated.) That the reservation regarding Eastern Inner Mongolia should not be accepted owing to its undefined character and to the absence of such special conditions as those pertaining to South Manchuria. That in order to relieve that present financial stringency in China the four Powers including Japan immediately advance to China a loan not to exceed five million pounds. The con- tinuance of the present discussions regarding reservations or to future loans under the following conditions: 1. The disbandment of the Chinese troops raised under the War Participation Bureau. 2. The disbandment of forces now used against Outer Mongolia. 3. The disbursement of such of the proceeds of perpetual loan as are applicable to the discharge of troops to be carried out under observation of military represen- tatives of participating Governments. 4. The disposal of the balance of the loan to be under strict supervision of par- ticipating Government under arrangements similar to those made in connection with the reorganization loan. 5. A solution of the disputes between North and South China. London believed that South Manchuria is the crux of Japan's desire and that notwithstanding certain unfulfilled railway concessions alleged to affect Inner Mon- golia but actually penetrating the province of Chihli, the reservation affecting Inner Mongolia will be dropped. 2 Not printed. 68 With the understanding that Embassy at Tokyo and Legation at Peking will be informed by the Department in the sense of the above the Foreign Office will similarly advise British Missions in those capitals and will discuss in the same sense with Counsellor of French Embassy here with whom negotiations with French Government are being carried out rather than through Paris but with whom this Embassy has at no time consulted. American Mission and American Embassy Paris informed. ^ Davis. Me No. 893.51/2466. The Japanese Charge d' Affaires to the Secretary of State. Japanese Embassy, Washington, October 8, 1919. Sir: With reference to the note of July 3 which the Acting Secretary of State was good enough to address to me on the subject of diplomatic support to be given to the new consortium for financial business in China, I have the honor to communicate to you that the Japanese Ambassador at Paris under instructions has recently in- formed the French Government to the effect that the Japanese Government will accept as an interpretation of the bankers' agreement of May 12 the formula sub- mitted by the French Government in the sense of the modified form as suggested by the American Government. Accept, [etc.] K. Debuchi. File No. 893.51/2451. The Secretary of State to Ambassador Davis. [Telegram.] Depaetment of State, Washington, October 11, 1919, 1 p. m. 6073. Your 3161 October 2 noon. In view of your reference to the intimation by the British Foreign Office that Japan might invoke the Lansing-Ishii exchange of notes in support of the claim to the exclusion of Manchuria and Mongolia from the operation of the consortium, I have to advise you that this Government does not consider that in that agreement it obligated itself to the recognition of any such position on the part of Japan as would warrant that claim. Any claim that the recognition of special interests was intended to imply a monopoly or a priority of economic or industrial rights is negatived by the concluding paragraphs of the agreement which explicitly and without limitation preserve the principle of equality of commercial and industrial opportunity. That this reassertion of the Open Door was understood to import no restriction in the particular case of Manchuria is made plain by the fact that that agreement assumed the existence of earlier treaty arrange- ments on the subject, one of the most concrete of which is the Portsmouth Treaty of Peace between Japan and Russia by which the contracting parties declared that they had not in Manchuria any territorial advantages or preferential or exclusive concessions in impairment of Chinese sovereignty or inconsistent w'dh the principle of equal opportunity, and engaged not to obstruct any general measures common to all countries, which China may take for the development of the commerce and industry of Manchuria. In connection with the formation of the old consortium for the currency loan in 1912 the Japanese and Russian groups having made reservations regarding non-apphcation of restrictions upon their independent action in northern China, Manchuria, and Mongolia maintained the right to withdraw from participation in any such business which their respective Governments might consider contrary to the interests of Russia or Japan. Even the position sought to be established at that time by the Japanese and Russian groups did not contemplate any such exclusive right as is now claimed 69 but confined itself to a right of protest against undertakings deemed positively harmful to the national interests of the two countries. In May, 1915, furthermore, during the negotiations between Japan and China which led to the so-called agree- ments of May 25th involving certain special political and economic advantages in favor of Japan in Manchuria and Mongolia, this Government found it necessary to advise both interested Governments that it can not recognize any agreement or undertaking which has been entered into or which may be entered into between the Governments of China and Japan impairing the treaty rights of the United States and its citizens in China, the political or territorial integrity of the Republic of China, or the international policy relative to China commonly known as the Open Door Policy. The reservation thus made in behalf of this Government has never been with- drawn and must be regarded as a part of the res gestae to be considered in construing the position of the United States in reference to the question now at issue. This Government therefore reluctantly finds itself unable to concur in the sug- gestion of the British Foreign Ofhce that a solution of the difficulty might be found in accepting the Japanese reservation regarding South Manchuria as now defined by the Japanese Ambassador. This Government can only regard the reservation in the form proposed as an attempt to inject exclusive political pretensions into a project which all the other interested Governments and groups have treated in a liberal and self-denying spirit and with the purpose of eliminating so far as possible such disturbing and complicating political motives; and it considers that from the viewpoint, either of the legitimate national feeling of China or of the interests of the Powers in China it would be a calamity if the adoption of the consortium were to carry with it the recognition of a doctrine of spheres of interest more, advanced and far-reaching than was ever applied to Chinese territory even in the period when the break-up of the Empire appeared imminent. It can only be assumed that in taking its present position the Japanese Govern- ment has misapprehended the purposes of the consortium and assumed that it is the intention of the other Governments to encroach upon the existing vested Japanese interests in the region indicated. That such is not the intention may be seen from the wording of the inter-group agreement of May 11th which in article 1 specifies that only those industrial undertakings are to be pooled upon which substantial progress has not been made. This wording plainly excludes those enterprises which are already developed and thus constitute vested proprietary interests (such as the South Manchuria and Ssupingkai-Chengchiatun Railways, the Fushun colliery, et cetera) and may fairly be interpreted to exclude likewise the existing options for the extension of railways already in operation (for instance the proposed continua- tion to Taonan of the Ssupingkai-Chengchiatun Eailway and to Hueining (Hoiryong) of the Kirin-Changchun Eailway). If Japan's reservation is urged with a view solely to the protection of existing rights and interests, it would seem that all legiti- mate interests would be conserved if only it were made indisputably clear that there is no intention on the part of the consortium to encroach on established industrial enterprises or to compel the pooling of existing Japanese options for the continua- tion thereof; and this Government feels that the Japanese Government should be amply content with the understanding that certain specific enterprises are exempt. It will not accept a geographical reservation which could not but lend itself to implications which are foreign to the purposes of the consortium. In view of the fundamental identity of purposes and methods which has characterized the coopera- tion of the United States and Great Britain in both China and Siberia, this Gov- ernment looks confidently to Great Britain to exert a reassuring influence upon its ally and to convince the Japanese Government that it may find it possible to authorize its banking group to enter the proposed consortium with full assurance that no legitimate Japanese rights or interests would thereby be jeopardized. Upon such a basis this Government would be happy to cooperate in arranging for an immediate advance to Chioa for the purposes and upon substantially the conditions suggested in your telegram. 70 Should such an adjustment of the difficulty appear impracticable in the near future this Government would, though with great reluctance, find itself compelled to forego the hope of Japanese cooperation and to proceed with entire freedom of action, although of course with the most earnest hope that the British and French Governments would find it possible to cooperate with it in the carrying out of the plans which they and their respective banking groups have already approved in principle and loyally endeavored to further. This Goverumout feels that it has adequate grounds for the belief that especially if supported by Great Britain and France such plans for the relief of the critical situa- tion now existing in China might be hopefully undertaken; and that, so far from stimulating independent and rival action by Japan as apprehended by the British Government such action would tend strongly to impress upon the Japanese Govern- ment that it is neither practical nor politic from the viewpoint of Japanese interests to compel its group to hold aloof from cooperation with the interests of the other Powers concerned. The attitude hitherto taken by the Japanese bankers seems clearly to indicate their apreciation of the impracticability of separate action ; and it is to be seriously doubted whether the Japanese Government would find it feasible to persist in its present pretensions or to maintain a policy of financial rivalry if confronted with the alternative of cooperation or competition with those whose desire is to relieve the Chinese situation without taking advantage of it to seek special benefits. It is desired that you read this telegram to the Minister for Foreign Affairs and urge upon him the particular importance which this Government attaches to -this question and its earnest hope that the influence of the British Government will be exerted to the utmost towards the attainment of an entirely harmonious cooperation among the four most interested powers in a policy which shall be wholly helpful and wholly free from any imphcation of self-seeking at the expense of China or of the general interests of the Powers in relation to China. In the meanwhile, as a matter of immediate concern, this Government confidently relies upon Great Britain to cause to be definitely declined the proposal for an imme- diate advance by the old consortium inasmuch as it would under present circumstances create a situation in which it would be difficult for Great Britain and France to with- hold acquiescence in Japan's new pretensions in South Manchuria. We consider this of the utmost importance. In this general connection the following telegram from the Legation at Peking is repeated for your information: October 3, 5 p. m. Confidential. The Japanese Minister called to-day to express his apprehension that there would he general disorder throughout North China unless financial assistance is soon given to the Peking Government. He alluded to the suggestion made to the old consortium by the Japanese Government, that the old consortium arrange for a loan. He said that no reply had been received from London to the request of the consortium bankers for instructions. As the Japanese would be the prin- cipal su'ferers if disorders break out, it would be necessary for Japan to act independently in financing the Peking Government if it can not be done through the consortium. He expressed the hope that American financiers would cooperate in a loan, part of which might be allotted to the Southern Government. This matter is being taken up here with the British Ambassador in the same sense in connection with discussions with him regarding the situation in Siberia. Repeat to Paris for the information and guidance of the Embassy and Marshall. Lansing. File No. S93..'.]/2406a. TI e Sicntarij if State to Aihbassadi >■ Davis}^ [Telegram.] Department of State, ^ynsJ,ilv■t< n, Odi her 11, 1919— m < n. 6072. Lest there be any misunderstanding on the part of the Government to which you are accredited or its financial group you will advise the Foreign Office thai the Continental and Commercial Trust and Savings Bank of Chicago is concluding with a representative of the Chinese Government an agreement for a loan of five " Same to the American Amba.ssadors at Paris and Tokyo. 71 million five hundred thousand dollars in the form of a new flotation for the sole purpose of enabling the Chinese Government to meet its obligations to that Bank which naature November first proximo, in accordance with the loan contract of November 16, 1916. The proceeds will be somewhat less than the requirements of the maturing principal and interest. Lansing. rile No. 893.51/2472. Department of State, Division of Far Eastern Affairs, Washingtin, OcUher 11, 1919. MEMORANIIUM. [On proposed 25,000,000 gold doUar loan to the Chinese Government.] Mr. Hsu Un Yuen in conversation with Third Assistant Secretarv Long and Mr. MacMurray, Chief of the Division of Far Eastern Affairs, stated "that under the general instructions given him by the Chinese Government to do the best he could in obtaining a loan for $25,000,000 he was not able to give any definite statistics covering purposes to which the money M^as to be devoted. He estimated that the entire Chinese army consists of roughly some 1,-500,000 troops of 150 divisions, those in the direct pay of the Central Government have over three months arrears of pay due them. He stated that the loan now desired was not intended to accomplish disbandment nor to pay entirely the arrears due, but simply to tide over adminis- trative and military expenditures imtil the formation of the new consortium. He stated that it was intended to take care of the troops stationed nearest the Capital first. On June 10th, 1919 the Chinese Government through the American Legation in Peking requested the group banks to make an advance in the sum of $50,000,000 to the Chinese Government, and submitted a memorandum in this connection. In this memorandum it was stated that the average monthly expenditures of the Central Oovernment amounted to about $15,000,000 (Chinese currency), with an average monthly income of a little over $4,000,000 '* (Chinese currency)— thus resulting in a monthly deficit of approximately $10,000,000 (Chinese currency). In order to cope with the situation thus developing, the Government stated that it was com- pelled to contract numerous short term loans in Chinese banks aggregating over $20,000,000 (Chinese currency) and it is now faced with the necessity of covering these loans to these banks in Shanghai, Tientsin, and Peking, in order to prevent a financial panic in those cities. It stated that among the soldiers a critical situation has arisen, and immediate funds must be secured in order to prevent military dis- order of a grave nature. The Government states in this memorandum that adminis- trative departments including educational and industrial institutions have also suffered because of the lack of funds, endangering the maintenance of peaceful conditions. Attached to the memorandum is given a list of administrative, military and other expenditures under four headings. Mr. Hsu Un Yuen in making his proposal for the loan of $25,000,000, stated ihat he is unable to give definite figures, but bases his statement on the memorandum above referred to, and he refers to the list attached to that memorandum for such definite information as is available at the present time. His proposal contemplates the immediate floating of a loan of $25,000,000 (United States currency) to be available at the rate of approximately $4,000,000 a month over a period of six months. This loan is to be secured by the entire revenue of the wine and tobacco administration of China. The official budget shows receipts under the heading of this revenue for this year to be about $30,000,000 (Chinese currency) . The Goverti- ment of China undertakes to put the wine and tobacco administration on the same basis as the salt administration. In this connection read Abbott's draft agreement of 1917. The Chinese Government also undertakes that strict supervision will be " Mr. Hsu's estimate of the Central Government's receipts is somewhat larger, namely, between $6,000,000 and 47,000,000 per jnonth. 9 carried out by arrangement with the banks in the disbursing of the funds from this loan Mr Hsu Un Yuen stated that the proceeds would be spent for purposes somewhat rough] v specified in the statement which follows. Disbursements to cover a period of six months at the rate of approximately $4,000,000 per month. Statement. ^ ,. . „ , . $320,000 Police m Peking ^^'^^^ President's bodyguards .nn' nnn T^ 4UU, OOJ Bannermen... ^ Manchu pensions. Troops of the board or war ' ' Legations . ' Short maturities due to Chinese banks that can not be renewed without causing general panic . 500, 000 Other boards-justice, educational, etc 300, OOP 4, 010, 000 This table prepared by Mr. Hsu Un Yuen is of course entirely tentative and pro- visional, pending the receipt of more authoritative figures for which he telegraphed to the Chinese Ministry of Finance on October 10th. He states, however, that it represents the most urgent needs of the Chinese Government at this time. File No. S93.51/2493a. The Secretary of State to Ambassador Davis }^ [Telegram.] Department ot State, WasMngt07i, October 22, 1919 — 5 p. m. 6114. Referring to the Department's telegram of September 16, 4 p. m.^ and October 11, 1 p. m. this Government has learned that since it made the proposal embodied in its telegram of September 16, 4 p. m. for a tripartite consortium to avert che imminent danger that the desperate financial situation might cause the Chinese Government to have recourse to measures which would be incompatible with plans for the rehabilitation of Chinese finances that situation has become so accentuated that some measure of immediate financial relief appears to be only alternative to the political disintegration of China. Under these circumstances, and pending a decision as to the formation of an international financial consortium — whether or not including Japan — on terms which do not involve further encroach- ment upon the administrative and economic status of China, this Government has approved the conclusion by the Chicago Continental and Commercial Bank of a contract for a short terra emergency loan of thirty million dollars under an option held by it under the terms of the loan contract concluded by it with the Chinese Government on November 16, 1916. This contract, signed October 20 subject to the approval of the executive committee of the bank, will, if so approved, take the place of the five and a half million ddllar loan which was the subject of the Department's October 11, noon. It also provides one million dollars for reorganization of tobacco and wine administration and other purposes to be agreed upon; it further provides for arrears in pay of Board of War troops with a view to their eventual disbandment, and for arrears due police, bannermen, staffs of the Legations and Departments of Justice and Education, and for Manchu pensions and short maturities to native banks. The security for the loan is the entire revenue of the tobacco and wine administra- tion, subject to previous loans already charged thereon and not redeemed and in the event that this security shall be determined by the bank to be insufficient there shall be given as additional security the surplus salt revenue released and to be released to the Chinese Government by the salt administration and for that purpose the loan referred to is now in the said contract constituted a direct charge upon the said surplus revenues to be released from the salt administration to China. The loan is to net the Chinese Government ninety-one and to draw six per cent interest for two years from November 1, 1919. '' Not piinted. " Same to the American ambassadors at Paris and Tokyo. 73 It is desired that you communicate to the Government to which you are accred- ited the conclusion of this loan with the comment that this Government has given its approval on the understanding that in the event of the formation of the pro- posed consortium the Chicago bank will fully cooperate with the American group with a view to devoting to the purposes of that consortium so far as feasible the rights accruing to the bank under this contract. ' You will particularly emphasize the fact that this Government's approval of the Chicago loan indicates no change in its desire for the formation of a consortium on the terms originally proposed and preferably including Japanese participation. Lansing. File No. 893.51/2503. Ambassador Morris to the Secretary of State. [Telegram.] American Embassy, Tolcyo, October 21, 1919—11 p. m. Strictly confidential. I orally communicated the substance of your October 22, 5 p. m. to the Vice Minister of Foreign Affairs. He expressed his personal surprise at the action of our Government in approving the loan, explaining that at the conference of the allied representatives in Peking there had been a tacit (he would not say agreement, but rather) understanding that no one of the Governments represented would approve the conclusion of any loan to the Government of China without consulting the other Governments interested. He explained further that this particular loan would prove, he feared, a serious embarrassment to the Japanese Foreign Office because since the advent of the present ministry the Government, in the face of considerable opposition from business interests, had withheld approval of all proposed loans to the Chinese Government which might be used for political ends by the Chinese Government, alleging, as one of the Japanese Government reasons, the necessity of first reaching some more satisfactory international under- standing. He surmised that the action of our Government, when made public, would subject the present ministry of Japan, and the Foreign Office, to severe criti- cism in holding back Japanese private enterprise and merely opening the way for American interests to step in. At the conclusion of the interview he asked for a written statement of the terms of the loan, which I agreed to furnish in a personal note to him. Morris. File No. 893.51/2405. The Department of State to the Japanese Emhassy. [Memorandum.] The Government of the United States has received and carefully considers the memorandum dated August 27, 1919, in which the Imperial Japanese Embassy advised it that the Japanese Government accepted and confirmed the resolution adopted at the meeting of the representatives of the bankers groups of the United States, Great Britain, France and Japan at Paris on May 11 and 12, 1919, for the purpose of organizing an international consortium for financial business in China, subject, however, to the following proviso: that the acceptance and confirmation of the said resolution shall not be held or construed to operate to the prejudice of the special rights and interests possessed by Japan in South Manchuria and Eastern Inner Mongolia. This Government, after an earnest study of the proposal thus made, reluctantly finds itself unable to assent to the proviso in reference to South Manchuria and Eastern Inner Mongolia; it can only regard the reservation in the form proposed as an intermixture of exclusive political pretensions in a project which all the other interested Governments and groups have treated in a liberal and self-denying spirit and with the purpose of eliminating so far as possible such disturbing and compli- cating political motives; and it considers that from the viewpoint, either of the legitimate national feeling of China or of the interests of the Powers in China it would 35283—21 10 74 be a calamity if the adoption of the consortium were to carry with it the recognition of a doctrine of spheres of interest more advanced and far-reaching than was ever apphed to Chinese territory even in the period when the-break-up of the Empire appeared imminent. It can only be assumed that in taking its present position the Japanese Gov- ernment has misapprehended the purposes of the consortium and assumed that it is the intention of the other Governments to encroach upon the existing vested Japanese interests in the region indicated. That such is not the intention may be seen from the wording of the inter-group agreement of May 11th which in Article I specifies that only those industrial undertakings are to be pooled upon which substantial progress has not been made. This wording plainly excludes those enterprises which are already developed and thus constitute vested proprietary interests (such as the South Manchuria and Ssupingkai-Chengchiatun Eailways, the Fushun collieries, et cetera) and may fairly be interpreted to exclude likewise the existing options for the extension of railways already in operation (for instance the proposed con- tinuation to Taonan of the Ssupingkai-Chengchiatun Railway and to Hueining (Hoiryong) of the Kirin-Changchun Railway). If Japan's reservation is urged with a view solely to the protection of existing rights and interests, it would seem that all legitimate interests would be conserved if only it were made indisputably clear that there is no intention on the part of the consortium to encroach on estab- lished industrial enterprises or to expect the pooling of existing Japanese options for the continuation thereof; and this Government feels that the Japanese Govern- ment should be amply content with the understanding that certain specific enter- prises are exempt. This Government can not accept a geographical reservation which could not but lend itself to implications which are foreign to the purposes of the consortium. But it is still hopeful that the Japanese Government maj" find it possible to authorize its banking group to enter the proposed consortium with full assurance that no legitimate Japanese rights or interests would thereby be jeopardized. Department of State, 'Washington, Octoha- 28, 1919. File No. 893.51/2.534. The British Embassy to the Department of State. The British Government agree that the consortium should be proceeded with and every effort should be made to induce Japan to enter into it without any reser- vations, and they are prepared to cooperate in this. They would, however, suggest that, should their efforts to get Japan to give up all reservations fail, the other Powers might in the last resort concede a reservation to Japan of Southern Man- churia but not of Eastern Inner Mongolia. Meanwhile the British Government have urged on the Japanese Government that they should not make independent loans to China, and they point out that if the United States makes an independent loan it may be followed by independent loans from Japan. The British Government would therefore urge that their proposal for a small loan of, say, five miUion pounds, should be made by the four Powers immediately, without prejudice to the discussions now proceeding for the formation of the consortium. British Embassy, Washington, October 29, 1919. File No. 893.51/2507. Ambassador Davis to the Secretary of State. [Telegram.] American Embassy, London, October 29, 1919—8 -p. m. Important. 3318. Memorandum, based on your 6114 October 22, 5 p. m., regarding short term loan to Chinese Government, handed to Foreign Oflace on 25 instant and discussed at length on 27th. Lord Grey's telegraphic explanation of 75 his misunderstanding of conversation with the Secretary did not appear entirely clear. Foreign Office fears that action of the Chicago bank may cause Japan to renew efforts to extend separate financial assistance to China on the ground that American institutions have done precisely what Japan has been requested not to do and has therefore telegraphed Embassy at Washington in this sense. In this con- nection, Foreign Office intended that its suggestions transmitted in our 3161 of October 2nd, noon, should contemplate an immediate advance not to exceed five million pounds sterling by the interested Powers, as present [without prejudice to 1] discussions regarding reservations and now fears lest inclusion of this suggestion, in connection with the third alternative set forth in said telegram, may have occa- sioned some ambiguity. The proposal as telegraphed, however, had been previously read to and approved by Foreign Office. The Foreign Office moreover is willing to renew endeavors to induce Japan to enter consortium without reservations and having so advised the Embassy at Washington awaits reply from Lord Grey before renewing efforts here and in Tokyo. This method of procedure still appears to be connected with Lord Grey's impression that negotiations are to be carried on in Washington as well although such is not our understanding. I am to-day informed that Sir John Jordan's latest despatch, just received, confirms our views as to the urgency of the Chinese financial situation. Davis. File No. 893.51/2405. The Secretary of State to Ambassador Morris. [Telegram — Paraphrase.] Department of State, Washington, October 29, 1919 — 6 p. m. A note is being presented to the Japanese Government replying to the memo- randum of that Government of August 27th last in regard to the reservations covering Southern Manchuria and Eastern Inner Mongolia in connection with the proposed consortium to the effect that the Government of the United States, having made an earnest study of the proposal, is unable to assent to the proviso concerning the regions referred to. The reservation as proposed can only be regarded as an inter- mixture of exclusive political pretensions in a proposal which has been treated by all the other interested groups and Governments in a self-denying and liberal spirit and with the view of all possible elimination of such complicating and disturbing political motives. From the viewpoint of the legitimate national sentiment of China as well as the interests of the Powers in China it is considered that it would be a calamity to adopt the consortium carrying with it the recognition of the principle of spheres of interest which is more advanced and far-reaching than any ever applied to territory of China even during the time when the partition of China seemed to be close at hand. In taking its present position the Japanese Government can only be assumed of having misapprehended the intentions of the consortium and having assumed that it is the purpose of the other Governments to infringe upon vested Japanese interests now existing in the region referred to. The wording of the intergroup agreement of May 11 shows that this is not intended. Article 1 specifically states that only such industrial enterprises are to be pooled upon which no substantial progress has been made. Undertakings which are already developed and thus establish vested proprietary interests, as for instance the South Manchuria and Ssupingkai-Chang- chiatun Railway, the Fushun collieries and others, are plainly excluded by this wording, and it may fairly be considered as excluding likewise the options now existing for the extension of railways which are now in operation, such as the pro- posal for the continuation of the Ssupmgkai-Chengchiatun Railway to Taonan and of the Kirin-Changchun Railway to Hueining (Hoiryong). With the understanding that certain specific undertakings are exempt this Government feels that Japan should be amply content. If Japan urges its reservation with the sole view that existing rights and mterests should be protected this Government is of the opinion 76 that all legitimate interests would be conserved if it were made clear without doubt that the consortium does not intend to encroach on any industrial enterprises which are already established nor expects that existing Japanese options for the continua- tion of such enterprises be pooled. A geographical reservation which could not but lend itself to influences which are foreign to the purposes of the consortium can not be accepted by this Government. The Government of the United States is still hopeful that the Japanese Government may find its way clear to authorize its finan- cial group to become a member of the consortium with the full assurance that legiti- mate Japanese rights and interests would not be exposed to injury thereby. Repeat the above to Peking. Lansing. File No. 893.51/2515a. The Secretary of State to the American Group. [Telegram.] Department of State, Washington, October 30, 1919. British Government suggests that inamediate advance of five million pounds be made by the four interested banking groups to the Chinese Central Government for the relief of immediate financial crisis, on conditions quoted in telegram from Ameri- can Embassy, London, dated October 2 sent you in Department's letter of October 13. Questions now under discussion regarding formation of consortium would meanwhile be reserved without prejudice. Would American group be prepared to participate and if necessary carry a share of British and French participation on the understanding that this transaction is to be treated as new consortium business subject to terms of May 11th agreement in so far as applicable. Robert Lansing. File No. 893.51/2405. The Secretary of State to Ambassador Davis.^^ [Extract.] No. 435.] Department of State, Washington, October 30, 1919. Sir : There is enclosed herewith for your information and guidance copy of the memorandum which the Department sent on October 28 to the Japanese Embassy regarding the reservations made by the Japanese Government as to South Manchuria and Eastern Inner Mongolia in connection with the proposed organization of a new international consortium for financial business in China. I am, [etc.] For the Secretary of State: William Phillips. File No. 893.51/2519a. The Acting Secretary of State to the Continental <& Commercial Trust and Savings Bank. [Telegram.] Department of State, Washington, October 31, 1919. The Department has learned with keen disappointment that question has been raised as to assignment of salt surplus as security for proposed loan under Article three of your contract of October 20th. The uncertainty and prospect of delay thus introduced are embarrassing to Department which had considered that urgency of the Chinese Government's necessities would warrant modification of previous in- sistence upon principle of international financial cooperation, as delay interposed "> Same to the American Ambassadors at Paris and Tokyo and the American Chargfi at Peking. 77 by Chinese Government tends to invalidate reasons for that departure from previous policy. Department under these circumstances deems it proper to accede to a proposal of British Government for an immediate advance of five million pounds by the banking groups of the four interested Powers to be made without prejudice to discussions now proceeding for formation of new consortium. To this end Department has to request that your bank postpone at least temporarily its confirmation of loan contract of October 20th and proceed only to issue of smaller loan contracted October 11th for the redemption of bonds maturing under its loan of 1919. William Phillips. File No. 893.51/2516. TJie American Group to the Secretary of State. [Telegram.] New York, October 31, 1919. In response to your telegram of yesterday we beg to state in behalf of the American group that the managing committee is prepared to recommend to Ameri- can group to join the British, French and Japanese banking groups in an advance to China not to exceed $20,800,000, with such provisions as shall be mutually satis- factory as to payment also in sterling, francs and yen at fixed rates of exchange. This recommendation to be subject, however, to the following conditions: (1) That the terms of the loan shall be negotiated in New York and shall be satisfactory to the American group, (2), that not less favorable conditions as to security, con- trol, administration, et cetera prevail than were set forth in the loan proposed by the Continental and Commercial Trust and Savings Bank of Chicago, which loan has not been consummated, the Chicago bank to return to the group the particular concession which the group assigned to the bank on October 20th, last, (3) the approval of the State Department for the group to make this loan be clearly and publicly expressed, (4), you use the phrase "If necessary carry a share of British and French participation." If this were possible for the American group to arrange we assume that Japan would take and carry an equal amount so that the total amount to be taken by the American group would not exceed $5,200,000, and the total amount to be carried by the American group for account of the British and French would not exceed $5,200,000. We assume that the British and French groups would desire us to dispose of their share as early as possible, and in that event our suggestion would be that one-half of the entire amount of the loan be offered in Japan and one-half here and that such application for bonds as are received from American investors be applied first against the American participation of $5,200,000 and second against such amount as may be carried by the American group for the British and French groups in equal shares, the terms under which and the period for which bonds would be carried for English and French will of course have to be arranged. In proceeding with this business along the general lines of a four Power consortium, as contemplated under the agreement of May 11th, 1919, we understand that the State Department will make it clear to Japan that such action in no way prejudices the position taken by the United States, Great Britain and France regarding Japan's proposed reservations as to Manchuria. We feel that we should point out to you that the managing com- mittee feels apprehension lest the proposed operation will give Japan an opportunity to make her reservations more effective than before. The American group thinks it highly desirable that the present operation should be one conducted not only in effect by the new four Power consortium but actually under a completed agreement of the new consortium, so that it may be considered and may be formally announced as the first operation to be undertaken by the new international consortium. J. P. Morgan and Company. 78 File No. 893.51/2519. The Continental Commercial Trust and Savings Banl to the Secretary of State. [Telegram.) Chicago, November 1, 1919. Referring to telephone conservation of this morning with J. V. A. MacMurray of Far Eastern Division, if [you] decide, this bank will return to American group the option which was released to this bank by that group under date of October 20, 1919. John J. Abbott, Vice President. rile No. S93..51/25:«. The British Ambassador to the Secretary of State. No. 812.] British Embassy, ]Yashington, November 8, 1919. Sir: With reference to my conversation with Mr. Phillips on November 1st on the subject of loans to China, I have the honour to convey to you an expression of the satisfaction of His Majesty's Principal Secretary of State for Foreign Affairs that the independent loan by the Chicago bank has been abandoned and that the United States Government are prepared to adopt the proposal put forward by His Majesty's Govern- ment for an immediate advance by the four Powers without prejudice. Lord Curzon is instructing His Majesty's representatives at Tokyo and Paris to bring to the notice of the Japanese and French Governments respectively the pro- posal for a £5,000,000 loan on the terms which were communicated informally early in October to the counsellor of the United States Embassy in London, viz, that the United States, Japanese, French and British groups should, with the official support of their respective Governments, make a small loan to China as soon as possible with- out prejudice to discussions which were proceeding at the time respecting the ex- clusion of specific areas from the scope of the consortium or to conditions which might be attached to future loans. The loan which should be applied solely to meet the urgent needs of China, should not exceed £5,000,000 and should be secured on the rock salt revenue. It should be conditional on the immediate resumption of negotiations between the North and South and on the disbandment of a large number of unnecessary troops including those raised for the purpose of an expedition into Mongolia and of war participation in general. The application of the proceeds of the loan, as well as the question of disbandment to be under the expert control of the four groups and Governments. I am directed to express the hope that you will instruct the United States repre- sentatives in Paris and Tokyo to support these proposals. With regard to the transfer of the negotiations to New York, the subject is one which seems to concern the groups rather than the Governments and Lord Curzon is consulting the British group in the matter. I have, [etc.] For H. M. Ambassador: R. C. Lindsay. File No. 893.51/2531. The Department of State to the British Embassy. [Memorandum.] The Department of State has received the memorandum of the British Embassy under date of October 29th, and has been happy to note that the British Govern- ment agrees that the consortium should be proceeded with and every effort should be made to induce Japan to enter into it without any reservation, and is prepared to cooperate in this. For the reasons stated in the telegram of October Uth to the American Embassy at London, of which a copy has been handed to the British 79 Embassy, this Government is unable to concur in the suggestion of the British Foreign Office that the other interested Powers should, even in the last resort, con- cede the reservation claimed by Japan in respect to South Manchuria. The Department further notes that the British Government renews its proposal that a small loan of, say £5,000,000, should be made by the four Powers immediately. The memorandum of the British Embassy furthermore makes clear what the Depart- ment had not previously understood, that the proposal contemplates that this ad- vance should be made without prejudice to the discussions now proceeding for the formation of the consortium. On this understanding, and in deference to the con- viction of the British Government that there may thus be found a means of enabling the Chinese Government to meet its present financial crisis, without risking the inauguration of a new period of independent and uncontrolled loans, this Govern- ment is willing to make a further effort toward cooperation in the manner indicated by the British proposal. To this end the Department has requested the Chicago Continental Trust Bank to withhold at least temporarily its confirmation of the Contract of October 20th for a loan of 130,000,000 and to proceed only to the issue of the smaller loan (for $5,500,000) for the redemption of bonds shortly maturing under its loan contract of 1916, as previously notified to the British Government. Department of State, Washington, November 11, 1919. File No. 893.51/2533. TJie Secretary of State to the British Ambassador. Department of State, Washington, November 11, 1919. Excellency : I have the honor to acknowledge the receipt of the note (No. 812) of the 8th instant in which your excellency, in reference to communications made to you in behalf of this Department on the subject of loans to China, conveys an expression of the satisfaction of the British Minister for Foreign Affairs that the independent loan by the Chicago Continental and Commercial Trust and Savings Bank has been aban- doned and that the United States Government is prepared to adopt the proposal put forward by the British Government for an immediate advance by the four Powers without prejudice. I have taken pleasure in communicating to the American group the terms of this proposal as embodied in your note, with an expression of this Government's hope that the group may find it feasible to arrange for cooperation with the several other national groups upon the terms so indicated; and in the confidence that such cooperation may be arranged I am directing the American Ambassadors in Paris and Tokyo to support the proposals of the British Government. I venture to hope that this adoption by the American Government of the pro- posals made by the British Government may make it possible to effect without undue delay a combination of the financial interests concerned, if only for the temporary and limited purpose of affording to the Chinese Government the means of meeting its present financial crisis and averting the necessity of its taking such steps as would essentially alter the status quo. There is enclosed herewith for your information a copy of the telegram ^ in which I am advising the Japanese Government, through the American Embassy at Tokyo, of the action taken by this Government in response to the suggestion of the British Government. Accept, [etc.] Robert Lansing. ' Not printed. 80 File No. 893..j1/25:.'1. Charge Tenney to the Secretary of State. [Telegram — Paraphrase.] American Legation, Peling, November 20, 1919 — 10 -p. m. I did not communicate to the Chinese Government the reasons for the stoppage of the Chicago bank loan negotiations, because Hsu En Yuan received a communication from Abbott on October 30th in which the cancellation of the loan negotiations was announced, giving the reasons therefor; I merely announced to the Chinese Govern- ment that it had been decided to substitute for the Chicago bank loan a loan of £5,000,000 by the American, British, French and Japanese groups. I have received a letter from Mr. Edward B. Bruce, president of the Pacific Development Corporation, dated the 19th instant, stating that he left Vancouver on October 30 in company with Mr. Hsu En Yuan, Mr. Galen L. Stone, of Hayden, Stone and Co., and Albert H. Wiggin, chairman of the board of directors of the Cliase National Bank; that shortly before their departure Mr. Hsu received a message from Mr. Abbott, vice president of the Continental and Commercial Trust and Savings Bank of Chicago announcing that the bank had come to the decision to withhold approval of the loan agreement of October 20 between the bank and the Chinese Government and that the contract was being held by the bank subject to the orders of that Government. Mr. Abbott stated the reasons for the action of the bank were, first, the American investment market was in an extremely unsatisfactory condition on account of the poor reception of the S250,000,000 British loan, second, the message from the Chinese Legation stating that the salt surplus pledge might embarrass the Chinese Government and offering as a substitute the goods tax. Mr. Bruce further said that as they were aware of the many failures in loan negotiations of American financiers with China, and holding large interests, present and prospective, in the development of commerce and industry in China they were deeply concerned over this new disappointment, and it seemed to them that a resumption of similar negotiations by American bankers might be exceedingly diffi- cult for a long time. They therefore felt that they should take all possible action to put into effect the arrangements made by Mr. Hsu with the Chicago bank, and negotiations resulted by which the Pacific Development Corporation made a con- tract with the Chinese Government through Mr. Hsu, specially authorized by the Cabinet and the Minister of Finance of China under the terms of which the Pacific Development Corporation becomes the successor to the Continental and Commercial Trust and Savings Bank of Chicago in its contract with the Chinese Government. They agreed to arrange a loan of S.5,000,000 immediately, with an option to arrange a further loan of S20,000,000; the wine and tobacco revenues being pledged as secur- ity and carry with the pledge the appointment of the associate inspector general of that administration. Mr. Bruce requests that a copy of the above letter be sent to the New York office of the Pacific Development Corporation. The Legation is awaiting instructions from the Department as to the attitude it is to take. Tenney. TileNo. 893..:i/2.j,-,7. Ambassador Davis to the Secretary of State. [Telegram.) American Embassy, London, November 25, 1919 — 6 p. m. Important. 3447. Following is text of memorandum dated November 12th by Foreign Office, to Japanese Ambassador November 19th. On September 1st his ex(;ellency, tlie Japanese Ambassador, communicated to Earl Curzon of Kedleston the following memorandum; " The .lapanese Government accept and confirm the resolutions adopted at the meeting of the repre- sentatives of the bankers' groups of the United States, Great Britain, France and Japan at Paris on the 11th and 12th May 1919, for the purpose of organizing an international consortium for financial business 81 in China provided, however, that the acceptance and confirmation of the said resolutions shall not be held or construed to operate to the prejudice of the special rights and interests possessed by Japan in South Manchuria and Eastern Inner Mongolia. " At a subsequent interview with Lord Curzon, Viscount Chinda, in accordance with instructions received from his Government, defined what was meant by South Manchuria and Eastern Inner Mongolia. His Majesty's Government have now, after the most careful consideration of the Japanese contention, been forced to the conclusion that they could not justifiably accept the claims for the exclusion of Southern Manchuria and Eastern Inner Mongolia from the sphere of activity of the consortium if it were intended aa a territorial claim. As was pointed out to the Japanese Ambassador in the memorandum communicated to his excellency on August 11th, the admission of such a claim to the monopoly of commercial intercourse [interests] in a large geographical area of China would be a direct infringement of the fundamental idea underlying the creation of the consortium, which was to abolish spheres of interest and throw open the whole of China to the activities of an international financial combination. Lord Curzon, however, cannot help thinking that the Japanese Government must be laboring under a misapprehension as to the scope and purpose of the consortium. It is not and never has been intended that under the guise of the consortium vested interests should be encroached upon. Article 1 of the intergroup agreement of May 11th last specifically lays down that agreements and options relating to industrial undertakings (including railways), upoD which substantial progress has been made, need not be pooled. Indeed, the sphere of the new consortium is definitely limited to the financing of future undertakings in China and was never meant to extend to established industrial enterprises. So far aa Southern Manchuria is concerned. Lord Curzon recognizes that there are in that province important railways and other industrial enterprises which have been developed or are in course of development by Japanese enterprise, and which are clearly not within the sphere of the consortium. Such is not, however, the case in Eastern Inner Mongolia, where, although options for railways have been granted to Japan, no work has yet been begun. Indeed, such a claim as is put forward by the Japanese Government in regard to Eastern Inner Mongolia, amounting to the reservation of an ex- clusive interest in a large area whose southern boundaries practically embrace Peking and encroach upon the Province of Chihli, cannot be reconciled with the maintenance of the independence and territorial integrity of China, which Japan has so often pledged herself to observe. It is confidently hoped, therefore, that when the question is viewed in this light, the Japanese Government will see no objection to modify their present attitude as regards both South Manchuria and Inner Mongolia, and will authorize the Japanese banking group to enter into the new consortium on the same basis as the other groups, that is, without any special reservations. The Japanese Government will also, no doubt, recognize the urgent need of promptness in deal- ing with the situation in view of the disastrous situation, on the verge of which China appears now to find herself. Repeated to American Embassy, Paris, as 758, November 25, 6 p. m. Davis. File No. 893.51/2559. TJie Secretary of State to Ambassador Morris. [Telegram— Paraphrase.] Department of State, Washington, November 29, 1919 — 1 p. m. The Department has been advised by the Legation at Peking that the Chinese Government has concluded a contract with the Pacific Development Corporation whereby an immediate loan of $5,000,000 is to be arranged by that corporation with an option for further loans of $20,000,000. The Chinese Government accepts the above named corporation as the successor to the rights of the Chicago bank under the terms of its contract of October 20. This contract was communicated to you by telegram October 22 by the Department. The Pacific Development Corporation carried on negotiations for this contract without the knowledge or approval of this Government. The British proposal for renewed effort to arrange immediately an advance among the groups of the four interested Powers pending the conclusion of an international consortium having been accepted by the Government of the United States, as communicated to you by the Department in its telegram of November 11,' diplomatic support of this transaction must, under the present circumstances, be withheld by this Government. Please explain informally the situation created by the independent action of this American corporation to the Japanese Foreign Ofiice and state that it will s Not printed. 35283—21 11 82 not be given any support by this Government unless the impending financial crisis in China cannot be averted by the joint action suggested by the British Govern- ment and heartily supported by this Government. You will, of course, make it clear when you communicate the above to the appropriate officials of the Foreign Office that the contract concluded by this American corporation is another proof of the growing interest American financiers take in the financial situation m China, such as could not be restrained or circumscribed by this Government except in the interests of the international policy which the proposed consortium represents. If this Government should be forced to the conclusion that hope of realization of that purpose must be abandoned there would be no alternative but to withdraw its restrictions upon the initiative of American financiers to seek an outlet in Chma. This Government does not desire such a condition and the attainment of interna- tional cooperation in the financial rehabilitation of China is still hoped for. The Department feels, and you will please impress it upon the Foreign office, that this Government for its part is most anxious to avoid an issue which the insistence of the Japanese Government to hold aloof from such cooperation upon the equal terms planned by the proposed consortium is tending to force. Eepeat the above to the American Legation at Peking. Lansing. FUe No. 893.r>l/2o59. The Secretary of State to Ambassador Davis. [Telegram — Paraphrase.] Department of State, Washington, November 29, 1919 — 4 P- ?«• 6227. Please communicate at your earhest convenience informally to the Foreign Office the facts and the attitude of the Government of the United States as stated in the following telegram to the Embassy at Tokyo. [Here follows Department's telegram of November 29 to the American Ambas- sador at Tokyo, printed ante.] Repeat this telegram to the American Ambassador at Paris for informal com- munication to the French Foreign Office. Lansing File No. 893.51/2645. The Secretary of State to Ambassador Morris. [Telegram.] Department of State, Washington, December 2, 1919 — 4 p. m. Last two paragraphs of your November 15, 7. p. m.^ leave the Department in doubt whether you have received in comprehensible form its October 29th, 6 p. m., which distinguishes between interests as defined by territorial limitations and those which are vested. To obviate any possibility of misunderstanding on this point it is hoped that you will take every opportune occasion to emphasize to the Japanese officials that distinction which this Government regards as essential and on the basis of which the British Government on the 12th instant [ultimo] addressed to the Japanese Embassy in London a memorandum of which the substance is as follows: After referring to the Japanese Government's memorandum acceptixig and confirming the bankers' resolutions concerning the international consortium the British Government states: "At a subsequent interview with Lord Curzon, Viscount Chinda, in accordance with instructions received from his Government defined what was meant by South Manchuria and Eastern Inner Mon- golia. His Majesty's Government have now, after the most careful consideration of the Japanese con- tention, been forced to the conclusion that they could not justifiably accept the claim for the exclusion of Southern Manchuria and Eastern Inner Mongolia from the sphere of activity of the consortium if it were intended as a territorial claim. As was pointed out to the Japanese Ambassador in the memorandum • Not printed. 83 communicated to hia excellency on August 11th, the admission of such a claim to the monopoly of commer- cial intercourse [interests] in a large geographical area of China would be a direct infringement of the funda- mental idea underlying the creation of the consortium, which was to abolish spheres of interest and throw open the whole of China to the activities of an international financial combination. Lord Curzon, however, can not help thinking that the Japanese Government must be laboring under a misapprehension as to the scope and purpose of the consortium. It is not and never has been intended that under the guise of the consortium vested interests should be encroached upon. Article one of the intergroup agreement of May 11 last specifically lays down that agreements and options relating to industrial undertakings (including railways) upon which substantial progress has been made, need not be pooled. Indeed, the sphere of the new consortium is definitely limited to the financing of future undertakings in China and was never meant to extend to established industrial enterprises. "So far as Southern Manchuria is concerned, Lord Curzon recognized that there are in that province important railways and other enterprises which have been developed or are in course of development by Japanese enterprise, and which are clearly not within the sphere of the consortium. "Such is not, however, the case in Eastern Inner Mongolia where, although options for railways have been granted to Japan, no work has yet been begun. Indeed, such a claim as is put forward by the Japanese Government in regard to Eastern Inner Mongolia, amounting to the reservation of an exclusive interest m a large area whose southern boundaries practically embrace Peking and encroach upon the Province of Chihli, can not be reconciled with the maintenance of the independence and territorial integrity of China, which Japan has so often pledged herself to observe. " It is confidently hoped therefore, that when the question is vieAved in this light the Japanese Govern- ment will see no objection to modify their present attitude as regards both South Manchuria and Inner Mongolia, and will authorize the Japanese banking group to enter into the new consortium on the same basis as the other groups, that is, without any special reservations. The Japanese Government will also no doubt recognize the urgent need of promptness in dealing with the situation in view of the disastrous situation, on the verge of which China appears now to find herself." Repeat to Peking for information. Lansing. File No. 893.51/2573. Charge Tenney to the Secretary of State. [Telegram — Paraphrase.] American Legation, Peking, December 9, 1919 — ^ V- ^• The bankers were informed on their arrival that no support could be given to the loan by the Legation without instructions from the Department. They decided not to wait for the Department's approval but to proceed. I have been informed by the Minister of Finance that the Pacific Development Corporation has already paid the five million. The wine and tobacco administration is understood being reorganized in accordance with the terms of the loan contract. Tenney. File No. 893.51/2588. The British Amhassador to the Secretary of State. No. 899.] British Embassy, Washington, December 20, 1919. Sir : I did not fail to communicate to my Government the substance of the tele- gram from the State Department to the United States Embassy at Tokyo, which was inclosed in your note of December 3rd,^ on the subject of the attitude of the United States Government towards the loan contract recently entered into between the Chinese Government and the Pacific Development Corporation, an American Company. I have now received a telegram from my Government stating that they are still pressing the Japanese Government to fall into line with the other Powers for an immediate advance of £5,000,000 to China. I am at the same time directed to intimate to you that His Majesty's Minister at Peking does not consider that China's need for money is so pressing at the moment as to justify an independent loan on the part of any one of the four Powers. I have, [etc.] For H. M. Ambassador: R. C. Lindsay. 2 Not printed. 84 File No. 893.51/2587. Ambassador Morris to the Secretary of State. [Telegram— Extract.] American Embassy, ToTcyo, December 20, 1919 — 6 f. m. The Japanese Foreign Office forwarded to me yesterday the following memo- randum: The Department of Foreign Affairs present their compliments to his excellency the American Am- bassador and have the honor to recall to his excellency's recollection that on the 4th instant he took occasion to inform the Minister for Foreign Affairs, as in obedience to instructions from his Government, that a contract for a loan of $25,000,000 has been concluded between the Government of China and the Pacific Development Corporation of America, ?5,000,000 of the amount to be handed over at once to the Chinese Government, and the remaining $20,000,000 to be delivered later, but that the American Govern- ment had refused approval to the contract. According to information subsequently reaching the Imperial Government, the amount of the first part payment of the loan in question by the Pacific Development Corporation was $5,500,000, which has already been handed over to the Chinese Government in America, the latter to receive another $5,000,000 in January 1920, and the remainder of the loan in the following four months. If this informa- tion be correctly founded, the Japanese Government, in view of the priority possessed by the present loan consortium in political loans, and of the loan negotiations pending between the American group and the consortium, as well as of the policy of concord and cooperation among the Powers concerned in regard to the question of financial aid to China, will feel called upon to consider the steps which may be judged necessary to be taken. In these circumstances, the Japanese Government will be exceedingly glad to learn from hia excellency the American Ambassador whether there be any point at variance with fact in the aforementioned information in their hands. In the event of the Pacific De\'elopment Corporation loan contract being, after all, actually carried into execution, the Japanese Government will, nevertheless, rest persuaded, on the strength of the aforementioned information received from the American Ambassador, that this does not mean that the American Government has given its approval to the loan. At the same time the Japanese Government are keenly desirous to )je informed of what steps the American Government intends to take with regard to the loan, thus carried into actual execution without its approval. Morris. File No. 893.51/2.592. Department of State, Office of the Third Assistant Secretary, December 23, 1919. memorandum. Dr. Debuchi called to-day and I told him that we had heard from the Japanese Government in the form of a memorandum delivered to Mr. Morris at Tokyo about the loan of the Pacific Development Company. I went rather fully into the history of the loan and stated that we had no knowledge of it until it was consummated, and that we would still withhold diplomatic support. I told him that we would answer the memorandum through the same channels, and that it was just such loans as this which were largely responsible for the thought underlying the consortium and our desire for its organization, and unless it is there would be constant irritation over promiscuous private enterprises in China. He asked if we were supporting the appointment of Mr. Williams to be director of the wine and tobacco revenue. I told him that we would not put ourselves in the position of objecting to the right of a foreign Government to appoint an American, and that in general principle we would, of course, support the appointment of an American if the Government of China wanted to appoint one, but were not supporting the appointment of any person under the terms of their contract. Later told French Ambassador the same. Breckinridge Long. 85 File No. 893.51/2.'i87. TTie Secretary of State to Ambassador Morris. [Telegram.] Department of State, WasMngton, December 23, 1919 — 6 p. m. Your December 20, 6 p. m. In response you will please say: "The Government of the United States has withheld diplomatic support from the loan of the Pacific Development Corporation and is still withholding such support though the information comes to the United States Government that the parties to the contract are proceeding to execute it notwithstanding that position. The - Government of Japan will realize the United States Government is powerless to prevent and would be loath to interfere with the activities of its citizens abroad unless the consortium should be organized. The United States Government has guaranteed to the American group in the proposed international consortium complete and exclusive diplomatic support, but unfortunately, it seems to the Government of the United States, the consortium has not yet been organized and until it is in operation the American group will not be in a position to avail itself of the promised ^ support. "In the meantime the Government of the United States has done all within its power to effect an accommodation between the three other Powers concerned with the consortium. Of these Powers England and France are in perfect accord with the United States while the Government of Japan alone seems to have been unable to agree entirely. "The United States Government must in all frankness say that unless the con- >, sortium will be organized it will not be justified in withholding diplomatic support from the individual efforts of American citizens abroad, whether in China or else- { where. On the contrary the United States Government will feel that its citizens ! have a right to expect from it full diplomatic support when engaged in proper \ activities. "The United States Government is keenly sensible to the embarrassing circum- stances this situation may develop and desires to remind the Government of Japan that one of the objects of the consortium is to replace the uncontrolled activities of individual enterprise in China by a cooperative organization in which the citizens of the four Powers most interested in China will join in a spirit of friendliness which can be such a potent factor for the welfare of China and for the good relations of the four Powers concerned. "The United States Government has been entirely frank in its professions to the Government of Japan and fully realizes the Government of Japan is cognizant of that fact and well aware that the present situation has developed in spite of the efforts of the United States Government and certainly not because of them. "Further the hope can only be expressed that the Government of Japan will [ in the near future indicate its adherence to the consortium proposals. In that case the United States Government will be in a position to act with some degree of ; authority over the activity of its citizens in financial matters in China and will be able it is certainly expected, to direct the loan of the Pacific Development Corporation j through the American group into the consortium." Lansing. File No. 893.51/2591. Ambassador Morris to the Secretary of State. [Telegram— ParapMrase.] American Embassy, ToJcyo, December 25, 1919 — / f. m. I have been informed by my British colleague that, the British Government having made further representations on December 20, he was handed a memorandum by the Japanese Government, dated December 23, stating that that Government is now in accord with the British Government because of the agreement by the British 86 Government that the Chinese troops should be disbanded gradually and that the disbandment of the Northern troops should precede that of the Southern troops. The Japanese Government further states that previous communications have made it quite clear that it is in accord with the other Governments that it is advisable that unnecessary troops in China should be disbanded. It maintains, however, that it would constitute an interference in the domestic affairs of China to prescribe just what troops should be disbanded. It would therefore desire to avoid any specific designation, and it trusts and believes that the British Government will agree to this view. After careful consideration and having observed that three other Powers are already agreed in principle the Japanese Government agrees to the disbandment of the troops as a condition of the urgent emergency loan which the British Govern- ment has suggested. It refrains, however, to adhere to the view of the French Government that disbandment of the troops should be the first charge on the fund created by this loan, because such a view contravenes the spirit which inspires the Powers in their desire to come to the aid of China in this emergenc}-. Morris. File No. S93.51,2:.99. Department of State, Office of the Third Assistant Secretary, Washington, December 27 , 1919. MEMORANDUM. Several days ago the French Ambassador asked us as to our intentions in regard to the Pacific Development Company loan to China, and in regard to the appoint- ment of their designee as director of the wine and tobacco tax. He proposed that America and France, inasmuch as they were each interested in the security of this loan, join in naming a director. I told him that we could not recede from the position to support the appointment of an American if the Chinese Government wanted to appoint one, but that we would not urge the appointment of this particular individual. The Ambassador said that our position would be rather anomalous if, with pro- hibition in America, we accepted the resposibility of administrating the wine tax in China. He insisted that he was serious in making the statement, and that his Government felt that way. Breckinridge Long. I'iloNo. S03.51'2801. The British Charge d' Affaires to the Secretary of State. British Embassy, No. 917.] Washington, December 31, 1919. Sir: With reference to Lord Grey's note No. 899 of the 20th instant, I have the honour to inform you, by direction of my Government that the Japanese Govern- ment now agree with the views of His Majesty's Government as to the gradual nature of the disbandment of the superfluous Chinese troops; also that a commence- ment with the disbandment of the North and South is to be made a condition of the loan. They still maintain, however, that the disbandment must not be subject to any foreign control, nor do they share the view of the French Government that dis- bandment should be made a first charge on the proceeds of the loan. I am to add that His Majesty's Government are not prepared to press these two latter points and the French Government are being urged to fall into line. I have, [etc.] R. C. Lindsay. 87 File No. 893.51/2601. The Secretary of State to tie British Charge d'Ajffaires. Department of State, Washington, January 5, 1920. Sir: I have the honor to acknowledge the receipt of your note No. 917 of December 31, 1919, regarding a proposed loan to the Chinese Government. The Department is gratified to learn that the Japanese Government has with- drawn its objection to the loan. In this connection I take pleasure in informing you that I am just in receipt of a telegram from the American Ambassador [Minister] at Peking stating that the French Government has withdrawn its contention that the disbandment of the troops should be a sine qua non to the issuance of the loan. There seems now to be no reason why the proposed advance to China should not be made, and the Department is to-day informing the American group to this effect. Accept, [etc.] For the Secretary of State: Breckinridge Long. ■File No. 893.51/2S07. Messrs. Sullivan and Cromwell to the Secretary of State. New York, January 8, 1920. Sir: We have the honor to inclose herewith a cop;v as furnished us by the Chinese Legation, Washington, of the loan contract made in the City of Peking, China, on November 26, 1919, by and between the Kepublic of China and the Pacific Development Corporation, a corporation of the State of New York. Attached to the contract proper are two supplementary statements of even date, one being a declaration by the Pacific Development Corporation with respect to the appointment of an American associate inspector general of the wine and tobacco administration, the other being a declaration by the Kepublic of China with respect to increasing the revenues of the wine and tobacco administration. It will be recalled that this loan contract was the subject of a communication to you from the Pacific Development Corporation, New York, dated December 6, 1919. Respectfully, yours, Sullivan and Cromwell. [Inclosure.] This agreement, made in the City of Peking, China, on the twenty-sixth day of November, 1919, by and between the Republic of China, hereinafter called the Chinese Government, represented by General Chin Yun Peng, Prime Minister of the Republic of China, and the Honorable Li Shi Hao, Minister of Finance of the Republic of China, party of the first part, and the Pacific Development Corporation, a corporation organized and existing under the laws of the State of New York, United States of America, hereinafter called the corporation, party of the second part. The parties hereto, in consideration of the mutual agreements hereinafter undertaken, agree as follows: Article 1. The Chinese Government desires to borrow the sum of five million, five hundred thousand dollars ($5,500,000), gold coin of the United States of America, of the present standard of weight and and fineness, and the corporation agree to loan to the Chinese Government the said sum of five million, five hundred thousand dollars ($5,500,000), as hereinafter provided. The Chinese Government hereby declares that the said loan is made by the Chinese Government to provide for arrears in pay (looking to the eventual disbandment of troops) and maturing obligations, the Chinese Government agreeing that such portion of the proceeds of the loan as shall be applied toward the arrears in pay of the troops, looking to their disbandment, shall be allocated on a fair and equitable basis. Article 2. The said loan of five million, five hundred thousand dollars ($5,500,000) and the treasury notes representing the said loan are hereby constituted a direct liability and obligation of the Chinese Government, which hereby pledges its good faith and credit for the full and punctual payment of the total principal and interest of said loan, and for the full and punctual payment of the said treasury notes representing said loan, in accordance with their terms, and for the performance of all of the undertakings on the part of the Chinese Government herein agreed to. 88 (a) Said loan of five million, five hundred thousand dollars ($5,500,000) shall be evidenced by the treasury notes of the Chinese Government, which treasury notes shall be designated and known as Republic of China six per cent two-year gold notes of 1919, and shall be signed in the name of the Govern- ment by the Minister of the Republic of China to the United States of America or by the Charg^ d 'Affaires of the Republic of China to the United States of America, and shall bear the official seal of the Chinese Legation at Washington, in the District of Columbia, and shall be authenticated by the Chase National Bank of the City of New York, U. S. A., hereinafter in this agreement referred to as the bank. The said treasury notes shall be dated December 1, 1919; and shall be payable December 1, 1921; they shall be paid by the Chinese Government, both principal and interest, in gold coin of the United States of America, of the present standard of weight and fineness: they shall be in coupon form and shall be payable in the denomination of $1,000 each and shall bear interest at the rate of six (i>%) per cent per annum from and after their date, payable semi-annually on the first days of June and December in each j-ear and the interest shall be evidenced by coupon attached to the said treasury notes. Said treasury notes and coupons attached thereto shall be payable at the office of the bank in the City of New York, U. S. A., shall make suitable reference to the fact that they are issued under and in pursuance to the terms of this agreement and shall be substantially in the form of the Republic of China six per cent three-year secured gold loan treasury notes of 1910, with proper alterations and changes to conform to tlie provisions of this agreement. The whole or any part of said treasury notes outstanding at any time shall, before their maturity, be subject, at the option of the Chinese Government, to redemption on any interest date at their face value, plus accrued interest and plus one-half (i) of one (1%) per cent premium if redeemed on or before December 1, 19L>0, and one-quarter (]-) of one (1%) per cent premium if redeemed at any time thereafter. At least thirty (30) days prior to the exercise of such option to redeem notice shall be given to the bank, through the Chinese Legation at Washington, in the District of Columbia, and notice of the exercise of such option to redeem shall be published by the bank at lea^^t once a week for four consecutive weeks in two newspapers selected liy the bank and published in the Enjlish language in the City of New York, in the United States of .\merica. If the Chinese Government elects to redeem less than the whole of said treasury notes outstanding at the time, the notes to be so redeemed shall lie determined by the bank by lot and in that event said published notice shall state the numbers of said treasury notes so drawn for redemption. In case of the election of the Chinese Government to redeem the whole or any part of said notes, the ('hinese Government \vill, before the date of the first publication of said notice of redemption, deposit with the bank the necessary funds to effect such redemption. The bank shall promptly, after such redemption, send a MTitten report to the Chinese Minister at Washington, stating the number of treasury notes drawn and the numbers of the treasury notes redeemed. Treasury notes so drawn for redemption shall, if the money to redeem the same has been duly deposited with the bank, cease to bear interest on and after the date appointed for their redemption to be stated in the aforesaid published notice of redemption, notwithstanding anything stated to the contrary in said treasury notes or coupons pertaining thereto. All treasury notes which shall be so redeemed shall be canceled by the bank as soon as they are redeemed and shall be promptly delivered to the Chinese Minister at Washington. (b) The Chinese Government covenants and agrees that it will, at least ten (lOi days before any installment of interest on said treasury notes shall become due, deposit with the bank a sum sufficient to pay said interest in full and that, at least ten (10) days before the maturity of said treasury notes, the Chinese Government will deposit with the bank a sum sufficient to pay at maturity the principal and interest of all said treasury notes then outstanding. (c) Until definitive engraved notes are ready the Chinese (jovernment will issue one or more temporary notes, either typewritten or printed, in the denomination of $1,000, or any multiple thereof, Such temporary note or notes shall have the same force and effect as the definitive engraved notes until exchanged for the latter. Such temporary note or notes shall be substantially in the form of the definitive engraved notes, with appropriate changes and alterations indicating that the note or notes is or are temporary notes to be exchanged for definitive engraved notes. The Chinese Government covenants and agrees that it will cause definitive engraved notes to be forthwith prepared, in form satisfactory to the corporation, and will deliver such definitive engraved notes to the corporation to be by it exchanged for temporary note or notes. (d) Pro\'ision may be made by the corporation, after consultation with the Chinese Minister at Washington, for listing said treasury notes on one or more stock exchanges in the United States of America. Ahticle 3. The said loan of five million, five hundred thousand dollars ($5,500,000) is hereby secured, in respect to both principal and interest, by a direct charge upon the entire revenues of the wine and tobacco administrations of the Chinese Government, subject to previous loans already charged on the security thereof and not yet redeemed. The said loan of five million, five hundred thousand dollars ($5,500,000) shall have priority, both as regards principal and interest, over any future loan, pledge, lien, charge, or mortgage whatsoever which may be hereafter charged upon the revenues of the wine and tobacco administration. So long as said five million, five hundred thousand dollars ($5,500,000) loan, or any part thereof, principal and interest, shall remain unpaid, no loan, pledge, lien, charge, or mortgage shall hereafter be made or created which shall take precedence of or be on an equality with said five million, five hundred thousand dollars ($5,500,000) loan, and any future loan, pledge, lien, charge, or mortgage whatsoever hereafter charged on said revenues, or any part thereof, shall be expressly subject to said five million, five hundred thousand dollar ($5,500,000) loan, both as to principal and interest. And the Chinese Government further covenants and agrees that, so long as the option granted by this agreement to the corporation 89 shall remain in force and effect, no additional pledge, lien, charge, or mortgage of any kind on the reve- nues o£ the wine and tobacco administration shall be created. The Chinese Government expressly declares that the revenues of the wine and tobacco adminis- tration received by the Government amount annually to a sum in excess of twenty million dollars ($20,000,000) silver currency. The Chinese Government covenants and agrees that it will apply toward the payment of said treasury notes, both principal and interest, so much of said pledged revenues as will be adequate and sufficient fully to protect and pay. all of said treasury notes and all accrued and accruing interest thereon. And the Chinese Government further covenants and agrees that if, during each or any of the years that said five million, five hundred thousand dollar (15,500,000) loan is unpaid, either as to principal or interest, the receipts from the wine and tobacco administration available for the service of this loan shall, for any reason or circumstances whatsoever, net the Chinese Government a sum less than five million, five hundred thousand dollars ($5,500,000), the Chinese Government will forthwith make good such deficit from other source of its revenue. Article 4. The said treasury notes may be offered by the corporation, individually or with one or more associates, for pubhc subscription and the corporation may issue interim receipts to the purchasers of said treasury notes. All expenses in connection with the printing, engraving and execution of said treasury notes and any interim receipts issued by the corporation or its agents shall be borne by the Chinese Government. The Chinese Legation in Washington shall cooperate with the corporation in the preparation of any prospectus to be issued by the corporation or its associates in connection with the sale of said treasury notes. Article 5. All of the said treasury notes and coupons, and all payments made or to be made thereon, or any of them, and all payments made or to be made, disbursed, distributed or received on account of or in connection with all or any part of said five million, five hundred thousand dollar ($5,500,000) loan, or on account of or in connection with all or any part of the interest thereon shall, in time of war as well as in time of peace, be always exempt from any or all taxes, impositions, hens, or charges of any or every kind, now or that may hereafter be established or levied by the Chinese Government, or by any province, division or branch thereof, or that may be attempted to be established or levied by the Chinese Govern- ment or by any province, division or branch thereof. Article 6. The total of the said five million, five hundred thousand dollars ($5,500,000) loan shall net the Chinese Government ninety one dollars ($91.00) United States currency for every one hundred dollars ($100.00) thereof, plus accrued interest from December 1, 1919, to the date at which the funds payable under this loan are placed to the credit of the Chinese Government. In the event that at any time the corporation shall, on its own behalf or through its associates, dispose of any of said treasury notes above or in excess of the said ninety-one dollars ($91.00) for every one hundred dollars ($100.00), par value, of the said five milhon, five hundred thousand dollars ($5,500,000) loan, such excess shall belong absolutely to the corporation, free and clear of any claim on behalf of the Chinese Government. Article 7. Upon the execution and delivery of this contract and upon the execution and delivery of the representatives of the Chinese Government to the corporation of the said temporary note or notes referred to for five million, five hundred thousand dollars ($5,500,000), the corporation is hereby directed to and will place to the credit of the Chinese Government in the bank the proceeds of said five milhon, five hundred thousand dollars ($5,500,000) of treasury notes, amounting to the sum of five million, and five thousand dollars ($5,005,000) United States currency, and the Chinese Government hereby declares that the sum so deposited to its credit with the bank shall be dedicated and devoted, principal and interest, to the purposes set forth in Article 1 hereof. Neither the corporation nor the bank assumes any responsibihty or UabiUty as to the disposition of any of the funds to be received by the Chinese Government under this loan, and the bank is hereby authorized to disburse any and all of the proceeds of said loan deposited with it upon and according to checks, drafts, or other instruments of credit executed by either V. K. Welhngton Koo, Minister of the RepubUc of China at Washington, or Yung Kwai, Charge d 'Affaires of the Chinese Legation at Washing- ton, and the bank and the corporation are hereby relieved and discharged from any Uability or responsi- bility to the Chinese Government or otherwise in making such disbursements. Article 8. In the event that any of the said treasury notes or any of the coupons pertaining thereto shall be mutilated, destroyed, lost or stolen, the bank is hereby authorized to notify the Chinese Legation at Washington thereof, who will authorize the bank to insert an advertisement in one or more newspapers published at the time in the City of New York, stating that the payment of such note or notes or coupon or coupons has been stopped, and to take such other steps as may appear advisable to the bank, according to the usages or customs in the United States of America. Should any such treasury note or notes or coupon or coupons be so mutilated as to become non- negotiable, or be destroyed, lost or stolen, and not be recovered after a lapse of time to be fixed by the bank, the Chinese Legation at Washington will cause to be executed by the Chinese Minister or the Charge d'Affaires, a duplicate note or notes or coupon or coupons for a like amount and deliver the same to the bank to be by it delivered to the owner or owners of such mutilated, destroyed, lost or stolen note or notes, coupon or coupons, but as a condition of such execution and delivery the bank may require from such owner or owners proof and indemnity satisfactory to the Chinese Government or to the bank. Article 9. In reimbursement for its compensation and expenses connected with the disbursement by the bank of the money to be received by the bank from the Chinese Government with which to pay the interest on the said treasury notes, and the principal thereof, the bank shall be paid by the Chinese Gov- 35283—21 12 90 ernment a commission of one-half (i) per cent of the money received by the bank to pay such interest, and a commission of one-quarter (i) of one (1) per cent of the money received by the bank to pay said principal. Article 10. The Chinese Government hereby declares it to be its earnest desire that the entire wine and tobacco taxes and administration throughout the Republic of China shall be reorganized, with the effective assistance of an American, and to that end it agrees that it will appoint, on December 1, 1919, for a period of at least three years, an American to the position of associate inspector-general of the wine and tobacco administration, who shall be satisfactory to the corporation and who shall possess no less degree of authority than that heretofore given by the Chinese Government to the associate chief inspector of the salt administration of China. Article 11 . The Chinese Government hereby declares that it is its desire and purpose to issue, at any time within a period of seven (7) months from the date of the treasury notes to be issued hereunder, addi- tional treasury notes up to twenty million dollars (,?20,000,000) face ^alue, on the same terms and condi- tions as the treasury notes covered by this agreement and secured by all the revenues of the entire wine and tobacco administration, subject only to the liens against said revenues in existence at the time of the execution of this agreement and that created hereby, and the Chinese Government hereby grants to the corporation an option, for a period of seven months from said date, to purchase all or any part of said additional twenty million dollars ($20,000,000) of treasury notes of the Chinese Government, on the same terms and conditions as the purchase by the corporation of the ti\'e million, five hundred thousand dollars (.$5,500,000) face value, of treasury notes covered by this agreement. In the event of the exercise by the corporation of the option hereby granted, tlie Republic of China hereby covenants and agrees to accept such loan from the corporation and execute such agreement or agreements as shall be deemed necessary or expedient to carry out effectually said loan, it being mutually agreed that said loan agreement shall be in substantially the form and the loan made on substantially the same terms and conditions as the loan covered by this agreement, subject only to such modifications as shall be necessary to make this agreement confirm [conform] to the larger loan. And the corporation at its option , shall have tlie right, at the time of the exercise of such option, to increase the sum of such option by the sum of five million, five hundred thousand dollars ($5,500,000), the proceeds of such increase to be used for the retiring of the five million five hundred thousand dollars ($5,500,000) of treasury notes covered by this agreement. A notification in writing, addressed by the corporation to tlie Chinese Legation at Washington or by cablegram addressed tj the Minister of Finance of the Chinese Go^•ernment at Peking, at any time prior to se^ en months from the date of the treasury notes covered by this agreement, to the elTect that it elects to exercise all or a part of the option hereby granted, shall be an effective exercise by the corporation of the option hereby granted. The corporation shall have the right to designate any bank or banks to handle the loan service covered by this agreement and on such designation the bank or banks so nominated shall receive and disburse, on the instruction of the Premier and Minister of Finance of the Republic of China, all sums to be received or paid by the Chinese Government under this agreement. Article 12. On behalf of the Chinese Government the representatives of the Chinese Government who have signed this agreement agree that the making of said loan of fi"\-e million, five hundred thousand dollars (J5, 500,000) and the issue of said treasury notes and coupons and the execution and delivery of this contract are each and all entered into and duly authorized by the Chinese Government and are each and all in accordance with the constitution and laws of the Republic of China and that there is no treaty, convention, obligation, or agreement of any kind to the contrary. Article 13. Three (3) original copies of this agreement shall be executed, in English, two copies to be retained by the t'hinese Government and one copy by the corporation. One of the original copies retained by the Chinese Government shall be forwarded by the Chinese Government, through the State Department, to the American Legation in Peking for filing in said Legation. In witness whereof. General Chin Yun Peng, Prime Minister of the Republic of China, and the Honorable Li Shi Hao, Minister of Finance of the Republic of China, acting in name and on behalf of the Government of China, have hereunto signed their respective names and caused the seals of the Cabinet and the Ministry of Finance to be affixed hereto and the Pacific Development Corporation, of New York, has caused this instrument to be duly signed, in its name and on its behalf, by Galen L. Stone, the chairman of its board of directors, and Edward B. Bruce, its president, at Peking, China, the day and year first above written. (Caused the seals of the Cabinet and Ministry of Finance.) Republic of China, Li Siii Had. Chin Yun Peng. Witness: Hsu Un Yuen. Witness: Hsu Un Yuen. Pacific Development Corporation, By Galen L. Stone, Chairman of Board. By Edward B. Bruce, President. 91 (Subinclosuro 1.] Keferring to Paragraph 10 of the loan agreement made this twenty-sixth day of November, 1919. between the Repubhc of China and the Pacific Development Corporation, providing for the appoint- ment of an American associate inspector general of the wine and tobacco administration, it is hereby agreed, that m the event that the Pacific Development Corporation shall fail to exercise the option con- tained m ^id agreement and any other individual or group shall thereafter make any loan or loans on the security of the revenue of the wine and tobacco administration, the Pacific Development Corporation will waive, after one year from the date thereof, the right to approve of the person to be appointed as associate inspector general of the said administration. Peking, November twenty sixth, 1919. Pacific Development Cohpokation, By E. B. Bhuce, President. [Subinclosure 2.] inin^v^^^®"^^''*'''^ ^""^ '"" consideration of the agreement made this twenty-sixth day of November, 1919, between the Republic of China and the Pacific Development Corporation, the Republic of China anticipates such an increase in the revenues of the wine and tobacco administration as shall justify the making of loans on the security of the revenue of that administration in excess of the loan made and the option granted in said agreement of November 26th, and the Republic of China hereby grants to the Pacific Development Corporation the option of making an additional loan or loans on the security of the revenue of said wine and tobacco administration. Peking November 2eth, 1919. Republic or China, Signed and sealed by The Prime Minister Chin Yun Peng The Minister of Finance Li Shih Hag Pacipic Development Corporation, By G. L. Stone, Chairman of Board. E. B. Bruce, President. File No. 893.51/2819. The BritisJi Embassy to the Department of State. [Memorandum— Negotiations for consortiimi loan to China.] No. 28.] The Chinese Government have threatened to raise an independent loan guar- anteed on revenue of salt tax in defiance of previous stipulations, unless the request for an advance is acceded to by January 16th. The four Powers interested are now agreed in principle on the conditions for an immediate loan for £5,000,000 and it is essential that their representatives in China act in complete accord to resist this intervention. It is hoped that the State Department will be able to send immediate instruc- tions to the American representative in Pekin. British Embassy, Washington, January 12, 1920. File No. 893.01/2616. The American Group to the Secretary of State. New York, January IS, 1920. Sir : In acknowledging receipt of your letter of January 6th,^ advising that the Japanese and French Governments have withdrawn their objections to the proposed loan to China, we send you herewith copies of three cables received by us from Messrs. Morgan, Grenfell & Co., London dated January 7th, January 8th and January 12th, respectively. You will observe in the cable of January 8th, that the Chinese Government serves notice upon the groups that failing receipt of a definite favorable reply by January 16th, to its request for a loan the Government will consider itself no longer bound by Article 17 of the reorganization loan agreement but will proceed to borrow wherever possible on the security of the salt revenue. > Not printed. 92 At a meeting of the American group committee to-day the opinion of the members was divided upon the wisdom of undertaking at this time any loan which in effect could fill but a small part of China's present needs. At the same time the group agreed that if even the loan of £5,000,000 under discussion were necessary or helpful to the general international situation, it would try to undertake to place such a loan but only in cooperation with the groups in Great Britain, France and Japan, and upon condition that each offer its own share of the loan. We propose sending to London a cable somewhat along the lines of the attached draft, but before doing so would appreciate an expression that such draft meets with your approval. While from the text of the British note enclosed in your letter to us of January 6th, we observe that the Japanese Government is now in agreement with the British Government on the question of disbandment of China's troops, we should like very much to be advised that the Japanese Government clearly understand that in cooperating with the other three groups to bring out a £5,000,000 loan, the Governments of the United States, France^, and Great Britain have in no wise changed their attitude toward Japan's claims in Manchuria and Mongolia. Yours, [etc.] J. P. Morgan & Co., For the American Group. [Inclostire 1.] Copy of Cablegram to be sent to Morgan, Grenfell & Co. 4521. 4515. 4514. American group at meeting held January 13th considered carefully contents these cables and gives following reply: American group would be glad to endeavor in cooperation with other three groups to bring out proposed five million sterling emergency loan on condition that it is properly secured and that the attitude of Chinese Government with respect to its prohibition upon the payment of certain German issued bonds and coupons of Hukuang Loan is abandoned. Such loan to be issued in equal parts by each group. In view of recently issued Vickers treasury bills which American group has been informed was with approval, tacit if not outright, of British Treasury American group is puzzled to understand unwillingness British Treasury to approve issuance of so small an amount as one-quarter interest in proposed five million loan. We have already informed you that as to Pacific Development loan which as matter of fact has never been offered here our State Department expressly declined to accord its sanction. American group is particularly anxious to meet the views of British group as to the issuance of its share of proposed emergency loan but in view of constant British security issues reported on this side sees no present reason for undertaking British or French share in the present difficult American market. Our State Department and group woiild view with regret the pledging by China of the salt revenue in order to obtain temporary revenue from other directions but in such e^•ent would be obliged to view the outcome philosophically. According to present plans T. W. Lament sailing from Vancouver February 19th, and reaches Japan early in March. American group is anxious to have his judgment after study of conditions both in Japan and China at close hand. American group realizes that present emergency will have to be met before that time and it earnestly hopes that with the improvement in England's financial position in view of other issues being brought out there both group and Government will see its way clear to cooperate 60 that the emergency loan can be proceeded with by all four groups together. Morgan. tinclosure 2.] Cablegram from Morgan, Grenfell & Co. London. Hong Kong & Shanghai Banking Corporation have received following from Pekin: Pekin, December 30th. Following for the four groups: We have received letter from Minister of Finance inquiring if any reply has been received to our cable of December 13th. With our concurrence, C. S. Addis proposes reply to following effect: Following from British, French, American and Japanese groups. Inform Minister of Finance negotiations for emergency loan of £5,000,000 are proceeding with support of Governments concerned. We will communicate again as soon as progress of negotiations justifies advances. Please confirm your approval of our action. Morgan. 93 [Inclosure 3.] Cable received from Morgan, Grenfel & Co. London. January 8, 1920. 20/4515. Hongkong & Shanghai Banking Corp'n have received a cable from Peking, as follows: The following is for four Groups. Minister of Finance informed us at interview today that, failing receipt of definite favorable reply to his request for advances by January 16th, Chinese Government will, from that date, consider themselves no longer bound by Article 17 of reorganization loan agreement, and will be compelled by urgent necessity of making provision for Chinese new year to proceed to borrow wherever it may be possible on security of salt revenue. MOHGAN. [Inclosure 4.] Cable received from Morgan, Grenfell & Co. London. January 12, 1920. 4521. 2269. 4564. 4515. Though we have no official information on the matter we have reason to believe that British Government will undoubtedly adhere to decision reported 4807. Unless therefore American group with cooperation of the Japanese group see their way in the near future to make arrange- ments for the suggested emergency loan and to carry the quotas of British and French groups the only alternative appears to be to abandon the proposed emergency foan altogether leaving China free to borrow wherever she can. This will probably result in China obtaining such advances as she requires from Japanese group giving as security the salt revenue. For our information please advise how your U. S. State Department and your group would view such a development and possibility of Japanese group obtaining control of unpledged surplus of salt revenue which has always been relied on as the most readily available and satisfactory security for the future financing of China. We fully appreciate the difficulties of American group issuing Chinese loan at the present time especially if American issue augmented by inclusion of British and French quotas. At the same time we recognize difficulty of British authorities giving official approval to issue of Chinese loan here in present state of exchanges between London and the East. We have therefore thought it well to submit to you what in our view appears to be the probable alternative. Have you any suggestions to make? MOBGAN. Tile No. 893.51/2622. TJie French Ambassador to the Secretary of State. [Translation.] French Embassy, Washington, January 17, 1920. Mb. Secretary of State : As your excellency no doubt heard direct from the representative of the United States in China, the Minister of Finance of that country notified the members of the former consortimn that unless satisfactory action were taken before the 16th of this month on his Government's applications for advances, he would consider that he is no longer bound by article 17 of the financial reorgani- zation arrangement and feel at liberty to borrow wherever he chose and offer the salt revenue as a security. My Government informs me that on the main ground of the understanding reached by the Government as to a loan to China by the new consortium in the sum of five million pounds sterling, the representatives of France and Great Britain demanded the withdrawal of that injimction, but the Japanese Minister refused to join in the protest. In my Government's opinion, it would be highly important to have the repre- sentative of the United States, on the new consortium jom ours in that protest, although the United States did withdraw from the old consortium. I have the honor to communicate the request to your excellency and should be very thankful if you would entertain it and enable me to report a favorable decision to my Government. Be, [etc.] JUSSERAND. 94 File No. 893.51/2630. Ambassador Davis to the Secretary of State. [Telegram.] American Embassy, London, January 23, 1920 — 7 p. m. 124. Foreign Office advises me of recent telegraphic instructions to British Embassy, Washington, to inform Department of a telegram sent to British Legation, Peking, January 3, regarding assent of the French Government to the immediate loan to China of five milUon pounds and the French Government's views regarding disbandment of troops: the general tenor of which instructions I therefore deem it unnecessary to repeat. British Minister, Peking, has now referred by telegraph, to difficulties connected with fulfillment these conditions, especially concerning disbandment, adding that better class Chinese opinion disapprove loan of uncontrolled money to China, fearing repetition of various loan proceedings during past four yiears. In reply he has been informed that British Government are fully alive to such difficulties, but that one of the main objects has been to get the principle of disbandment. Additional instruc- tions abolishing lending powers and indorsed in the loan contract in order that, before the time arrives for the negotiation of a large loan, the Chinese may realize that no money will be forthcoming unless disbandment is undertaken seriously. The Minister has therefore been instructed to act in concert with his colleagues in informing Chinese Government of the terms of the loan and of mtention of British Government to see that they are observed, in which views British Government con- fident belief that the United States is in sympathy. Confidential. I am also informed that the American group has consented to assume, for the present, the share of the British group and I have received the further confidential intimation that doubt has been expressed in some quarters as to the ability of raising a loan at the present time. It is readily admitted that this appears almost inconceivable and that the dissemination of such report would seriously jeopardize the prestige of the groups and Governments concerned. Davis. File No. 893.51/2640. The Acting Secretary of State to Charge Tenney. [Telegram.] Department of State, Washington, January 28, 1920 — 6 p. m. 25. Your telegram of January 27th, 5 p. m. The following telegram from Morgan & Company in behalf of American Group is forwarded to you for your informa- tion and guidance. In reference to proposed emergency loan for five million pounds sterling to China the American group has now determined, assuming the Japanese group concurs, to offer in conjunction with Japanese group Buch proposed loan; the two groups just mentioned undertaking to offer the British and French quotas of the said loan . Yokohama Specie Bank as head of Japanese group has not yet been received. American group assumes that the proposed loan is agreeable to it especially in view of cable received by the American group January 26 from London reading as follows; "Hongkong and Shanghai banking corporation informs us Japanese Minister Peking has been instructed to cooperate with other three ministers upon the understanding that advance from the con- sortium will be forthcoming without further delay." For your information American group has received from London today additional message reading as follows: ' 'Japanese Minister for Foreign Affairs now informs Hongkong and Shanghai Banking Corporation that by words without farther delay he means before the close of the Chinese lunar year that is February 19. You will recollect that this date was also mentioned by the Chinese Minister of Finance as reported in Peking message. " Therefore you will kindly inform the Chinese Minister not only that America is not blocking pro- posed loan but on the contrary is making every possible effort to facilitate it having gone to the extent of offering in conjunction with Japan to take over the British and French quotas. It would however appear almost impossible that negotiations should be so facilitated as to permit of advance actually to be 95 made by February 19. The American group is today cabling the International Banking Corporation Peking to act for it in negotiations for the proposed loan and it will of course depend upon the attitude of the Chinese Ministry towards the proposed terms as to whether the loan can be issued in the near future or not. For your further information Lament of Morgans will in behalf of the American group sail for Japan from Vancouver February 19 and after stay in Japan plans to proceed China for conference with leading officials there in the hope of arriving at a clearer understanding on all pending matters. Repeat to Tokyo. Polk. File No. 893.51/2643. Tlie Secretary of State to Charge Tenney. [Telegram— Extract.] Department of State, Washington, February 2, 1920 — 5 p. m. 29. See Department's November 29, 1 p. m. and December 23, 6 p. m. through Tokyo. In view of the commitments undertaken by this Government in connection with the proposed emergency loan to China as a necessary preliminary to the formation of the new consortium the Department feels itself obliged to withhold from the Pacific Development Company its support in any activities which may conflict with the negotiations now in progress. Lansing. File No. 893.51/2622. The Secretary oj State to the French Ambassador. Department of State, Washington, February I^, 1920. Excellency : I have the honor to acknowledge the receipt of your communica- tion of January 17, 1920, concerning the notification given by the Chinese Finance Minister to the old consortium concerning the lapse of options under the old reorgan- ization loan agreement and to state that this Government does not consider that matter to be of great importance in view of pending negotiations for an emergency advance by the four Powers concerned in the organization of the new consortium. Accept, [etc.] EoBERT Lansing. File No. 893.51/2643. The Secretary oj State to Charge Tenney. [Telegram.] Department of State, Washington, February 7, 1920— S p. m. 35. Supplementing the Department's telegram No. 29 of February 2, 5 p. m. The American group as part of the so-called Chinese consortium, informs the Department that it has been carrying on conferences with officers here of Pacific Development Company with the hope that the Development Company would see fit, upon payment of the five million dollars abeady advanced, to turn back to the American group, and thus to the custody of the consortitmi, when formed, the present loan contract, including the provisions with respect to the wine and tobacco tax. In case such an arrangement should be brought about then all four of the international groups as one will hold the loan contract in question. In this way the interest of no one national group will be prejudiced; particularly the mterest of the Japanese nationals will not suffer under such a happy solution of this particular The American group furthermore informs us that in connection with the present negotiations for emergency loan of five million sterling it has received through the Department the suggestion of the Japanese Minister that a temporary advance should be made, and it hopes that it will be possible for the American group, m 96 conjunction with the Japanese group, to make such a temporary advance as soon as the amoimt of same is made known, and as soon as word is received from the Chinese Government that the loan terms proposed by the American and Japanese groups t acceptable. In view of all the foregoing the Department desires strongly to point out to the Chinese Government the advisability of allowing present status as to the so-called Pacific Development loan to remain for the moment undisturbed, leaving negotiations for the transfer of this loan to the good offices of the American group, and of thus refraining from negotiating any present loan with the Japanese Okura firm. The Department points out fm-ther that Mr. Lamont, of the J. P. Morgan and Company, the head of the American group, is starting next week for Tokyo, where he hopes to arrive at the end of this month, or the very beginning of March, and his visit will afford ample opportimity to discuss, and we hope adjust all these outstand- ing matters. The desirabihty of making no new move which might serve further to complicate the situation pending Mr. Lament's visit is manifest. The above is being telegraphed to Tokyo which will communicate for your information the Department's further instructions to it. Lansing. File No. 893.51/2652. Charge Tenney to the Secretary of State. [Telegram— Paraphrase.] American Lecation , PeMng, Fehruary 7 , 1920 — 5 p. m. The Prime Minister stated at an interview to-day that he will give to the Pacific Development Corporation more time for the second advance if he can obtain an advance from the consortium before Chinese new years day. He expressed prefer- ence to deal with American in the wine and tobacco bureau regulator [revenues?] and if he can tide over temporary difficulties he will refuse all offers by others. Tenxey. File No. 693.51/2653. Charge Tenney to the Secretary of State. [Telegram.] American Legation, Pehing, February 8, 1920 — noon. 35. Four ministers offered five million pound sterling loan on three conditions specified. Chinese Government has replied accepting conditions and asking imme- diate advance of seven million dollars pending completion of negotiations for large loan. Tenney. File No. 893.51/2658. Charge Tenney to the Secretary of State. [Telegram— Paraphrase.] American Legation, Pehing, Fehruary 10, 1920 — 6 p. m. 37. A separate agreement for the portion of the 5,000,000 pound sterling loan advanced by the Japanese group is insisted upon by the Japanese Legation and the bank and another agreement for the portion advanced by the American group, as well as the exclusion from the negotiations with the Chinese of French and British bankers. I am insisting that the four banks should participate in the loan nego- tiations and that a joint agreement be signed by the representatives of the four financial groups. Embassy at Tokyo advised. Tenney. 97 FUe No. 893.51/2658. Tlie Secretary of State to Charge Tenney. ITelegram-Paraphrase] Department of State, Washington, Febrvary 12, 1920 — 5 p. m. 39. Your insistence upon joint negotiations and joint signature of the loan contract by the four financial groups as reported in your telegram of February 10, has the full approval of the Department. Lansing. File No. 893.51/2643. The Secretary of State to Charge Tenney. [Telegram— Paraphrase.) Department of State, Washington, Felruary 12, 1920 — 6 p. m. 40. Referring to Department's telegram of February 7, No. 35, and particu- larly to paragraph four, the following is sent for your information and guidance : No change whatever has been made in the Department's determination that no support shall be given to the loan of the Pacific Development Corporation in any way which might interfere with the negotiations for the final arrangement of the four Power consortium. The Department, however, is under apprehension that the Chinese Government might construe the attitude of the Department in refusing to give actual diplomatic support as equal to a positive refusal to consider that contract valid. It is not desirable under present conditions that the Depart- ment announce publicly — such an announcement might be open to misconstruction — that it intends to give support to independent negotiations, separate from those in which the four Powers are now engaged, the Legation should understand at the same time that the Department, although it is withholding positive support from the interests of the Pacific Development Corporation while actively supporting the negotiations of the consortium, it would become necessary to take^ cognizance of new conditions if it should happen that support should be given by any other Power to similar activities by its nationals, then the Department would have to take proper measures for the protection of the vested rights of this American corporation against any violation for the benefit of a national of another country. When, in yoiu: opinion, any danger of such an infraction of the contract rights of this American company seems to be impending you have authority of the Depart- ment to call attention of the appropriate officials of the Chinese Government to this attitude; in order to avoid, however, any possible misconstruction, the Department desires that this measure be availed of only when it becomes extremely necessary. Lansing. FUe 893.51/2673. The French Ambassador to the Secretary of State. [Translation.] French Embassy, Washington, February 14, 1920. Mr. Secretary of State : My Government advises me that the American and Japanese groups of the financial consortium in China have notified the French group that they were ready to assume, for the time being, all the financial burden that the French and English groups are unable to bear at present. The French group's participation in the 5 million pound loan, that is to be the first transaction entered into by the consortium, would therefore be purely nominal. In compliance with instructions received by me, I have the honor to inform you that my Government would be glad if the American group's offer could be carried out at the earliest possible date and I should be very thankful if you would kindly enable me to report to it on the subject. Be pleased, [etc.] JUSSERAND. 35283—21- -13 98 File No. 893.51/26S6a. The Acting Secretary of State to Charge Tenneg. [Telegram.] Department op State, Washington, February 16, 1920 — 6 p. m. 44. Please communicate following to International Banking Corporation for American group and advise your British, French and Japanese colleagues: "Keferring to your recent despatches American group are prepared in view of decision of French group to join in temporary advance of seven million dollars Mexican to extent of regular quota to join with Japanese group in making remaining three- fourths advance, namely, five million two hundred fifty thousand dollars, Mexican. Please advise representative of International Banking Corporation that cable has been transmitted to him requesting him to draw on J. P. Morgan and Company for two million six hundred twenty-five thousand dollars, ]).Iexican, on receipt by him from the Chinese Government of its six months treasury bills of this principal amount discounted for six months at eight per cent together with commission of five per mill or the equivalent of one-half per cent upon said principal amount. It is understood that the treasury bills are to be repaid from the proceeds of the emergency loan and the advance is made upon the sole condition that the Chinese Government accepts all the conditions of the emergency loan as transmitted to them by the International Banking Corporation. In the event that such emergency loan is consummated prior to maturity of the six months treasury bills the latter are to be redeemed with an adjustment of interest from date of redemption to date of said maturity. Please advise International Banking Corporation that this cable is authority for them to draw in anticipation of receipt by them of direct communication from New York office." Polk. File No 893.51/2673. Charge Tenney to the Secretary of State. ITelegram-Paraphrase.] American Legation, Peking, February 19, 1920 — 4 V- w- 44. Reports that thirteen million yen have been advanced to the Chinese Gov- ernment by the Japanese with the hope that the above amount will be repaid to them when the proceeds of the emergency loan now under negotiation become available. Tenney. File No. 893.5I/ai7-i. The Acting Secretary of State to Charge Tenney. [Telegram-Paraph rase.] Department of State, Washington, February 24, 1920 — 4 p. m. 51. Send full information whether the loan made by the Japanese to the Chinese Government took the place of the proposed joint advance and if that is the case why the completion of that advance along the lines agreed upon was prevented. Polk. File No. 893.51/2693. Ambassador Morris to the Secretary of State. [Telegram.] American Embassy, Tolcyo, February 26, 1920—7 p. m. 65. In an informal talk with the Minister of Foreign Affairs I referred to the recent negotiations in Peking resulting in a loan of nine million yen to the Chinese Government and inquired whether he felt at liberty to tell me how his Government viewed this emergency advance in relation to the larger question, the consortium. He replied that the advance of nine million yen by Japanese banks was ap- proved by his Government simply as a temporary expedient to meet the pressing 99 needs of the Chinese Government and was not intended to defeat the proposal of the British Government for an emergency loan of five miUion pounds sterling or to affect in any way the progress of the negotiations for a four Power consortium as proposed by the United States and approved by Great Britain and France. On the contrary the Japanese Government was extremely loath to approve an inde- pendent loan of any kind and delayed until the last moment in the hope that some joint action would be possible before the new year. He was glad to emphasize anew the adherence in principle of the Japanese Government to the plan of a four power consortium and was confident that a satisfactory agreement could be reached on the question still under discussion. He further explained that the temporary advance of 9,000,000 yen which his Government had approved represented at the present rate of exchange 3,500,000 silver dollars or one half the amount which the Chmese Government had requested and left open the question of a further advance of the other haK by the American banking group whose agents in Pekmg were on the eve of the Chinese New Year without definite instructions from their principals. He understood that there had been some misunderstandings in Peking during the course of the negotiations but he believed that the satisfactory explanations had been made to Sir John Jordan and Mr. Tenney. He was hopeful that the visit of Mr. Lamont to Tokyo and Peking would help to clarify the entire situation. Repeated to Peking. MORKIS. File No. 893.51/2694. Charge Tenney to the Secretary of State. [Telegram— Paraphrase.] Ameetcan Legation, PeUng, February 27, 1920—11 p. m. 51. The following statement was sent to the American Embassy at Tokyo with reference to Department's telegram of February 24, 5 p. m. Note should be taken that the temporary advance made by the Japanese to China amounted to only nine million yen and not thirteen as stated to the American group representative by the Japanese group representative. The Japanese Minister stated on January 15th that he had been instructed by his Government to participate in the loan of five million pounds sterling under the following three conditions, that the peace conference be resumed immediately, that the disbandment of superfluous Chinese troops take place, that there be supervision of expenditures. He proposed on January 29th that certain advances be made to China for New Year by four banks, deducting such advance from the [five] million pounds sterling loan. Jointly with other diplomatic representatives the Japanese Minister presented a note to the Chinese Government on February 5 which recited the above three conditions and added that the salt surplus be given as security for one year. The Chinese Government accepted these four basic terms on February 7th and asked that an immediate advance of seven million doUars silver be paid to it. As the representatives of the French and British groups had received no in- structions, in spite of the action of their Legations, to start the negotiations for the five miUion pound loan contract, and the American group representative being with- out instruction which permitted him to join in any temporary advance to the Chinese Government before New Year the representative of the Japanese group independ- ently advanced to the Chinese Government on February 19th nine million yen gold under instructions of the Japanese Minister which advance was to be repaid out of the five miUion pound loan when completed. The representative of the American group was informed by the representative of the Japanese group that under his instructions the Chinese Government was not required to accept, as a condition of the temporary advance, the basic terms laid down for the five miUion pounds loan. The American group representative stated that he did not anticipate that any objec- 100 tions would be raised by the American group to the temporary advance by the Japanese group if the terms of the temporary advance conformed to the terms required for the emergency loan now being negotiated and that China accepted these terms. The temporary advance is issued for six month treasury bills at ninety-six, one-half of one per cent commission, it is to be used for administration expenses and is to be repaid by monthly installments, beginning March, from the salt revenue which is given as security. This advance is to be repaid from the proceeds of the five million pounds emergency loan if that loan is completed. Instructions were received by the representative of the American group to participate in the temporary advance, but too late, so no action was taken by him, especially as the advance had been made regardless of the terms of the five million pound loan. Rumor has it that certain secret benefits have been obtained by the Japanese on the strength of this advance. The representative of the American group on February 25 suggested to the representative of the Japanese group to continue the negotiations for the five million pound loan, but the latter stated that he had no instructions therefor and as he was uncertain as to the terms under which Japan would enter the consortium he intended to leave for Tokyo for a consultation with Lament. The representative of the American group desires an expression of Mr. Lament's views whether it vrould be advisable for the American representative to make a tem- porary advance at the present time. Tenney. File No. 893.51/20973. The Acting Secretary of State to Ambassador Morris}^ [Telegram— -Paraphrase.) Department of State, Washington, Fihruary 28, 1920 — 1 p. m. More than eighteen months have passed since the Government of the United States approached the Governments of France, Great Britain and Japan with the proposal that a new coalition be formed vdth the view of extending financial aid to the Chinese Government. The terms of this proposal were communicated to you at the time and the aims and objects which this Government hoped would thereby be attained were imparted to you. It was the intention above everything else that China should receive during the period of transition and when its economic needs were greatest the necessary financial assistance in a wa^- which would remove the temptation that China would gravitate politically towards any one Power, and which Would prove to be a practical means of insuring the continued equal economic and commercial opportunity which is generally conceded to be necessary to prevent international rivalries which are dangerous not only to the natural development of China but to the interested foreign Powers also. The British and French Govern- ments adopted the proposals in principle as a substantial bi.sis upon which a new international consortium of bankers could be founded to supply needed funds to China. The American, British, French and Japanese banking interests accepted and confirmed these proposals at a conference held in Paris last May, subject to the approval of their Governments. The British and French Governments and the banking groups of France, Great Britain and Japan were actuated by liberal and self-denying spirit, each one interested itself to eliminate so far as possible motives of a disturbing and complicating political nature from the negotiations and discussions which in their opinion should be conducted on the basis of sound business principles. To our disappointment Japan alone has proved herself disinclined to cooperate. At the time the proposals were first made it did not inform its bankers, it did not invite them to participate in the proposed consortium by organizing a financial group until after the lapse of eight months, and finally it did not notify the other interested Powers of its attitude towards the plan of the proposed consortium imtil " Mutatis mutandis to tlie American Embassies at London and Paris and to tlie American Legation at Peldng tor ttieir Information. 101 after a delay of nearly a year. Then it presented a proposal by which the special rights and interests which Japan claimed in Eastern Inner Mongolia and South Manchuria should not be included in the plan of the proposed consortium, thereby introducing entirely new questions not only foreign to the purpose of the proposed consortium but contrary to the spirit of liberality and self-denial by which the entire negotiation had been characterized. By this procedure the success of the entn-e plan depended upon the willingness of the other interested Powers to grant to the Japanese Government special rights, preferential and exclusive, which in fact recognized a new principle of spheres of influence more advanced and more extensive than ever before yielded in China. The other three interested Powers made all efforts to persuade Japan to recede from its stand but without success, even after this Government had offered the concession that existing Japanese interests in certain projects would not be jeopardized. You were advised through the Lega- tion at Peking on October 15 that this Government, on October 11 replied to an inquiry from the British Government fully explaining this Government's attitude and no change has been made therein. Considering all this the Government of the United has concluded that the time has arrived to go ahead with the full completion of the proposed consortium or to face the new complication created by Japan. This situation is fully realized by the American bankers and they have sent Mr. Thomas W. Lament as their repre- sentative to Japan. He is not in any way connected with this Government and has gone to Japan to consult with the Japanese bankers' group for the purpose of trying to attain an agreement on the question which will work satisfactorily. Render him every assistance, give him all necessary information and work with him as fully as you are able. Keep the Department fully informed and instructions will be sent to you from time to time. The full and hearty cooperation of the Japanese Government is still desired in this matter by this Government along lines which insure to Japan protection of its rights and no sacrifice is asked of it of anything to which it is properly entitled. But if that desire is not realized through the action of that Government, the Gov- ernment of the United States will be compelled, though with reluctance and with the consciousness that every means at its disposal has been used to accomplish cooperation, to revert to the old form of national and individual activity with all its antagonistic and competitive disadvantages, and support any and all legitimate projects of American financial interests which they may desire to exploit independ- ently in China. This Government would meet with keen disappointment if it were compelled to relinquish the hope of cooperation with the Japanese Government Ln the solution of problems of fundamental importance to both nations through the common motives of principles mutually recognized which were embodied in former dealings between Japan and this Government and which were, through the Lansing-Ishii notes, re- affirmed most recently. Polk. File No. 893.51/2673. TJie Acting Secretary of State to the French Ambassador. Department of State, Washington, March 2, 1920. Excellency : I have the honor to acknowledge the receipt of your note of Feb- ruary 14, 1920, regarding the participation of the French banking group in the new international consortium, particularly with reference to the first loan to be made to the Chinese Government. As you have no doubt been informed, the American and French banking groups have reached an agreement whereby the French group is to carry one-fourth of the preliminary advance of $7,000,000 Mexican, which is to be made on the emergency loan of five million pounds. Negotiations are now in progress from which it is hoped that satisfactory results may be obtained in the near future. Accept, [etc.] Frank L. Polk. 302 File No. 893.51/2695. Tlie Japanese Embassy to the Department of State. [Memorandum.] The Japanese Government have given their serious consideration to the memo- randum of the United States Government of the 28th of October last relating to the formation of a new consortium. The United States Government appears to be under the impression that the pro- posal of the Japanese Government in regard to South Manchuria and Eastern Inner Mongolia amounts either to exclusive political pretentions or to the establishment of a so-called sphere of interest. The Japanese Government desire to set forth once again their views frankly on the main purpose of their proposal and to invite further consideration on the part of the United States Government on this subject. From the nature of the case, the regions of South Manchuria and Eastern Inner Mongolia which are contiguous to Korea stand in very close and special relation to Japan's national defense and her economic existence. Enterprises launched forth in these regions, therefore, often involve questions vital to the safety of the country. This is why Japan has special interest in these regions and has established there special rights of various kinds. The Japanese Government are under no misapprehension or misgiving as to the purpose of the organization of the consortium, and are glad to cooperate under such an arrangement with the Powers concerned for the promotion of the general welfare in China. But, as is suggested in the proposed consortium, merely out of business considerations, to throw open to the common activities of an international financial combination, even those enterprises in the regions of South Manchuria and Eastern Inner Mongolia which vitally affect the economic existence and national defense of Japan, would be no safe way of providing for the national peace and security, and for this reason, it would hardly meet with the approval of public opinion in Japan. These considerations were fully set forth by Mr. Debuchi, the then Charge d'Affaires of Japan, in his interview with the Third Assistant Secretary on the 27th of August last year. Furthermore, the recent development of the Russian situation, exercising as it does an unwholesome influence upon the Far East, is a matter of grave concern to Japan. In fact, the conditions in Siberia, which have been developing with alarming precipitancy of late, are by no means far from giving rise to the most serious situa- tion, which may at any time take a turn threatening the safety of Japan and the peace of the Far East, and ultimately place entire Eastern Asia at the mercy of the sinister activities of extremist forces. Having regard to these signals of the imminent character of the situation, the Japanese Government all the more keenly feel the need of adopting measures calculated to avert any such danger in the interest of the Far East as well as of Japan. Now South Manchuria and Mongolia are the gate by which these direful influences may effect their penetration into Japan and the Far East to the instant menace of their security. The Japanese Government are convinced that having regard to the vital interests which Japan, as distinct from the other Powers, has in the regions of South Manchuria and Mongolia, the United States Government will appreciate the circumstances which compelled the Japanese Government to make a special and legitimate reserva- tion indispensable to the existence of the State and its people. In short, the present proposal of the Japanese Government in regard to Man- churia and Mongolia is based, as already explained, on the paramount importance of the economic existence and national security of the country, coupled with a due regard for the general peace of the Far East,— considerations which have been strengthened by the recent development of the situation. Consequently the Japanese Government are prepared to cooperate with the financiers of the Powers concerned in Manchuria and Mongolia so long as the main purpose of their proposal as above enunciated remains respected. It would be needless to say that that proposal was prompted by no desire of making any territorial demarcation involving the idea of 103 economic monopoly or of asserting any exclusive political pretentions or of affirming a doctrme of any far-reaching sphere of interest in disregard of the legitimate national aspirations of China, as well as of the interests possessed there by the Powers concerned. It is confidently hoped that the United States Government would submit these points to their serious consideration. The Japanese Government are gratified that the United States Government acknowledges m its memorandum now under review the exclusion from the scope of the common activities of the new consortium, not only of those Japanese under- takmgs m Manchuria and Eastern Inner Mongolia which are already developed and constitute vested proprietary interests, but also of the existing options in connection with railways ah-eady in operation (for instance the proposed continuation to Taonan of the Ssupmgkai Chengchiatun Railway and to Huoining of the Kirin-Chancrchun Railway) and makes it abundantly clear that Japan's legitimate rights and interests are in no case to be jeopardized. Having regard to the considerations of assuring the national security referred to above, it is expected that the principal instances of Japan's legitunate undertakings, as enumerated in the attached statement, will be excluded from the scope of the common activities of the new consortium. The British Foreign Minister invited Viscount Chinda on the 19th of November last year, if there is any fear that any project launched under the aegis of the consortium might threaten the strategic security of Japan, to guard against this danger by proposing a formula to meet the case. It is believed that the views of the British Government in this respect are shared by the United States Government. Accordingly, the Japanese Government, while authorizing the Japanese bankers' group to enter the proposed consortium on the same footing as the bankers' groups of the other Powers concerned, venture to propose to achieve the settlement of the matter at issue by exchanging between the members concerned a note embodying the sense of the formula hereto attached. FORMULA. The Japanese Government accept and confirm the resolutions passed at the con- ference of the representatives of the banking groups of the United States, Great Britain, France and Japan, which met in Paris on May 11th and 12th, 1919, for the purpose of organizing a new consortium. In matters, however, relating to loans affecting South Manchuria and Eastern Inner Mongolia which in their opinion are calculated to create a serious impediment to the security of the economic life and national defense of Japan, the Japanese Government reserve the right to take the necessary steps to guarantee such security. Japanese Embassy, March 2, 1920. [Inclosure.] 1. The South Manchuria Railway and its branches, together with the mines which are subsidiary/ to the railway, are unaffected by the scope of the common activities of the new consortium. 2. The construction of the Kirin-Changchun Railway, Shinminfu-Mukden Railway and Ssupingkai Chang-chiatun Railway has been completed, and their operation has already been commenced. They fall therefore within the category of those enterprises which according to Article 2 of the proposed inter- group agreement, have already made substantial progress, and are outside the scope of the common activities of the new consortium. 3. The Kirin-Hueining Railway, the Changchiatun-Taonanfu Railway, the Changchun-Taonanfu Railway, the ICaiyuan-Kirin Railway, the Taonanfu-Jehol Railway and the railway connecting a point in the Taonanfu-Jehol Railway with a seaport are branch or feeding lines of the South Manchuria Railway. Moreover, having regard to the fact that, as stated in the memorandum dated March 2, these lines together with the South Manchuria Railway do not only bear a most important relation to the national defense of Japan, but also constitute a powerful factor in the maintenance of peace and order in the Far East; and also in view of the fact that, as an extension of the railways already in operation as set forth in the memo- randum of the United States Government, these lines form the subject of legitimate rights of Japan, it is expected that they will be placed outside the scope of the common activities of the new consortium. It is not unlikely, however, that in case of any loan being floated in future in connection with these railways, the European and American markets will be invited to subscribe to it. Japanese Embassy, March 2, 19W. 104 Fllo No. 893.51/2695. The Acting Seaxtary of State to Ambassador Morris. [Telegram.) Depaetment of State, Washington, March 5, 1920. 68. The Japanese Ambassador on March 2 left with the Department a memo- randum on the subject of the consortium in which is included a formula which it is suggested be exchanged between members. Formula is as follows: The Japanese Government accept and confirm the resolutions passed at the conference of the repre- sentatives of the banking groups of the United States, Great Britain, France and Japan which met ia Paris on May 11th and 12th, 1919, for the purpose of organizing a new consortium. In matters, however, relating to loans affecting South Manchuria and Eastern Inner Mongolia, which in their opinion are calcu- lated to create a serious impediment to the security of the economic life and national defense of Japan, the Japanese Government reserve the right to take the necessary steps to guarantee such security. Please request the Japanese Foreign Office to furnish you with a copy of entire memorandum and when you have studied it report promptly to the Department your opinion as to the proposals made therein. Upon receipt of memorandum copy by wire to Peking for their strictly confiden- tial information. Polk. File No. 893.51/2695. The Acting Secretary of State to Ambassador Davis. [Telegram.] Department of State, Washington, March 6, 1920. 227. On March 2 the Japanese Ambassador left with the Department a lengthy memorandum on the subject of the consortium, a copy of which is being sent you by pouch. It sets forth in great detail the reasons for the Japanese claim for exclu- sion of certain interests in South Manchuria and Eastern Inner Mongolia from the scope of the consortium. It states that such claim is based on the "economic existence and national defense of Japan." It gives as an additional reason for asking protection of its interests in these localities "the recent development of the Russian situation." It states that the British Foreign Minister invited Viscount Chinda on the 19th of November last to propose a formula to cover the situation and accordingly, the Japanese Government, while authorizing the Japanese bankers' group to enter the pro- posed consortium on the same footing as the bankers' groups of the other Powers concerned, venture to propose to achieve the settlement of the matter at issue by exchanging between the members concerned a note embodying the sense of the formula hereto attached. The .Japanese Government accept and confirm the resolutions passed at the conference of the repre- sentatives o( the banking groups of the United States, Great Britain, France and Japan which met in Paris on May tlth and 12th, for the purpose of organizing a new consortium. In matters, however, relating to loans affecting South Manchuria and Eastern Inner Mongolia which in their opinion are calcu- lated to create serious impediment to the security of the economic life and national defense of Japan, the Japanese Government reserve the right to take the necessary steps to guarantee such security. It also submits the following list of concessions and options in Manchuria and Eastern Inner Mongolia which it asks be excluded from pooling as provided in con- sortium agreement: 1. The South Manchuria Railway and its branches, together with the mines which are subsidiary to the railway, are unaffected by the scope of the common activities of the new consortium. 2. The construction of the Kirin-Changchun Railway, Shinminfu-Mukden Railway and Ssupingkai Changchiatun Railway has been completed, and their operation has already been commenced. They fall therefore within the category of those enterprises which according to Article 2 of the proposed inter- group agreement, have already made substantial progress, and are outside the scope of the common activities of the new consortium. 105 3. The Kirin-Hueining Railway, the Changchiatun-Taonanfu Railway, the Changchun-Taonanfu Railway, the Kaiyuan-Kirin Railway, the Taonanfu-Jehol Railway and the railway connecting a point in the Taoaauf u-Jehol Railway with a seaport are branch or feeding lines of the South Manchuria Railway. Moreover, having regard to the fact that, as stated in the memorandum dated March 2, these lines together with the South Manchuria Railway do not only bear a most important relation to the national defense of Japan, but also constitute a powerful factor in the maintenance of peace and order in the Far East and also in view of the fact that as an extension of the railways already in operation as set forth in the memorandum of the United States Government, these lines form the subject of legitimate rights of Japan, it is expected that they will be placed outside the scope of the common activities of the new consortium. It is not unlikely, however, that in case of any loan being floated in future in connection with these railways, the Eiuropean and American markets will be invited to subscribe to it. Please communicate the above to the British Foreign Office with the statement that this Government is not disposed to question the substance of the Ust as sub- mitted although it is much more far reaching than was contemplated by the American proposal of October 28 of which a copy was forwarded to you in Despatch 435 October 30 last. This is particularly true of Article 3 which relates to the five Manchurian railway?. The Department wishes to go as far as possible to meet the legitimate desires of the Japanese and to remove any reason for further delay in bringing about effective cooperation. As regards the proposal of the Japanese Government in respect to a reservation to be made on the basis of "the paramount importance of the economic existence and national security of the country, coupled with a due regard for the general peace of the Far East," the Department desires to advise you of its views for your own information and for your guidance in discussions of this question with the British Foreign Office. This Government is heartUy gratified by Japan's apparent renun- ciation of the exclusive economic and political claims which it has hitherto main- tained with respect to Manchuria and Mongolia. The formula proposed by the Japanese Government is, however, in the view of this Government, superfluous and potentially dangerous. This Government is not unsympathetic with the professed objects of the proviso, but considers that by reason of the particular relationships of understanding which exist between Japan and the other three Powers associated with it in the consortium there would appear to be no reason to apprehend on the part of the consortium any activities directed against the economic life or national defense of Japan. It is felt that Japan could with assurance reply upon the good faith of the United States and the other two Powers associated in the consortium to refuse their countenance to any operations inimical to the vital interests of Japan, and Japan's insistance upon the other three Powers joining in the proposed formula would only create misapprehension. It is felt moreover that such a formula would not only be unnecessary but would lend itself to misconstruction for the reason that it apparently differentiates between the status of South Manchuria and Eastern Inner Mongolia and that of other Chinese territory. The mere fact of such differentiation would, it is apprehended, give rise to questions which would tend stUl further to unsettle the already complex situation in China. This Government is therefore hopeful that the Japanese Government may in view of its existing relations with the other three Powers be persuaded to rely upon their good faith in this matter and forego its proposal to require expHcit guarantees the mere statement of which opens the way for possible misconstruction and mis- apprehension in the future. It is desired that you ask the Foreign Office for an informal expression of opinion concerning the present Japanese proposal when it shall have considered the matter in detail. Please explain that because of Mr. Lamont's presence in Japan it is desired to reply to the memorandum at the earliest possible moment. Repeat to Paris as number 476 for similar action. Polk. 35283—21 14 106 File No. 893.51/2690. ir • The Acting Secretary of State to Amhassador Mcrns. [Telegram— Paraphrase.] Department of State, WasUngtcn, MarcTi 6, 1920—9 p. m. 77. Embassy's telegram of Februar)^ 15, 3 p. m.,^ was delayed and not received until the 29th. The memorandum quoted therein is being considered m connection with another memorandum from the Japanese Government of March 2. The Department, however, states its views on the various points of the memorandum quoted in vour telegram. 1 . The withholding of diplomatic support from the loan of the Pacific Develop- ment Corporation will be continued unless the Department becomes convinced that the consortium can not possibly be formed. In that case the Department would consider itself compelled to use every means at its disposal to support every legitimate and proper American interest which might desire to conduct financial operations in China. 2. The American group can not avail itself of the promised exclusive support until the consortium is actually formed, and the Department is unable therefore to exert its full influence to prevent independent operations. 3. The conclusion of the loan above mentioned was due, the Department is fully agreed, to the delay in the completion of the international consortium and it feels that the responsibility for that delay rests wholly and alone on Japan. 4. The Pacific Development Corporation, in negotiating the loan merely took the place of the Chicago bank which, in conformity with its contract of November 1916, held an option on future loans with the wine and tobacco tax as security. 5. The Pacific Development Corporation was accepted by the Chinese Govern- ment in place of the Chicago bank after its refusal, upon request of the Department, to complete its contract on account of the delay in the negotiations by the desire of the Chinese Government that certain securities be substituted. 6. No act of unwarranted interference was performed by the Pacific Develop- ment Corporation, except possibly in so far as this Government or its nationals are concerned. 7. No denial is made that this Government suggested that no loans be made to China before the North and South had become reconciled. The Department stated its reasons for the approval of the Chicago loan in its telegram of October 22, 5 p. m. As already stated the loan of the Pacific Development Corporation was imdertaken without consultation with the Department. Polk. rUe No. 893.51/2730. Tlie Japanese Embassy to the Department of State. On February 3, 1920, the American, British, French, and Japanese representa- tives at Peking agreed to authorize their respective banking groups to undertake in common an emergency loan of £5,000,000, and they presented to the Chinese Government a joint memorandum embodying the essential conditions of such loan. On February 7, the Chinese Government signified acceptance of these conditions, and at the same time requested that in the event of the loan not being realized by the end of the Chinese calendar year, an advance of Mexican $7,000,000 would be made at once to meet China's immediate need. Thereupon, the representatives of the four Powers at Peking, and also the banking groups concerned, have conferred with one another, in an effort promptly to arrange either the emergency loan or the advance requested by the Chinese Government. Those discussions have however failed to show any appreciable sign of progress. • Not printed. 107 On the other hand, hard pressed by the financial stress in view of the approaching Chinese New Year (February 20), the Chinese Government repeatedly applied to the Japanese Government for an early arrangement of the advance in question. Accordingly, under instructions of the Japanese Government, Mr. Obata and the Japanese banking group approached the American Charge d'Aifaires at Peking and the American banking group respectively, with a view to arranging that the advance would be made jointly by the American and Japanese groups as an emergency measure. The proposals remained also unanswered, owing presumably to the dis- location of telegraphic communications. In the meantime, the Chinese New Year came close at hand, and the Japanese Government, finding themselves unable to refuse any longer the urgent request of the Chinese Government, finally decided to authorize the Japanese banking group to make an advance of yen 9,000,000 as an equivalent of Mexican $3,500,000, repre- senting one-half of the total advance desired by the Chinese Government. In giving such authorization, they were confident that the special circumstances calling for this decision would be fully appreciated and approved by the Governments and banking groups concerned in the undertaking. The contract respecting the advance of yen 9,000,000 was signed between the Japanese group and the Chinese Ministry of Finance on February 19. At the same time, placing particular importance on the maintenance of coopera- tion between the American and Japanese interests, the Japanese Government con- sistently sought to pave the way for American participation in the advance, and at their suggestion, a clause is inserted in the contract of the advance payment, to the effect that in case of American participation, the terms of that contract are subject to modification to conform with the proposals of the American group. It is sincerely hoped that the American group may be persuaded to participate in the undertaking and to make an advance for the remaining share of Mexican $3,500,000. It is known that the sum of yen 9,000,000 advanced by the Japanese group falls short of China's immediate requirements. In this situation, pending arrangement with the American group for the remaining one-half of the total advance required, the Chinese Government have been urgently requesting the Japanese Government to authorize the Japanese group to make a further advance of at least yen 4,000,000 (corresponding approximately to Mexican $1,500,000) on the understanding that this sum shall be redeemed out of the proceeds of the advance whenever made by the American group. The Japanese Government, however, have been withholding authorization to the Japanese group for such additional advance, in the hope that the American group may soon be ready to participate in the advance reserved for that group. Japanese Embassy, Washington, March 9, 1920. rUe No. 893.51/2730. Department of State, Office of the Third Assistant Secretary, Washington, March 9, 1920. memorandum. The Japanese Ambassador handed me an Aide Memoire on the subject of the emergency loan to China in which the phrase appeared that " a clause is inserted in the contract * * * to the effect that in case of American participation the terms of that contract are subject to modification to conform with the proposals of the American group." I asked him what that meant; whether it meant that Japan would, herself, initiate the change in the terms so as to conform, and whether he knew in what substance the contract differed from the American proposals. He said he had little information because his communications had been interrupted, but that he could say that Japan would originate the movement to have the terms modified, and that if Japan had contracted for a seven per cent loan and the American proposals demanded an eight per cent loan, that Japan would ask China to change the loan to eight per cent. Breckinridge Long. 108 File No. 893.51/2695. The Department of State to the Japanese Embassy. (Memorandum.) The Government of the United States has received and carefully considered the memorandum under date of March 2, 1920, in which the Japanese Ambassador set forth the views of his Government as to the formation of the proposed mternational consortium for loans to China; and it is happy to record the hearty gratification with which it has noted the disavowal by Japan of any claim to exclusive economic or political rights with respect to South Manchuria and Eastern Inner Mongolia. The American Government can not but acknowledge, however, its grave dis- appointment that the formula proffered by the Japanese Government is in terms so exceedingly ambiguous and in character so irrevocable that it might be held to indi- cate a continued desire on the part of the Japanese Government to exclude the American, British and French banking groups from participation in the development, for the benefit of China, of important parts of that Republic,— a construction which could not be reconciled with the principle of the independence and territorial integrity of China. The Government of the United States is not unsympathetic with the professed objects of the principle embodied in the Japanese formula: it considers, on the other hand, first, that the right of national self preservation is one of universal acceptance in the relations between States, and therefore would not require specific formulation as to its application in any particular instance, and, second, that the recognition of that principle is implicit in the terms of the notes exchanged between Secretary Lansing and Viscount Ishii on November 2, 1917. This Government therefore con- siders that by reason of the particular relationships of understanding thus existing between the United States and Japan, and those which, it is understood, similarly exist between Japan and the other Powers proposed to be associated with it in the consortium, there would appear to be no occasion to apprehend on the part of the consortium any activities directed against the economic life or national defense of Japan. It is therefore felt that Japan could with entire assurance rely upon the good faith of the United States and of the other two Powers associated in the con- sortium to refuse their countenance to any operation inimical to the vital interests of Japan: and that Japan's insistence that the other three Powers join with it in the proposed formula as a condition precedent would only create misapprehension. It is felt, moreover, that such a formula would not only be unnecessary, but would lend itself to misconstruction for the reason that it apparently differentiates between the status of South Manchuria and Eastern Inner Mongolia and that of other Chinese territory. The mere fact of differentiation would, it is apprehended, give rise to questions which would tend still further to unsettle the already complex situation in China. This Government is therefore hopeful that the Japanese Government may in view of its several existing relationships of understanding with the United States and the other two Powers be persuaded to rely upon their good faith in this matter and forego its proposal to require explicit guarantees, the mere statement of which opens the way for possible misconstruction and misapprehension in the future. The Government of the United States has furthermore been happy to note the readiness of the Japanese Government to enumerate the specific vested interests of its nationals, in Manchuria and Mongolia, which it would propose to exclude from the scope of operations of the proposed consortium; although it finds it difficult to believe that in order to meet the necessities of Japanese economic or political security it is essential for Japan alone to construct and control a railway line of such a character as the one projected from Taonanfu to Jehol and thence to the seacoast. It is hoped that the discussions now in progress in Tokyo between Mr. Lament, on behalf of the American group, and the representatives of the Japanese banking interests may result in such a complete understanding on the question of the specific enterprises in Manchuria and Mongolia, which it may be found mutually satisfactory 109 to exclude from the operation of the consortium, as would enable the Japanese Government to accord to that understanding its unqualified approval. In conclusion, the Government of the United States takes pleasure in the fact that the frank mterchanges of views which have thus far taken place appear to have resulted m a basis of mutual understanding which justifies the beUef that a speedy completion of the organization of the consortium is now possible. Department of State, Washington, March 16, 1920. FUe 893.51/2719a. The Acting Secretary of State to Ambassador Davis. [Telegram.] Department of State, Washington, March 17, 1920 — 5 p. m. 278. Am just advised by telephone that American group has just received cable from British group requesting their cooperation to effect a joint protest to Japanese Government because of Japan's premature advance on account of the emergency- loan to China. Have advised American group that Department feels it would be very unfortunate to compHcate the situation at the present time when it appears as if Japan would agree to the consortium. If Japan does agree the emer- gency loan wiU automatically be absorbed through the consortium. Protest at this time can only complicate the situation and may serve to antagonize the Japanese Government. Cable is going to you today setting forth note just addressed to Japanese Government in answer to their memorandum of March second. You wil please present it immediately to Foreign Office and make oral representations to the effect of the matter set out hereinbefore. Polk. [Above telegram repeated to the American Ambassador at Tokyo and the American Charg^ at Peking, March, 19, 1920.] File No. 893.51/2718. Ambassador Morris to the Secretary of State. [Telegram.] American Embassy, ToTcyo, March 18, 1920—8 -p. m. 107. Following for Department's information and for transmission to J. P. Morgan and Company and for American Consulates General [Group ?]. Refer to proposed interchange of letters between Japanese group and American in behalf of Italian {itself?], British and French groups. This in my judgment furnishes only practical way out of present impass6. It abolishes the formal reservations, wipes out any suggestion of political sovereignty in Man- churia and Mongolia, and yet recognizes Japan's economic needs there in a way so that, should the corre- spondence later be published in full, public sentiment in Japan could be appeased. Members of the Government here have expressed to me privately fears that if they showed total disregard of existing sentiment here present ministry would suffer bitter attack by opposition and might fall. If this were to happen, obviously any new opposition ministry could not go so far in approving banking group agreement as present ministry can go. Therefore vital importance of settling matter now. From my talk with Ameri- can group members I am confident of their approval to proposed interchange. There is nothing in South Manchuria and Inner Eastern Mongolia that would lead us to want to put money there unless Japan ■desires to go along. My trip to China will, as you realize, be purely of a negative character unless we can get this Japanese matter settled now. Kindly communicate to London and Paris earliest possible moment copy of proposed interchange and situation as above described; also tell Addis and Simon from me per- sonally that I eagerly hope that they with their much greater experience than mine in this business will approve proposed interchange, also that Japanese group despite any reports to the contrary received from Peking or anywhere else have shown best possible spirit in whole matter and are thoroughly in accord ■with British, French and American views. Lamont. Morris. no File No. 893.51/2725. Charge Wright to the Secretary of State. [Telegram.) American Embassy, London, March 20, 1920 — 1 a. m. 48.5. I have just received the copy of the memorandum of the Foreign Office to the Japanese Ambassador regarding Chinese loan consortium dated last night and which reads as follows : His Majesty's principal Secretary of State for Foreign Affairs, having carefully studied the memo- randum and formula communicated by his excellency the Japanese Ambassador on March 16th, relative to the position of South Manchuria and East Inner Mongolia under the proposed consortium has the honor to make the following observation: In the memorandum handed to Viscount Chinda on Novemper 20 last, Lord Curzon clearly enun- ciated the objections felt by His Majesty's Go^-ernment to the Japanese claim to exclude from the sphere of the consortium a large geographical area of China, and he is now regretfully forced to the conclusion that little or no modification of this original attitude is to be found in the wording of the formula sug- gested. The phrase which runs "In matters relating to loans affecting South Manchuria and East Inner Mongolia which in their opinion are calculated to create a serious impediment to the security of the economic life and national defense of Japan, the Japanese Government reserve the right to take the necessary steps to guarantee such security," is so ambiguous and general in character that it might be held to indicate on the part of the Japanese Government a continued desire to exclude the cooperation of the other three banking groups from par- ticipating in the development, for China's benefit, of important parts of the Chinese Republic and therefore creates the impression that the Japanese reservation cannot be reconciled mth principle of the inde- pendence and the realization of the integrity of China. While His Majesty's lio^■crnment clearly recognize the legitimate desire of the Japanese nation to be assured of the supplies of food and raw material necessary to her economic life and her justifiable wish strategically to protect and maintain the Korean frontier, they find it impossible to believe that, in order to meet such needs, it is essential for Japan alone to construct and control, for instance, the three railway lines mentioned in the third reservation lying to the west of the South Manchurian Eailway. In order, however, to meet as far as possible the wishes of the Japanese Go^•ernment and at the same time to avoid the mention of specific areas, which rightly or WTongly might give rise to the impression that a special sphere of interest was being officially recognized, His Majesty's Government Would be prepared to subscribe to a written assurance to the effect that the Japanese Government need have no reason to apprehend that the consortium would direct any acti^dties affecting the security of the economic life and national defense of Japan and that the Japanese Government can firmly rely on the good faith of the Powers concerned to refuse to countenance any operations inimical to such interests. Paris informed. Wright. File No. 893.51/2727. Ambassador Morris to the Secretary of State. [Telegram.] American Embassy, Tolcyo, March 21, 1920—11 p. m. 111. I have shown your telegram number 98, March 19, 6 p. m. to Lament who entirely agrees with Department that it would be unwise to lodge protest with Japanese group at present. He suggests that you may think it expedient to transmit from him to J. P. Morgan and Company for American group the following: If you decide to join British group in protest against Japanese action in advance of nine million yen to China I venture to suggest that you lodge such protest in my hands to be handed to Japanese group at my discretion. I deem protest unwarranted by reason of fact that Japanese group invited other groups to join in advance and we instructed our Peldng representative to join in advance on condition that all banker's terms for emergency loan were accepted but our instructions were delayed in transit and did not reach Peking until after Chinese new year. Meantime, as Government required funds Japanese group advanced same at Us own risk and without the conditions which we were specifying in the belated instructions sent to Peking and arriving there after advance had been made. I consider Japanese action in making advance without conditions ill advised, but not warranting any charge of bad faith I accept with great reservation Peking Legation's statements that in making advance Japan may obtain for herself special advantages. Morris. Ill File No. 893.51/2732. Ambassador Morris to the Secretary of State. [Telegram— Paraphrase.] American Embassy, ,,- _, .^ Tolcyo, March 23, 19S0—10 p. m. r u ^■- •t'® J^P^^^s® Minister for Foreign Affairs has not yet received the reply of the British Government. It seems that Lord Cm-zon did not receive the proposed formula from Ambassador Chinda until March 14. I have no doubt that the con- sortium negotiation can be terminated, provided the reply of the British Government is as precise and decisive as that of the Government of the United States. Morris. File No. 893.51/2731. Ambassador Wallace to the Secretary of State. [Telegram.] American Embassy, Paris, March 23, 1920—6 p. m. 796. Text of Department's reply to Japanese memorandum of March 2, given to Foreign Office together with explanation of reply being made without awaiting expression of views of the British and French Governments. Foreign Office has never received this memorandum, its astonishment over non receipt was apparent when I ventured to state that the British Government had received it. I also showed quite confidentially British reply thereto repeated to me by London. Foreign Office states that if Japanese memorandum is received it will make reply in same sense as American and British Governments. Wallace. File No. 893.51/2738. Ambassador Morris to the Secretary of State. [Telegram.] American Embassy, ToJcyo, March 26, 1920—11 a. m. 124. From Lamont for the information of the Department and to be transmitted American group. I am starting March 27 for Shanghai meeting Wiggin there, thence Peking about April 10, address cables Legation Peking. Banking group and leading members Government assure myself as well as Ambassador that Japan will now enter consortium without reservations. This will be evidenced by exchange of letters as follows: From Japanese banking group to American banking group. "You will recall that upon the organization of the consortium at Paris, on May 11 and 12 last, the representatives of the Japanese, American, British and French banking groups attached their signatures to the resolutions and agreement subject to the approval of their respective Governments. You will further recall that, upon the instructions of the Japanese Government, our banking group addressed you a letter dated June blank 1919, as regards the conditions of accepting the new consortium agreement. " We have now the honor to inform you that certain points in the agreement and in the operations of the proposed consortium, hitherto somewhat obsciu-e, having been cleared up to the satisfaction of our Government and of ourselves, we are now able, in accordance with the instructions of the Japanese Gov- ernment, to withdraw said letter, dated June blank, 1919 and announce that, conjointly with the Ameri- can, British and French banking groups and under the same conditions as those governing those groups, we will accept the consortium agreement. We beg at the same time to express our hearty concurrence with the general ideas and objects of the proposal in respect to China. Very truly yom-s." From [American?] to banking group. "Dear Sir: We beg to acknowledge with thanks the receipt of your communication of blank date inform [informing] us, in behalf of the Japanese banking group that, under the instructions of your Government, you have now withdrawn your letter dated June blank, 1919, and have adopted, in associa- tion with the banking groups of America, Great Britain and France and on like terms with them, the agreement for the establishment of a new consortium in respect to China. 112 "We are happy to note that certain points that had hitherto been somewhat obscure to your group- and to your Government have now been made plain and we trust with you that the way is clear for the consortium to undertake operations. "Inasmuch as some questions have arisen during our discussions as to the status of specific railway enterprises contemplated or actually begun in Manchuria and Mongolia, we hereby confirm that we have agreed upon those as follows: " (1) That the South Manchuria Railway and its present branches, together with the mines which are subsidiary to the railway, do not come within the scope of the consortium. "(2) That the projected Taonanfu-Jehol and any projected railway connecting a point on the Taonanfu-Jehol Railway with a seaport are to be included within the terms of the consortium agreement: "(3) That the Kirin-Hueining, the Chengchiatun-Taonanfu, the Changchun-Toananfu, the Kirin- Changchun the Sinminfu-Mukden and the Ssupingkai-Chengchiatun Railways are outside the scope of the joint activities of the consortium. "The foregoing letter of acknowledgment, although written in behalf of the American banking group, will have, we are confident the cordial approval of the British and French banking groups, also of the Government of the United States, of Great Britain and of France. "Pray be good enough to present our regards to your colleagues in the Japanese banking group and our best wishes for the success of the joint four Power undertaking. Very truly yours". Department will have informed you of its disapproval original proposed form of an acknowledgment and of its reasons for desiring us confine our letter to specific statem.ent as to railways, Department in its reply to Japanese Go\'ernment having covered general points in manner that should prove satisfactory to Japan. New proposed interchange of group notes can not take place until next week after formal Cabinet and Council meetings and perhaps further routine exchanges between Governments. Am advised that for me to wait further means simply waste of time already growing short. Am therefore, putting interchange of letters in Ambassador's hands and leaving Egan for few days on details of announce- ment. Of course the Japanese Government may delay their final action indefinitely or introduce some new element into the negotiations but if it does so after the assurances I have received we do not want a Japanese partnership. Referring now list of railways in our proposed letter you will note we insist upon inclusion in consortium of only Taonanfu to Jehol and thence to coast railway, ^'ew British Foreign Office note to the Japanese Government, however, specifies inclusion of all three railroads west of south Manchurian line mentioned in paragraph 3 of list in Japanese note of March 2. Please communicate promptly with Addis also Simon urging Addis waive point on the two roads in question. By so doing consortium yields nothing substantial in my judgment and makes Japanese Go^-ernment situation less difficult to deal [with.] Please gi^•e London, Paris replies on this point which I earnestly hope will be acquiesced in to Department for prompt transmission to Ambassador here. Details of your March 15th unnumbered duly noted and copy emergency loan contract received. Inasmuch as said loan was first proposed by London to meet emergency caused In' delay in formation of consortium therefore if .Japan now enters, such emergency will have disappeared and I anticipate upon arrival at Peking that I may judge that consummation emergenc>- loan is inadvisalJe and that instead I should, as repeatedly urged by American group committee, discuss more comprehensive rather than emergency measures. On this point Japanese group has at my request furnished me with its tentative suggestions which I shall soon forward through Department for your comment also that of London, Paris all to be sent to me at Peking. In no event should I expect to execute any comprehensive loan contract at Peking merely to discuss and of course I may find requirements such as to make emergency loan necessary. Hukuang coupons. Peking reply still unsatisfactory. Suggest you cable me what is joint minimum requirement you and British group can both agree upon. Your present views being somewhat divergent makes it puzzling to deal with. After you jointly agree on formula let me know it and I will then try to put it through in person at Peking. If Japan enters consortium believe we should have meeting of all groups at New York early July or late September. Suggest you sound London, Paris on this, but chief object this cable is to post you and urge prompt London Paris acquiescence in railway arrangement with Japanese group. Last general message I received from you telling families et cetera was received March 11, 8 a. m. You remember you were to send me weekly general cable notifying of health of families et cetera. Also kindly acknowledge receipt my numbers and number your cables as requested. MOEEIS. File No. 893.51/2739. Ambassador Morris to the Secretary of State. [Telegram-Paraphrase.] American Embassy, To]<:yo, March 26, 1920— midnight. 125. The last report of Mr. Lamont who left for Shanghai this evening, to the American group was transmitted to the Department in Embassy's telegram No. 124, of March 26, 11 p. m. Discussions held heretofore with the Japanese group have been satisfactory. I believe that he is convinced through the informal and personal interviews which were arranged for him with the Minister for Foreign Affairs and the Premier by this Embassy, that the present ministry has come to the conclusion 113 to advise that the consortium be approved without the suggested reservations. It is expected that formal action will be taken within a few days by the Cabinet and will then be sent to the diplomatic advisory council for confirmation. Messrs. Hara and Uchida think that it will be approved and the Minister for Foreign Affairs will then be able to formulate the reply of his Government to the last notes from the Governments of Great Britain and the United States. The only possible additional difficulties which, in my judgment, may arise are 1. The nature of the replies of the Japanese Government. In conversations which I had recently with Viscount Uchida I observed indications that his replies may be formulated in such a way that they will include phraseology which this Government can take advantage of to prove that it has not actually relinquished any particular interests in Eastern Inner Mongolia and South Manchuria. 2. The wording of the written assurance which was proposed in the British note and on which comments were made by the Department in its telegram No. 105, of March 24.^ Prolonged negotiations might readily result therefrom. I am disap- pointed that Mr. Lament left for China before we had settled all questions here which would have given him the opportunity to assure the Chinese Government that Japan had entered the consortium without reserve. The only thing to hope for now is that definite action will be taken by Japan before Mr. Lamont's arrival at Peking. I want to continue to exert pressure here in order to attain this end and to prevent the possible delays and difficulties mentioned above. I expect that Inouya and his associates will give me strong support. A public statement has been promised by Mr. Inouya on the 30th instant in which he committed himself. Mr. Lamont is confident, and so am I, that all the influence which Mr. Inouya wields in justification of his statement will be used by him. Mr. Inouya says in his state- ment that Mr. Lamont, of J. P. Morgan and Co., has visited Japan in the interest of the proposed international consortium to render financial assistance to China, as the representative of the American group. During his stay in Tokyo he has had conferences with the Japanese group and they have come to an understanding regarding the entry of Japan into the consortium. Views exchanged between them and the Japanese Foreign Office seem to be making favorable progress. Mr. Inouya is confident that the Japanese group wiU before long enter the consortium. Mr. Lamont has recently left Japan and is on his way to China. I take it for granted that the form of the letters which the Japanese group is to exchange with the American group, amended as stated in Mr. Lamont's last report wiU be approved by the Department and that the British Government can be persuaded to abstain from insisting on the inclusion of the three railways west of South Manchuria. It is not my intention to raise the political question regarding the interpretation of the Lansing-Ishii notes imless it becomes absolutely necessary through develop- ments of the next few days. Morris. •File No. 893.51/2740. Ambassador Morris to the Secretary of btate. [Telegram.] American Embassy, ToTcyo, March 29, 1920—10 a. m. Urgent. 134. Confidential. Supplementing my 125 March 26, midnight. I have learned from sources usually reliable that at a special meeting this afternoon to act finally on the consortium, the diplomatic advisory council approved the withdrawal of the reservation in reference to Manchuria and Mongoha. The cabmet met yesterday, General Tanaka being present, and unanimously recommended this appeal which has apparently been confirmed by the councU. I understood that it is Viscount Uchida's intention to communicate this decision m a memorandum to our Government as well as to the British Government. Morris. » Not printed. 35283—21 15 114 File No. 893.51/2741. Ambassador Morris to the Secretary of State. [Telegram.] American Embassy, Tolcyo, March 30, 1920.— 10 p. m. 139. The Minister for Foreign Affairs confirmed to me this afternoon the re- sults of the meeting of the diplomatic advisory council as reported in my 134 March 29, 10 a. m. and at the same time gave me for my strictly confidential information a copy of the memorandum which he proposes to transmit to Ambassador Shidehara for delivery to you. The memorandum, the paragraphs of which I have lettered for purposes of comment is as follows: MEMOKANDUM. A. The Japanese Government have received the memorandum of the United States Government dated March 16, 1920 gi'vdng frank expression to its views again upon the proposal of Japan relative to the organization of a new consortium for loans to China and have talcen it into their careful consideration. B. The Japanese Government are happy to express the hearty gratification with which they have noted that the United States Government is fully appreciative of and even sj-mpathetic with the prin- ciple embodied in the formula proposed by the Japanese Government. The United States Government, however, is inclined to think that the terms and character of the formula may be taken to indicate a con- tinued desire on the part of Japan to exclude the other Powers from participation in the development of important parts of China and that it is likely to create unnecesf-ary misapprehension. The memorandum adds that the United States Government is therefore hopeful that the Japanese Go'i'ernment will with- draw their proposal for the explicit guarantee embodied in the formula in question. The Japanese Gov- ernment, while acknowledging that this suggestion of the United Slates i:3 offered in the most friendly spirit, would like to state that they made the proposal now under review only because they felt it useful and important to do so in order to make clear the particular position which Japan occupies through the facts of territorial propinquity and of her special vested rights. They never thought of any possibility of the formula giving rise to any such misapprehension or misconstruction as is pointed out by the United States Government. C. They are glad, however to note tliat it is not so much to the principle of their proposal as to its form that the United States Government takes exception. Accordingly after deliberate consideration, the Japanese Government, rely upon the assurance of United States Government that the right of national self preservation which forms the basis of the guarantee required by Japan in order to assure the security of her national defense and the economic existence of her people is not only one of universal acceptance, but one of which th e recognition is implied in the terms of the notes exchanged between Secretary Lansing and Viscount Ishii, so that the new consortium would, in no case, embark upon any activities directed against the national defense and the economic existence of Japan, and so that the powers associated in the consortium would refuse their countenance to any enterprise inimical to the vital interests of Japan, have come to the decision to accept most \\illingly the suggestion of the United States Government and to forego their demand for the acceptance of the proposed formula on the part of the other interested Powers, on condition that these Powers agree as to the understanding as formulated by the United States Government. D. Kail way and other enterprise which Japan naturally expected will be excluded from the scope of the common activities of the new consortium, the United States Governemnt express a doubt as to whether it is essential for Japan alone to construct and control such a railway as the Taonanfu-Jehol line. This railway, together with the line connecting a point thereon with a seaport, was projected with the strategic object of making it a means of common defense on the part of China and Japan against foreign invasion coming from the direction of Ourga, quite apart from the further object of faciliting the economic development of the districts through which these lines run. It is therefore a matter of great regret and surprise to the Japanese (Jovernment that there exists the misunderstanding that these railways will eventually pro\e a menace to Peking. It is confldentially hoped that Japan's position in this connec- tion may be fully appreciated by the United States Government. The Japanese Government, mindful as they are of the common interests of the Powers, have no objection to a scheme of making these two rail- ways a joint enterprise of the new consortium, but having regard to the particular relation in which Japan stands to these railways, it is hoped that the United States Government will lend their full support to the following two propositions. (1) In the event of the new consortium project including a scheme of extending the Taonanfu-Jehol railway to the north with a view to connecting them with the Chinese Eastern railway, the assent of the Japanese Government thereto must be obtained beforetand through the Japanese group, inasmuch as such an extension being tantamount to a renewal of the so-called Chinchou-Aigun railway scheme, against which a protest was lodged by Japan when the question was mooted some years ago, is calculated to have a serious effect upon the South Manchurian railway. (2) In consideration of the particular desire of Japan that these two lines should be built as speedily as possible, the Japanese group, after due consultation with the other groups, may be permitted to under- take their construction, single handed, in the event of the other three Powers associated in the new con- 115 sortium being reluctant to finance it. In that case, having regard to the fact that these railways must cross the Peking-Mukden Railway at a certain point, the American group will give their support to the overture which the Japanese financiers will make to their British colleagues with a view to perfecting the junction of lines. E. As regards concrete questions as to which of the options that Japan possesses at present in Man- churia and Mongolia in respect to railways, is to be, [excluded] in accordance with the understanding reached between the Governments of the United States and Japan, from the scope of the common activities of new consortium, the Japanese Government entirely share the view of the United States Government that a settlement satisfactory to both parties will be arrived at through the discussions now in progress in Tokyo between Mr. Lament and the representatives of the Japanese banking groups. In this belief, the representatives of the Japanese banking groups are authorized to precede [proceed] with the discussion with Mr. Lament with the object of arriving at a settlement of questions of this nature. Comment follows in my immediately succeeding telegram. Morris. File No. 893.51/2743. Ambassador Morris to the Secretary of State. [Telegram— Paraphrase.] American Embassy, ToTcyo, March SO, 1920—11 p. m. 140. Commenting on the memorandum, transmitted to the Department in Embassy's telegram No. 139 of this date, it seems to me that Paragraph B clearly and definitely denies any wish or intention to exclude the banking groups of France, Great Britain and the United States from any share in developing certain particular regions of China. The limitation, also, of Japan's special position, the facts of territorial nearness and of her special legitimate interests, accords, as I understand it, with the interpretation placed upon the Lansing-Ishii notes by the Government of the United States. In paragraph C I see a literal acceptance of the assurances as stated in Department's note of March 16, and there is no attempt to augment the force or extent of such assurances. No objection can, in my opinion, be raised against the form of the withdrawal of the formula or the condition exacted. The project of the railroad from Taonanfu to Jehol with a connecting line to a seaport is dealt with in paragraph D. In my opinion the Japanese Government is, under present conditions, entirely unreasonable in its first request concerning this rail- road. Japan would find that such a line which would in the near future connect with the South Manchuria Railway would be a serious economic disadvantage to her. Japan should have a little more confidence in the judgment and good faith of her colleagues in the consortium. That seems to be impossible at this time and I am in favor that the request be granted. It is not likely that the contingency will, under the existing circumstances, arise soon. I am very much in favor of the second request. The Japanese Government agrees now that the project of the railroad from Taonanfu to Jehol shall go to the new international consortium and it seems to me right and fair that permission be given to the Japanese bankers to conduct tempiorarily the financing of the enterprise if the other groups decline to take part in the affair. The exchange of proposed letters between the American and Japanese groups is referred to in paragraph E, and I understand that the letters have been approved by the Cabinet and the diplomatic advisory council. I therefore hope that the Government of the United States will be enabled to accept the last Japanese memorandum without further change. It seems to be writ- ten in a spirit which does not intend to claim for the Japanese the general right of veto upon the actions of the nationals of other Powers because of prior commercial or industrial rights in Eastern Inner Mongolia or South Manchuria. In spite of the views alleged to have been expressed to the Eussian Ambassador by Viscount Motono the acceptance by the Japanese Government of the assurances of the Gov- ernment of the United States, referred to in paragraph C, in the exact terms in which they were offered and which mean the withdrawal of the reservations forms, I believe, an acceptance also of the interpretation placed upon the Lansing-Ishii notes by the Government of the United States. Morris. 116 File N-... 893.51 '27.11. Tlie Japanese Ewhassy to the Department of State. [Memorandum.] The Japanese Government have received the memorandum of the United States Government dated March 16th, 1920, giving frank expression to its views agam upon the proposal of Japan relative to the organization of a new consortmm for loans to China, and have taken it into their careful consideration. The Japanese Government are happy to express the hearty gratification with which they have noted that the United States Government is fully appreciative of and even sympathetic with the principle embodied in the formula proposed by the Japanese Government. The United States Government, however, is inclined to think that the terms and character of the formula may be taken to indicate a con- tinued desire on the part of Japan to exclude the other Powers from participation in the development of important parts of China, and that it is likely to create unneces- sary misapprehension. The memorandum adds that the United States Government is therefore hopeful that the Japanese Government will withdraw their proposal for the explicit guarantee embodied in the formula in question. The Japanese Govern- ment, while acknowledging that this suggestion of the United States is offered in the most friendly spirit, would like to state that they made the proposal now under review only because they felt it useful and important to do so in order to make clear the particular position which Japan occupies through the facts of territorial pro- pinquity and of her special vested rights. They never thought of any possibility of the formula giving rise to any such misapprehension or misconstruction as is pointed out by the United States Govern- ment. They are glad, however, to note that it is not so much to the principle of their proposal as to its form that the United States Government takes exception. As- surance is given in the memorandum of the United States Government that the right of national self-preservation, which forms the basis of the guarantee required by Japan in order to assure the security of her national defense and the economic existence of her people, is not only one of universal acceptance but one of which the recognition is implied in the terms of the notes exchanged between Secretary Lansing and Viscount Ishii, so that the new consortium would in no case embark upon any activities directed against the national defense and the economic existence of Japan and so that the Powers associated in the consortium would refuse their countenance to any enterprise inimical to the vital interests of Japan. Accordingly, after deliberate consideration, the Japanese Government, relying upon that assurance of the United States, have come to the decision to accept most willingly the suggestion of the United States Government and to forego their request for the acceptance of the proposed formula on the part of the other interested Powers, on condition that these Powers agree to the above understanding as formulated by the United States Government. As to the railway and other enterprises which Japan naturally expects will be excluded from the scope of the common activities of the new consortium, the United States Government expresses a doubt as to whether it is essential for Japan alone to construct and control such a railway as the Taonanfu-Jehol line. This railway, together with the line connecting a point thereon with a seaport, was projected with the strategic object of making it a means of common defence on the part of China and Japan against foreign invasion coming from the direction of Ourga, quite apart from the further object of facilitating development of the districts through which these lines run. It is, therefore, a matter of great regret and surprise to the Japanese Government that there exists the misunderstanding that these railways will eventually prove a menace to Peking. It is confidently hoped that Japan's position in this connection may be fully appreciated by the United States Government. The Japanese Government, mindful as they are of the common interests of the Powers, have no objection to a scheme of making these two railways a joint enterprise of the new consortium, but having regard to the particular relation in which Japan 117 stands to these railways, it is hoped that the United States Government will lend their full support to the foUowmg two propositions: (1) In the event of the new consortium projectmg in future a scheme of extending the Taonanfu-Jehol raUway to the north with a view to connection with the Eastern Chmese Railway, the assent of the Japanese Government thereto must be obtained beforehand through the Japanese group, inasmuch as such an extension being tanta- mount to a renewal of the so-called Chinchou-Aigun Railway scheme against which a protest was lodged by Japan when the question was mooted some years ago, is calculated to have a serious effect upon the South Manchuria Railway. (2) In consideration of the particular desire of Japan that these two lines should be built as speedUy as possible, the Japanese group, after due consultation with the other groups, may be permitted to undertake their construction single-handed in the event of the other three Powers associated in the new consortium being reluctant to finance it. In that case, having regard to the fact that these railways must cross the Peking-Mukden Railway at a certain point, the American group will give their support to the overture which the Japanese financiers wUl make to their British colleagues with a view to perfecting the junction of these lines. As regards concrete questions as to which of the options that Japan possesses at present in Manchuria and Mongolia in respect to railways, is to be excluded, in accordance with the understanding reached between the Governments of the United States and Japan, from the scope of the common activities of the new consortium, the Japanese Government entirely share the view of the United States Government that a settlement satisfactory to both parties will be arrived at through the discussion now in progress in Tokyo between Mr. Lament and the representatives of the Japa- nese banking group. In this belief, the representatives of the Japanese banking group are authorized to proceed with the discussion with Mr. Lamont with the object of arriving at a settlement of questions of this nature. Japanese Embassy, Washington, April 3, 1920. FUe No. 893.51/2757. Ambassador Davis to the Secretary of State. [Telegram.] Amebican Embassy, London, April 6, 1920 — 10 p. m. Urgent 559. Your 329, March 30, 5 p.m.^ and Embassy's 545 April 1, 7 p.m.' Formal reply just received from Foreign Office to effect that British Charge d'Affaires Tokyo has been telegraphically informed that British Embassy while feeling that all reasonable consideration has already been shown for views of the Japanese Govern- ment are wilUng to concur in exchange of letters suggested by I^amont provided that French and American Governments approve likewise of the proposal. Paris in- formed. Davis. File No. 893.51/2762. The British Charge d'Affaires to the Secretary of State. No. 212.] British Embassy, Washington, April 7, 1920. Sib: With reference to previous correspondence regarding the consortium loan to China, I have the honor on instructions from my Government to inform you that they are prepared to agree, provided the United States and French Governments do likewise, to the compromise proposed by the Japanese Government and supported by the representative of the American group, Mr. Lamont, under which the Taonanfu Tahol Railway and line to the coast are alone included in the consortium, the South Manchurian Railway and the other railways to the west thereof being excluded. ■ Not printed. 118 While prepared to concur in this arrangement, His Majesty's Governnaent nevertheless consider that in agreeing to meet Japan's wishes east of the South Manchurian Railway they had already gone a very long way to fall in with the Japanese view and that the Japanese Government might well have been satisfied with the general assurance to which His Majesty's Government had already offered to sub- scribe. I have [etc.] R- C. Lindsay. File No. 893.51/2735. TTie Secretary of State to Ambassador Morris. [Telegram.] Department of State, WasMngton, April 8, 1920 — Noon. 131. The following for Mr. Lament at the request of Morgan and Company in answer to Lament's telegram of March 26. Following from Addia: "I observe with great aatiafaction that the suggestions contained my letter March 25 have been met with the exception of that relating to branch railways to Taonanfu. Mr. Lament urges me waive my point as regards these railways and I am reluctant to appear to be obstructive on a point which in hia judgment contains nothing substantial. At the same time I consider that in agreeing to exclude from scope of consortium all railways between the South Manchurian Railway and Korean frontier we shall have met Japan generously in reply to her representations both economic and strategic. I feel that in principle we are justified in considering all branch lines west of the South Manchurian Railway as rightly within operation of international consortium. I hope, therefore, that you will put the point again to Mr. Lamont adding that upon its settlement the tour Power group will embark upon task before them with whole-hearted unanimity." Following from Banque de I'lndo Chine: "Banque de I'lndo-Chine is quite ready to adopt either the formula proposed by T. W. Lamont or that proposed by Sir C. S. Addis, but expects to obtain the views of the French Government upon thia question shortly and will advise us accordingly." Following for Mr. Lamont received to-day from Morgan and Company, the information it contains ha-\dng been received subsequent to that above quoted: " C. B. Addis now withdraws his dissent from exclusion from scope of consortium of railway to Taonanfu and now accepts without quaUfications modified draft of proposed interchange of notes between American and Japanese groups as set forth your cable. C. S. Addis understands Foreign Office will concur." Colby. File No. 893.51/2705. Ambassador Harris to the Secretary of State. [Telegram-Paraphrase.] American Embassy, Tohjo, April 8, 1920—1 p. m. 159. I sent a full copy of the memorandum of the Japanese Government to Mr. Lamont as soon as I received it. I am now in receipt of his comments thereon and forward it to the Department and request that the American group b e informed. The last Japanese note has just come to hand. Although the matters included in propositions (1) and (2) are mostly academic I hope that the Department will be able to accept the memorandum gener- ally. I fail to see how the American group can be committed to accept modification of the agreement for the consortium under proposition (1) by giving the power of veto to any group, or make the American group accept, under proposition (2), in advance, a decision on any particular question whether it seems to be reasonable or not. To be consistent, in my opinion, only the following reply can be made by the Department to these two propositions: "The good offices of the United States will be used to submit the specific remarks in propositions (1) and (2) of the note of the Japanese Government to the American group, but as both topics discussed therein pertain to the operations of the consortium the Government can not as a matter of course commit the American bankers group. It is in fact surprised that these two points should have been raised by the Japanese Government. This Government is of the opinion that, if the groups can not settle among themselves during their negotiations affairs of this kind with satisfaction to the Japanese group, that group had better not enter the consortium. The Japanese Government will not, for this reason, misunderstand the belief expressed by the Government of the United States, that, unless the Japanese Government is now enabled, considering the assurances given by the Government of the United States and the American group, to give authority to the Japanese group to effect the exchange of the letters immediately with the 119 other groups as previously arranged, the Government of the United States realizes that no useful purpose is seen in further negotiations and will advise the American group to instruct Mr. Lamont in that sense." Mr. Lamont thinks that it would be poor policy to give any further chance to the Japanese Govern- ment in this affair. He believes that it ought to be humbly grateful to the other groups for having invited the Japanese group to enter the consortium as a partner and for having been treated with so much patience. The members of the American group are agreed that it is best to stop them abruptly without further con- eideration. Mr. Lamont regrets greatly that he is unable to confer in person with Ambassador Morris, whose judgment he accepts with the highest regard possible. I know that Mr. Lamont keenly desires the entry of the Japanese group into the consortium with complete confidence and I understand his impressions caused by the two conditions contained in paragraph D. Considering that the bankers will carry all responsibility for the operation of the consortium it is my opinion that the Government of the United States should follow the trend of Mr. Lament's suggestions. Without doubt he represents the position of the American group as well as the British. Regretting the lack of confidence exhibited the conditions do not appear to me to be as serious as they seem to be to Mr. Lamont. Morris. File No. 893.51/2811. Ambassador Davis to the Secretary of State. No. 267 L] American Embassy, London, April 16, 1920. Sir: I have the honor to transmit herewith a copy of the memorandum re- ceived by the Foreign Office on the 14th instant from the Japanese Embassy in reply to the memorandum of the British Government dated March 19, 1920, relative to the international consortium for loans to China. I have [etc.] John W. Davis. [Inclosure — Memorandum.] The Japanese Government have received the memorandum of the British Government dated March 19th, 1920, giving frank expression to their views again upon the proposal of Japan relative to the organi- zation of a new consortium for loans to China and have taken it into their careful consideration. The Japanese Government are happy to express the hearty gratification with which they have noted that the British Government are fully appreciative of Japan's legitimate aspirations in the direction of safeguarding her national defence and the economic existence of her people, a principle embodied in the formula proposed by the Japanese Government and that they have given assurances of performing all that is in their power to meet the wishes of the Japanese Government. The British Government, however, are inclined to think that the terms and character of the formula may be taken to suggest a continued desire on the part of Japan to exclude the other Powers from participation in the development of important parts of China and it is likely to create the impression that Japan's reservations as indicated by the terms of the formula are incompatible with the principle of the independence and territorial integrity of China. Moreover, as it is apprehended that the indication of territorial demarcation may give rise to the impres- sion of official recognition being accorded to the principle of special interest, the British Government are hopeful that any expression of this nature may be avoided. The Japanese Government, while acknowl- edging that this suggestion of the British Government is offered in the most friendly spirit, would like to state that they made the proposal now under review only because they felt it useful and important to do so in order to make clear the particular position which Japan occupies through facts of territorial pro- pinquity and of her special vested interests. They never thought of any possibility of the formula giving rise to any such misapprehension or misconstruction as is pointed out by the British Government. They are glad, however, to note that it is not so much to the principle of their proposal as to its form that the British Government take exception. Accordingly after deliberate consideration, the Japanese Government, relying upon the promise of the British Government to give them a written assurance to the effect that they fully recognize the funda- mental principle of safeguarding the integrity of the national defence and the economic existence of Japan as proposed by Japan, so that the Japanese Government have no occasion to apprehend that the new consortium would embark upon any activities affecting the national defence and the economic existence of Japan and so that the Powers concerned would refuse their countenance to any enterprise mimical to such Japanese interests, have come to the decision to accept most willingly the suggestion of the British Government and to forego their demand for the acceptance of the proposed formula on the part of the other interested Powers, on condition that these Powers agree to the above understanding as formulated by the British Government. 120 As to the railway and other enterprises which Japan naturally expects will be excluded from the scope of the common activities of the new consortium, the British Government express a doubt as to whether it is essential for Japan alone to construct and control the three railway lines running west of the South Manchu- ria Railway. The Taonanfu-Jehol Railway and the line connecting a point thereon with a sea port, were projected with the strategic object of making it a means of common defence on the part of China and Japan against foreign invasion coming from the direction of Ourga, quite apart from the further object of facilitating development of the districts through which these lines run. It is, therefore, a matter of great regret and surprise to the Japanese Government that there exists the misunderstanding that these railways will eventually prove a menace to Peking. It is confidently hoped that Japan's position in this con- nection may be fully appreciated by the British Government. The Japanese Government, mindful as the}' are of the common interests of the Powers, have no objection to a scheme of making these two railways a joint enterprise of the new consortiimi, but having regard to the particular relation in which Japan stands to these railways, it is hoped that the British Government will lend their full support to the following two propositions: (1) In the event of the new consortium projecting in future a scheme of extending the Taonanfu- Jehol Railway to the north with a view to connecting them with the Eastern Chinese Railway, the assent of the Japanese Government thereto must be obtained beforehand, through the Japanese group, inas- much as such an extension, being tantamount to a renewal of the so-called Chinchou-Aigun Railway scheme, against which a protest was lodged by Japan when the question was mooted some years ago, is calculated to have a serious effect upon the South Manchurian Railway. (2) In consideration of the particular desire of Japan that these two lines should be built as speedily as possible, the Japanese group, after due consultation with the other groups, may be permitted to under- take their construction singlehanded in the event of the other three Powers associated in the new con- sortium being reluctant to finance it. In that case, having regard to the fact that these railways must cross the Peking-llukden Railway at a certain point, the British Government will use their best endeavours towards bringing to a happy conclusion the negotiations which the Japanese financiers may enter upon with their British colleagues with a view to perfecting the junction of these lines. As regards concrete questions as to which of the options that Japan possesses at present in Wanch ria and Mongolia in respect to railways, is to be excluded, in accordance with the understanding reached between the Governments of Great Britain and Japan, from the scope of the common activities of the new consortium, it is believed that a satisfactory settlement will be reached through the discussions now proceeding in Tokyo, with the cognizance of the American and Japanese Governments, between Mr. Lament who, besides being the representati^'e of the American gi'oup, is understood to have certain definite understanding on the subject with both the British and French groups, and the representatives of the Japanese banking group. The Japanese Government toII, therefore, authorize the Japanese group to proceed with the discussion with Mr. Lamont for the purpose of arriving at a conclusive settlement of questions of this nature. Japanese Embassy, 10 Grosvenor Square, London, W., April 14, 1920. File No. 893.51/2781. The American Group to the Secretary of State. New York, April 17, 1D20. HUKUANG RAILWAY LOAN. Sir: We beg to enclose for your information copy of a letter which was delivered on April 16th to the New York Stock Exchange, communicating formally instruc- tions under which we are now acting with respect to the payment of interest on the German-issued bonds of the above loan. Despite our desire to hold this matter in abeyance pending the outcome of Mr. Lamont's efforts m Peking to persuade the Chinese Government to relinquish its position, we are finally obliged by the Stock Exchange to give them the statement made in the enclosed letter. Respectfully, yours, J. P. Morgan & Co., For the American Group. 121 [InclosureJ The American Group to the New Tori Stock Exchange. New York, April 16, 1920. IMPERIAL CHINESE GOVERNMENT 5 PER CENT HUKUANO RAILWAYS SINKING FUND GOLD LOAN OP 1911. Dear Sirs: We have been instructed by the Chinese Government that we are to make no payments of interest upon that portion of the above loan which was originally issued in Germany, other than upon bonds from which coupons were resularly collected during the period between August 14, 1917, and April 5, 1919: but that where holders can prove non-enemy ownership of any of the bonds on August 14, 1917 (the date of China's declaration of war against Germany), their validity will be recognized and interest thereon will be paid; and further that China has determined that all other bonds of the German issue, as well as the interest payments due thereon, shall be applied towards the discharge of her claims against Germany. In cooperation with the British and French banking groups, who with the American group are interested in this loan, representations have been made directly, as well as through the respective Gov- ernments, to induce China to pay without discrimination the coupons from all bonds of this loan; but until otherwise directed by the Chinese Government, the paying agents must act in accordance with present instructions. The original German series of the Hukuang Railways loan is represented by the following bonds: Denomination £20, Nos. 2501 to 32500 inclusive. Denomination £100, Nos. 87651 to 93650 inclusive. We enclose a list of the bond numbers of the German series upon which interest has been and will continue to be regularly paid. The prohibition against the payment of interest applies against the bonds of the German series not on this ligj, although from time to time we shall report to you the numbers of such additional bonds as are proven non-enemy .owned at August 14, 1917. It is of course recognized that there is no restriction upon the regular payment of interest on all other bonds of this loan. Yours very truly, J. P. Morgan & Co., For the Amei-ican Group. File No. 89.3.51/2785. Ambassador Morris to the Secretary of State. [Telegram— Paraphrase.] American Embassy, ToTcyo, April 19, 1920—11 a. m. 181. Mr. Lament exchanged the followmg telegrams with this Embassy: April 17, 9 a. m. Concerning the account of Ambassador Morris' interview with Mr. Inoiiya, Mr. liamont comments: I do not doubt that Inouya is acting in good faith, but evidence is piling up that the Japanese Government, for reasons stated in a previous message, is deliberately trying to delay negotiations. I am not inclined to have any further discussions with the Japanese Government because I am thoroughly convinced of the Japanese attitude and that my mission is rendered ineffective by that Government. I have every confidence that the American, British and French groups will cooperate and I plan to do the best I can here. On my return I am very anxious to remain in Japan only until the sailing of the Korea on the 14th of next month. I feel sorry for Mr. Inouya in his efforts, so well directed, because I am nearly convinced that the Japanese Government is not in accord with him. Three weeks have passed since I left Japan and if the situation has not become sufiiciently clear in that time to warrant that Government to give authority to the Japanese group to exchange the letters with the other groups the Government's views seem to be well indicated. Newspapers here owned by Japanese interests continue to carry on a strong propaganda against the consortium. You may show this message to Mr. Inouya. I replied on April 19, 1920, 10 a. m.: I appreciate your recent messages very much, and I venture to hope that you will continue to practice patience and follow up negotiations for a time. Chances are good that Japan will withdraw her conditions by the time you arrive here and authorize the Japanese group to exchange the letters and the main purpose of your mission will in that event be achieved. You have my sympathy in your disappointment that you have been so handicapped and your efforts have been by this delay bo limited in China, and I was thereby moved to lend a willing ear to the acceptance of the conditions. I have not been able to see all the hidden meanings of a serious nature which seem to have been found in them by the Governments of the United States and Great Britain. The Japanese Government is now only awaiting the answer of the American Government and is not dejected. Your conclusions and mine do not at all agree that Japan was simply seeking for delay when these offers were imposed. The powerful military group was conciliated thereby. If acceptance is 35283—21 16 122 declined Inouya and his associates will be supported and assisted and ultimately the conditions will be withdrawn. That will be a much better result than a prolonged period of bitter intrigue and antag- onism if Japan played a lone hand against a consortium formed by the other thrfee Powers. What would we gain by forcing Japan into the consortium by the menace of a three Power consortium? Surely no time will be gained by it. We will certainly lose the friendly spirit of Japan in the creation of which you were so earnestly engaged during your visit and which will be of the greatest importance to the consortium. Of course, you have more accurate knowledge of present conditions m China, but I look at the matter from the viewpoint that it would be best for the other Powers to disapprove the conditions in the shortest time possible and that you return to Japan at the beginning of May and take part in a final effort. I believe that it would be successful, but should we fail the three Power consortium would be strengthened and we could not be accused by Inouya or any one else in Japan of failing in patience, lack of consideration or generous attitude. _, . MOERXS. File No. S93.51'278.i. The Secretary of State to Charge Tenney. [Telegram.] Department of State, Washington, April 20, 1920. 85. Following telegram from Morgan and Company for the American group to Lamont: 24. April 19, 1920. Your cables April 11th, loth and IGth through State Department received. Are calling meeting of group shortly and will promptly advise you. However follo\\ ing is just received from Paris: " Sir C. S. Addis being in Paris Saturday expressed his views to us regarding your 2124 [T. W. Lament's cables of April 8th and 11th] which is embodied in the following cable sent at his request to Chas. F. Whigham today; " 909. For Chas. F. Whigham 2124. Sir C. S. Addis agrees with T. W. Lamont in thinking time has come for us to adopt a firm attitude, but he would deprecate the adoption at the present juncture of any such extreme measure as a threat to break off negotiations. If, as is possible, a rupture should finally prove to be inevitable, it would be better, he thinks, that it should come from the Japanese and not from us. "He suggests, therefore, that a reasoned reply should he sent to the new proposals pointing out: "First: That the Japanese appear to have overlooked Article 4 of the Paris draft agreement of May 1919, which expressly provides that in the event of the other group being unwilling to cooperate the independent construction of any railway line is assured to the group which desires to undertake it; "Second: That the stipulation that the construction of any extension of the Taonanfu line to the north should be dependent upon the approval of Japan would appear, if accepted, to carry with it a power of veto on railway construction to the north, which is quite inadmissible; it would tend to revive in part at least the spirit of the old spheres of interest policy which it is the object of the consortium to abolish. It would cut at the root of all these prolonged negotiations the specific aim of which is the substitution of international cooperation for international com- petition in China. Any arguments founded on the admissions made by the United States in 1910 mth regard to the Chinchow-.Vigun line when the Powers were in competition are obsolete and invalid at a time when the proposal is that the Powers should act in combination and share in common any advantages accruing from the joint enterprises of their nationals in China. "Sir C. S. Addis thinks that the Japanese are no doubt trjdng to drive a hard bargain with us but he believes that they are alive to the political disadvantages which their isolation in China would entail and that they will not long continue in face of our firm and temperate reply the tactics which they must be aware, if persisted in would inevitably lead to a rupture. J. R. Carter. Harjes" Colby. File No. 893.51/28388. The Secretary of State to Charge Tenney. No. 1183.] Department of State Washington, April 23, 1920. Sir : In connection with previous correspondence regarding the advance of nine million Yen made by Japanese bankers to the Chinese Government in February last, there is enclosed herewith for your information a copy of the agreement between the Chinese Government and the Yokohama Specie Bank, representing the Japanese banking group, for the loan in question. I am [etc.] For the Secretary of State. Alvet a. Adee. 123 [Inclosure] Agreement for Advance of Yen 9,000,000 Whereas the Chinese Government desires to borrow the sum of Yen 9,000,000 as an advance of the emergency loan of £5,000,000 or its equivalent which may be negotiated with the Japanese, American, British and French banking groups, and Whereas the Japanese banking group is prepared to undertake the matter. Therefore the Minister of Finance, representing the Government of the Republic of China and the Yokohama Specie Bank Limited (hereinafter called "the Bank") representing the Japanese banking group, have drawn up this agreement at Peking, the clauses of which are as follows:— I. The bank undertakes to make a loan of Yen 9,000,000 within 10 days beginning from the date of this agreement, to be paid over to the Chinese Government in accordance with the procedure laid down in Article IV of this agreement. The Chinese Government authorizes the bank to issue in Japan within 10 days beginning from the date of this agreement the Chinese Government treasury bills to the total amount of Yen 9,000,000, the proceeds of such issue to be used for the making of the present loan. The date of the treasury bills shall be that on which they are issued and their designation shall be "The Treasury Bills of the Ninth Year of the Republic of China" (Ninth Year of Taisho, Japanese Calendar.) II. The term of the treasury bills shall be six months from the date on which they are issued, and the Chinese Government shall hand to the bank 10 days prior to the date of repayment the full amount of Yen 9,000,000 for the purpose of making repayment. The Chinese Government shall pay to the bank at Shanghai in Shanghai Sycee and/or national currency, of the equivalent of Yen 9,000,000 being the amount repayable in Japan, the rate of exchange to be settled with the bank on same day or at anj' time witliin two months previously. Should the Chinese Government happen to have bona fide funds in Yen lodged in Japan, not specially remitted there for the purpose of redeeming the treasiu-y bills, then these funds may be availed of for making repayment 10 days before due date, provided the bank shall be given two months' prior notice. III. The treasury bills shall be issued in Japan at discount ot4%, the proceeds to the Chinese Gov- ernment being 96 per cent of the face value. IV. From the net amount of proceeds of the treasury bills issued, as stated in Article III, a com- mission oi]/^% together with the cost of printing the treasury bills probably amounting to Yen 3,000 is to be deducted by the bank, and the whole amount of balance shall be placed, three days after the date of issue, to the credit of the Chinese Government account with the bank at Yokohama to be held to the order of the Minister of Finance. Interest shall be allowed on this account at the rate of 3 % per annum. The above proceeds shall be transferred to China by the bank, the amount of daily transfer being arranged with the bank. V. The proceeds of the treasury bills shall be devoted solely to the administrative expenditure for the month of February of the present year, and a detailed statement of the said administrative expendi- ture shall be communicated to the bank in writing and attached to this agreement to form part thereof. VI. The treasury bills are hereby secured by a direct charge upon the entire revenue of the Chinese salt administration subject only to the existing obligations already charged on the security thereof. VII. The procedure to be followed by the Minister of Finance for the withdrawal of the proceeds of the treasury bills shall be in accordance with the provision of Article XIV of the Chinese Government reorganization loan agreement signed in the second year of the Republic of China. VIII. On the day on which the treasury bills are issued in Japan in accordance with Article I of the present agreement, the Minister of Finance, representing the Chinese Government, shall tempo- rarily issue one comprehensive treasury bill of the Chinese Government for Yen 9,000,000 and shall deposit the same with the bank in Peking. The said comprehensive treasury bill shall be returned by the bank to the Ministry of Finance on the day on which the printing of all of the treasury bills referred to in the following paragraph shall have been completed. The form, language and denomination of the treasury bills to be issued in Japan shall be settled by the bank, following examples of foreign treasury bills issued in Japan, in consultation with the Chinese Minister at Tokyo. The treasury bills shall be printed and/or engraved bearing the facsimile of the signature and seal of the Minister of Finance as well as of the Chinese Minister at Tokyo as evidence that the treasury bills are duly authorized by and binding upon the Chinese Government. The president of the bank shall also countersign and seal the bills as the agent. The Chinese Government shall, on the day on which this agreement is made, telegraph instructions to the Chinese Minister at Tokyo to act in accordance with the provisions of this clause. The present treasury bills shall in priority be repaid out of the proceeds of the emergency loan when- ever the loan shall be concluded. The bank shall grant the Chinese Government a rebate at the rate of 8% per annum from the date of the said repayment to the due date of the treasury bills. X. Beginning from the following month of the issue of the bills, the Chinese Government shall make regular payments out of the salt revenue to the bank at Shanghai as the provision for redemption of the bills. Interest shall be allowed by the bank on the said provision at the rate of 6 % per annum. The dates of payments and the amount of each payment shall be arranged with the bank in due time. 124 In case the treasury bills being repaid out of the proceeds of the emergency loan in accordance with Article IX after the whole or a part of the said provision has been made by the Chinese Government, the bank shall refund the provision to the Chinese Government. XI In case the Chinese Government shall conclude an agreement for advance of the emergency loan with the American banking group and its terms shall differ from those of the present agreement, the Chinese Government shall make an agreement supplementary to the present agreement so as to adjust the difference in whole or in part as requested by the bank. XII. The terms of this present agreement shall be officially communicated to the Japanese Minister in Peking by Wai Chiao Pu. Four sets of this agreement are executed in .Japanese and Chinese, two sets to be retained by the Chinese Government and two by the bank. In the event of any doubt arising with regard to the interpre- tation the Japanese text shall rule. Peking on the 18th day of February of the ninth year of the Republic of China. Peking on the 18th day of February of the ninth year of Taisho of Japanese Calendar. Li Shi II ao, Minister of Finance. KiMPEi Takeuchi, Director, The Yokohama Specie Bank Ltd. Seal of the Ministry of Finance. Seal of Peking branch of the Yokohama Specie Bank Ltd. The Minister of Finance to the Yokohama Specie Bank, Ltd. Ministry of Fixancb, Peking 18th February 1920. Gentlemen: Article V of the agreement made on the 18th instant between the Chinese Government tind your bank for an advance of Yen 9,000,000 states :—' ' The proceeds of the treasury bills shall be devoted solely to the administrative expenditure for the month of February of the present year, and a detailed state- ment of the said administrative expenditure shall be communicated to the bank in writing and attached to this agreement to form part thereof." We have now the honor to hand you herewith for your information the detailed statement referred to, to be attached as an annex to the present agreement as stated in Article V thereof. We have, [etc.] Tsj;^, 1 ^^INISTRY OF FiN-AKCE. Chinese Government. List of expenditures for February 1920. The President's salary and allowances ¥104, 000 Salary of the ci^•il & military officers of the President's office 24, 000 Salary of advisors and councillors of the President's office 83, 333. 33 Expenses & salary of the members of staff officers' headquarters of the President's office 16, 423 Salary & expenses of the Iwei Guards office (Banner and Mongolian military officers) 2, 470 The President's body-guard 1, 161 The commandant's headquarters of the President's office 113, 036. 66 Expenses of the office of the cabinet 70, 141. 42 Bureau of statistics 12, 091. 67 Bui'eau of law compilation 18, 486 Bureau of civil service 11,438 Bureau of printing of cabinet office 25, 123. 92 Bureau for affairs of the Chinese laborers abroad 5, 506. 66 Commission tor investigation of post bellum financial conditions. 89, 396. 67 Board of audit 44, 167. 33 Admiiu8trati\'e court 19, 960. 34 Bureau for compilation of history of Tsing dynasty 14, 083. 99 High commission for punishment of civil officials 2, 163. 58 Commission for punishment of judicial officials 1, 923. 34 Pay for eight Banners corps 418, 971. 87 Chinese Legations and Consulates abroad 208, 436. 67 Paris publicity bureau 1 , 750 Ministry of Interior 89, 018. 33 Metropolitan gendarmerie 97, 735. 33 Headquarters of \\'uchun corps (Manchu Guards) 11, 446. 34 Metropolitan police administration 226, 601. 08 Peking emergency police corps (under Gen. Munthe) 12, 500 Public hospital in inner city of Peldng 2, 935 Public hospital in outer city of Peking 2, 935 Industrial institute for poor 4, 710 125 Durio exposition hall $1, 000 High school for police officers 6, 076. 42 Directorate-General of flood relief & conservancy work of metropolitan area 1, 950 Bureau for preparation of parliamentary affairs 7, 794. 50 Central plague prevention bureau and branch bureaus at Suiyuan 9, 406 Expenses of headquarters for inspection of military and police forces and branch offices. ... 1, 292 Ministry of Finance expenditure 74, 388. 17 Bureau of currency 20, 833. 33 The revenue stamps bureau 3, 093. 67 Preparation office for agricultural & industrial bank 1, 619 Ping-shih metropolitan bank 1, 666. 67 Printing of revenue stamps 40, 792 Printing of title-deeds of public property bureau 2, 166. 66 Bureau for accounting during war times 976. 67 Ministry of War 83, 033. 42 General staff 66,776.66 Military college 14, 766 Surveying school 11, 476. 17 Bureau of surveying 25, 370. 42 Bureau of mapping 9, 1 64. 17 Aviation school 16, 205. 67 Military attaches in foreign countries 26, 375 Bureau for survey of waterways 1, 962. 08 Expenses for officers studying in army and navy colleges in Japan 5, 415. 33 Flying machine factory 20, 199. 50 Offices under direct control of the Ministry of War 100, 000 Shanghai arsenal 175, 000 TehHsien " 170,833.33 KohHsien " 148,782 Hae Yang arsenal 125, 000 Chiang Chien Fu 54, 005. 25 Inspecting commissioner of three eastern provinces 30, 000 Headquarters of the commander in chief of the forces for preservation of order in the metropoli- tan area 16,069.50 Office of the director general of frontier affairs 20, 880 Ministry of Navy 67, 263 Offices under direct control of Ministry of Navy 100, 000 Schools and institutions under the management of the Ministry of Navy 262, 999. 67 Ministry of Justice ^^' ^^^- ^^ Supreme Court ^^' ^^^- ^^ Law codification commission 14, ^00 Procuratorate general %,1w Peking high court and high procxiratorate 10, 440 Peking local court and local procuratorate 26, 000 T ., • T, T „ 26,949.83 Jails in Peking ' Ministry of Education 40,666.67 Peking Government university ^^' ^'^^- "^ School of law and political science ^°' ^^^- ^^ Peking medical school and hospital H' ^^ ^3 Peking industrial school "^^'^40 Peking agricultural school J^' Peking high normal school Va t^ .0 Peking girl's high normal school 6 683 33 Peking normal school ^' ^^^ ^^ Peking art institute ' ' " Offices under Ministry of Education lo, oaa „^ J . 1 J 16, 049. 66 Students abroad q>; ri q q'i Allowances to self-support students ^°' °^^- ^^ Offices for management of affairs of students abroad **, 1^5 Ministry of Agriculture and Commerce ^^' 233- 33 Natial [National] conservancy bureau °' °^^ "*"* Kiangsu conservancy bureau in' fi6fi 67 Weights and measures factory ^' ' Central office for the inspection of weights and measures i' 500 Forestry school 792 66 Industrial bazaar " Geological investigation bureau " Weather observatory Central agricultural experimental station 126 Cotton experimental farm ?4, 551. 67 Forestry experimental station 6, 239. 83 Cattle raising experimental ranch 5, 175. 99 Board of Mongolian and Tibetan affairs 26, 152 School of Mongolian and Tibetan languages 2,956. 50 Office for Mongolians and Tibetans visiting the capital 500 Salary and allowances for Princes of Mongolia and Tibet 30, 000 Allowances for Lama priests 21, 857. 66 File No. 893.51/2799. TTie British Ambassador to the Secretary of State. No. 257. Confidential.] British Embassy, Washington, April 26, 1920. Sir: With reference to Mr. Lindsay's note of April 7th, I have the honour, acting on instructions from my Government, to state for the confidential information of the United States Government, that His Majesty's Government propose, subject to the views of the French Government which have been requested, to reply to the memo- randum handed in by the Japanese Ambassador in London on April 14th and under- stood to be similar in terms to that communicated to the State Department on April 3 in the following sense : While accepting the Japanese withdrawal of their request for a formula, His Majesty's Government find if difficult to bind themselves to allow Japan the right to veto the construction of a line from Taonan-Fu to the Chinese Eastern Railway. In adopting this attitude, His Majesty's Government have not lost sight of the fact that they pledged themselves in 1910 not to take up the so-called Chinchou-Aihun Railway scheme, referred to in the Japanese memorandum, without consulting Japan. While His Majesty's Government are, at the present time, no less than in 1910, devoid of any wish to act in conflict mth Japan's vital interests, conditions have nevertheless changed and the two Governments are now to work in cooperation rather than in competition. The second point in the Japanese memorandum providing that the Japanese group may in certain circumstances be allowed to undertake the construction of these two lines singlehanded, is in the opinion of His Majesty's Government superfluous, the point being already covered by Article 4 of the Inter-Group Conference of May 12th, 1919. His Majesty's Government understand that a reply on these lines, which I am instructed to communicate for the confidential information of the United States Government, would be in agreement with the views of your Government. In draw- ing up their reply and requesting the Japanese Government for a definite decision, they would propose to throw the onus of refusal to enter into the consortium on Japan and to avoid any appearance, on the part of the other three Governments, of threat- ening her with exclusion. I have [etc.] A. Geddes. File No. 893.51/27.>1. The Department of State to the Japanese Embassy. [Momorandum.) The American Government has received the further memorandum of the Imperial Japanese Government of April 3rd and after having given it careful consideration has the honor to reply as follows: The American Government is much gratified to learn that the Japanese Govern- ment is prepared to accept most willingly the suggestion of the American Govern- ment to forego its request for the acceptance of the proposed formula which it had made in its note of March 2d. As regards the two propositions mentioned in the Japanese Government's memo- randum under acknowledgment the American Government much regrets that the 127 Imperial Government should have raised these questions at a moment when it was hoped that the four Powers interested were about to reach an agreement on the basis of compromise which Mr. Lamont, the representative of the American banking group, appeared to have reached in Tokyo with the representatives of the Japanese group. The American Government fears that if the discussion of these propositions is insisted upon it will merely delay matters and in the interests of all parties concerned it sincerely trusts that the Imperial Japanese Government will be willing to withdraw them and to be satisfied with the general assurance to which the American Govern- ment has already offered to subscribe and which the Imperial Japanese Government has just expressed its readiness to accept. In order to meet the wishes of Japan the American Government is prepared to agree to the terms of the compromise proposed by Mr. Lamont in Tokyo. As regards proposition 1, Japan practically asks for a right to veto the con- struction by the consortimn of a line from Taonanfu to join the Chinese Eastern Railway on the grounds that such an extension would be tantamount to a renewal of the so-called Chinchou-Aigun Railway scheme against which Japan had lodged a protest some years ago. The Government of the United States has no wish to do anything which would conflict with the vital interests of Japan and the assurance to which it has declared its willingness to subscribe would appear fully to safeguard Japan's interests. It appears to the American Government that, with respect to the establishment of the consortium, a new era is about a dawn in which condi- tions have changed and it is now proposed that the Powers should work together in harmonious and friendly cooperation rather than in competition and the granting to any one party to the consortium of the power to veto the possible construction of a railway would appear to be contrary to the principles upon which the idea of the consortium is based. In the opinion of the American Government the contingency anticipated in proposition 2 would appear to be already provided for in Article IV of the inter- group agreement at Paris on May 12th, paragraph 19, of which the American Gov- ernment has expressed its approval. The American Government sincerely trusts that the Imperial Japanese Government will recognize the friendly spirit in which these observations are made and that it will now agree to cooperate with the other three Powers along the lines of the proposed compromise. It notes with gratification that the Japanese Government is prepared to authorize the Japanese group to proceed with the discussion with Mr. Lamont for the pm-pose of reaching a settle- ment. It expresses the hope that the Japanese Government will now see its way to give this authorization without the suggested reservations in order that the final arrangements between the groups may be concluded while Mr. Lamont is still in Peking and the necessary exchange of letters between the representatives of the Japanese and American groups effected with the least possible delay. Department of State, Washington, April 29, 1920. File No. 893.51/2809. The British Ambassador to the Secretary of State. No. 265.] British Embassy, Washington, April SO, 1920. Sir: With reference to my note No. 257 of April 26th, I have the honour to inform you, on instructions from my Government, that the French Government are in agreement with the terms of the proposed reply to the Japanese memorandum and are themselves replying to the Japanese Embassy in Paris on similar lines. I have, [etc.] A. Geddes. 128 File No. 893.51/3200. Department of State, Office of the Thikd Assistant Secretary, WasUngton, A frit 30, 1920. MEMORANDUM. The Japanese Ambassador spoke of the consortium and of the note which we sent him yesterday which he said he was glad to receive. He said that he was sur- prised to see that we had taken exception to their requests to have the two particular railroads and their rights in connection therewith recognized in the agreement. I told him that both cases were covered by the general underlying agreement. He said that for that reason the Japanese Government felt that there should be no dispute about them but that they should be accepted simply as the application of those principles to these two instances. I told him that things of that nature had no place in the underlying agreement, and that it would be wrong to include such particular enterprises in an agreement which aimed to lay down general principles of cooperation. He spoke of the use of the word "veto," and asked whether it was proposed by the use of it that Japan should not have the right to prevent those activities which might be aimed at her national interest. I explained to him that it was not the desire to prevent that, and that in practical operation it would work out to the satisfaction of Japan in this; that England, France and the United States wanted to proceed with the railroad and it had some direct bearing upon the national interest of Japan, and if Japan should refuse to proceed that the bankers in England, France and the United States would find it practically impossible to sell their bonds. I then alluded to Cochin China, and asked him whether he thought it would be right to give France the power to veto a railroad construction connecting southern China with Canton, on the theory that it would jeopardize the economic existence of Cochin China when as a matter of fact such railroad would make accessible to Japan and other countries the products of a region which could not be obtained otherwise. He agreed that it would not be right to give France such a power. I then told him that the whole underlying theory of it was to substitute for a spirit of rivalry and competition one of coordination and cooperation for the good of the four Powers, and for the benefit of China. He left the impression that he was quite satisfied and would recommend to his Government the acceptance of the last note. Breckinridge Long. File No. 893.51/2812. The British Ambassador to the Secretary of State. No. 268.] British Embassy, Washington, May 1, 1920. Sir: With reference to my notes of April 26th and April 30th, I have the honour to inform you that His Majesty's Government have addressed, under date April 28th, a note to the Japanese Ambassador on the lines indicated and couched in firm but friendly terms. His Majesty's Government express their satisfaction at learning from the Japanese note of April 14th, that the Japanese Government are ready to accept the written assurance offered by His Majesty's Government in place of the formula for which they had previously asked. At the same time my Government express their regret that the two proposals referred to in my note of April 26th, should have been put forward by the Japanese Government at a moment when there was hope of arriving at an agreement on the basis of the compromise proposed by Mr. Lamont. His Majesty's Government fear lest this should cause delay and trust that the Japanese Government will not insist on these proposals but will be content with the general assurance offered. While recording their inability to assent to the two specific proposals mentioned above, my Government declare themselves ready to meet the wishes of the Japanese 129 Government as regards the two lines west of the South Manchurian Eailway. Their note concludes by expressing the hope that the Japanese Government may now be able to cooperate with the other three Powers on the basis of the proposed com- promise and that they may be prepared unreservedly to confirm the suggestion put forward in the last sentence of their memorandum of April 14 so that the matter may be settled before Mr. Lament leaves Peking. I have [etc.] A. Geddes. FUe No. 893.51/2815. Amiassador Morris to the Secretary of State. [Telegram— Paraphrase.) American Embassy, Tolcyo, Mmj 5, 1920—9 p. m. 217. I received your 163, April 29, 4 p. m.^ and immediately gave to the Minister for Foreign Affairs a copy of memorandum which had not then been received from Shidehara. I discussed the entire situation at considerable length with the Foreign Minister and endeavored again to make clear our Government's attitude. He then stated that he would take occasion to confer with me later. This afternoon I arranged to see him and went over with him the draft of the answer which it is proposed to forward to Shidehara within the next few days. The draft reads in full as follows: The Japanese Government received on May third the memorandum of the American Government dated April 29th in reply to their memorandum of April third last and have carefully examined it. The Japanese Government are happy to note that the American Government is much gratified with the readiness of the Japanese Government to forego, in reliance upon the assurances given in the memorandum of the American Government dated March 16th last, their request for the acceptance of the proposed formula and that it has pleased the American Government to lend emphasis to assurances to which it had already subscribed. As regards the two points made by the Japanese Government relating to the Taonanfu-Jehol Railway and the line connecting a point thereon with a seaport, the American Government seems to think that they constitute new propositions and expresses regret that these questions should have been raised at a moment when it was hoped that the four Powers concerned were about to reach an agreement. In particular the American Government appears to be of opinion that point one, namely, Japan's desire in rfegard to the extension of the Taonanfu-Jehol Railway is tantamount to a claim for an exclusive power of veto and is therefore contrary to the fundamental principles upon which the idea of the new consortium is based. The Japanese Government, in making the point in question, were prompted by no desire of putting forward any new condition or demand. It was simply in order to avoid future misunder- standing as one of the actual examples of enterprises prejudicial to Japan's vital interests which formed the subject matter of general assurances given by the American Government. The Japanese Govern- ment feel confident that the question involved in this case, coming as it does within the scope of the general assurances of the Governments of the Powers interested in the consortium will, in the spirit of mutual trust and friendliness, readily appreciate Japan's point of view. As to point two, the Japanese Government have raised it merely in order to set forth the circumstances in which they feel the need of the assistance and cooperation of the Powers concerned in the actual construction of the Taonanfu-Jehol Railway and the line connecting a point thereon with a seapctet. In thus giving a frank expression to their hope, the Japanese Government were inspired by no other desire than to make an appeal to the spirit of international cooperation which forms the foundation of the consortium. The Japanese Government, holding as they do the views as above enunciated, have no intention what- ever of insisting upon obtainipg the explicit assurances or consent of the American Government in regard to the two points above referred to. Their idea is simply to bring t]ie Powers concerned to an understand- ing of their interpretation in these respects. Relying, however, upon the friendly spirit in wMch the American Government was going to reaffirm that the general assurances to which it has already offered to subscribe are adequate enough to safeguard the interests of Japan, the Japanese Government would refrain from further insisting upon the discussion of these points and in order to facilitate the formation of the new consortium with the least possible delay they would be satisfied at this juncture with bringing to the knowledge of the American Government their interpretation of these questions and will be prepared to lend their support to the conclusion of an arrangement between the banking groups concerned and to give it the necessary confirmation. Little comment seems to be needed on the above memorandum. It says in fact, 1 think, that the Japanese Government sincerely and completely accepts the attitude of the other Powers. I am confident that Mr. Lamont, who is expected to arrive • Not printed. 35283—21 17 130 here to-morrow, will not withhold his approval. An early notification of the attitude of the Department would be very much appreciated by the Embassy to enable Mr. Lament and Mr. Inouya to exchange the letters and thereby bring the negotiations to a successful conclusion before Mr. Lament and I take our departure. Morris. File No. 893.51/2815. Department of State, Division of Far Eastern Affairs, Washington, May 6, 1920. MEMORANDUM. Mr. Long : I am afraid this reply of the Japanese Government merely emphasizes the dilemma with which they confronted us in their last memorandum. This note retracts nothing; on the contrary, it re-emphasizes Japan's claim to a veto upon railway construction which might compete with existing Japanese lines in Manchuria, and (what is more significant) places on record the fact that the Japanese Govern- ment interprets as meaning precisely that the assurances which we have given them regarding our willingness to respect Japan's rights of self-preservation. In spite of Ambassador Moms' optimistic view that this is a sincere and complete acquiescence in our position, I feel that it is merely a repetition of the old endeavor to accept the consortium only upon conditions which assure to Japan an actual and recognized monoploy in Manchuria. The fact that they profess themselves willing to "refrain from further insisting upon the further discussion of these points " is equivalent to saying that they will no longer argue with us but will tell us where they stand on the question of their pretensions in Manchm-ia. If we accept their offer to form the consortium on the basis indicated herein, I do not see how we can ever dispute their right to forbid undertakings which might come into competition with any existing Japanese railway in Manchuria. The one element of hope that I see in this proposed reply is that the Japanese submitted it informally to Mr. Morris before making it of record. That may perhaps afford us the opportunity of forestalling the presentation of a formal note in the sense of their draft, if we immediately instruct the Ambassador that we cannot consent to the formation of the consortiimi upon the basis of a statement which reopens the whole question of exclusion or priority of economic rights in favor of Japan in Manchuria: and that it would be possible for us to consider the consortium as estabhshed, only if Japan were to accept it upon the same terms as the American, British and French Governments, without further conditions or provisos. I would earnestly suggest that instructions to this effect be telegraphed imme- diately to Ambassador Morris: and that you take early occasion to invite Mr.Shide- hara to confer with you, read hmi this instruction, and add the cormnent that the proposed reply of the Japanese Government would create a new situation in which the American Government would have to adjust its policy to a recognition of the impossibility of obtaming Japan's cooperation. It might further be added that in that event this Government would no longer be in a position to ask of its bankers a continuance of the effort to establish working relations with the financial interests of Japan. Mac Murray. File No. 893.51/2816. Ambassador Morris to the Secretary of State. [Telegram.] American Embassy, Tolyo, May 7, 1920—^ •p. m. 222. Mr. Lamont arrived Tokyo to-day. Has read draft of Japanese memo- randum forwarded in my 217, May 5, 9 p. m. Is much pleased that Japanese Government has met Department's views so completely which, in his judgment, clears up whole difficulty and now renders situation entirely consistent with his under- standing with Japanese banking group. He is planning to exchange letters as already approved early next week. Morris. 131 File No. 893.51/2S19. The Japanese Embassy to the Department of State. [Memorauduni.) The Japanese Government received on May 3rd the memorandum of the American Government dated April 29th in reply to their memorandum of April 3rd last, and have carefully examined it. The Japanese Government are happy to note that the American Government is much gratified with the readiness of the Japanese Government to forego, in reliance upon the assurances given in the memorandum of the American Government dated March 16th last, their request for the acceptance of the proposed formula, and that the American Government has lent emphasis to the assurance to which it had already subscribed. As regards the two points made by the Japanese Government relating to the Taonanfu-Jehol railway and the line connecting a point thereon with a seaport, the American Government seems to think that they constitute new propositions and expresses regret that these questions should have been raised at a moment when it was hoped that the four Powers concerned were about to reach an agreement. In particular the American Government appears to be of opinion that the point (1) namely Japan's desire in regard to the extension of the Taonanfu-Jehol railway, is tantamount to a claim for an exclusive power of veto and is therefore contrary to the fundamental principles upon which the idea of the new consortium is based. The Japanese Government, in making the point in question, were prompted by no desire of putting forward any new condition or demand. It was simply in order to avoid future misunderstanding that the point was raised as one of the actual examples of enterprises prejudicial to Japan's vital interests which formed the subject matter of the general assurances given by the American Government. The Japanese Government feel confident that as the question involved in this case comes within the scope of the general assurances, the Government of the Powers interested in the consortium will, in the spirit of mutual trust and friendliness, readily appreciate Japan's point of view. As to the point (2) the Japanese Government have raised it merely in order to set forth the circumstances in which they feel the need of assist- ance and cooperation of the Powers concerned in the actual construction of the Taonanfu-Jehol railway and the line connecting a point thereon with a seaport. In thus giving frank expression to their hope, the Japanese Government were inspired by no other desire than to make an appeal to the spirit of general cooperation which forms the foundation of the consortium. The Japanese Government, holding as they do the views as above enunciated, have no intention whatever of insisting upon obtaining the explicit assurances or consent of the American Government in regard to the two points above referred to. Their idea is simply to bring the Powers concerned to an understanding of their interpretation in these respects. Eelying, however, upon the friendly spu-it in which the American Government was good enough to reaffirm the fact that the general assurances to which it has abeady offered to subscribe are adequate enough to safeguard the interests of Japan, the Japanese Government would refrain from further insisting on the discussion of these points, and, in order to facihtate the formation of the new consortium with the least possible delay, they would be satis- fied at this juncture with bringing to the knowledge of the American Government their interpretation of these questions and will be prepared to lend their support to the conclusion of an arrangement between the banking groups concerned and to give it the necessary confirmation. Japanese Embassy, Washington, May 8, 1920. 132 File No. S93.51/:>SI9. The Department of State to the Japanese Embassy, (Memorandum. J The Government of the United States has been pleased to receive the Imperial Japanese Government's memorandum of May 8, 1920, in reply to that of the Govern- ment of the United States dated the 29th of the preceding month, and is deeply grati- fied to observe therefrom that the Imperial Japanese Government has no intention of insisting upon the explicit assurance or consent of the Government of the United States in regard to the two points raised by the Imperial Japanese Government with reference to the Taonanfu-Jehol Railway and the line connecting a point thereon with a seaport. The Government of the United States also takes note with sincere pleasure that the Imperial Japanese Government is prepared to lend its support to the conclusion of the arrangement between the banking groups concerned, and to give the arrangement the necessary confirmation upon the same terms as the Governments of the United States, Great Britain, and France have already done without conditions or provisos. It is most gratifying to the Government of the United States that the under- lying principles and policies of the new international consortium are now so fully understood and agreed upon that the representatives of the banking groups may proceed to its formation and the consideration of the working details of its opera- tion. The Government of the United States again can assure the Imperial Japanese Government that its sole aim in all the negotiations just completed has been to bring about an arrangement which would insure entire cooperation on the part of the interested Governments on a basis which would be to their mutual advantage and for the lasting benefit of China. The Government of the United States looks forward with keen anticipation to the friendly cooperation under the consortium arrangement, with entire confidence that such practical joint endeavor is the begin- ning of a new era of good will and accomplishment for both Governments. Department of State, Washington, May 8, 1920. File No. S93.51/:C2U1. Department of State, Office of the Third Assistant Secretary, Washington, May 11, 19£0. MEMORANDUM. Mr. Brambilla called this morning and asked whether there would be any objection to the Italian Government filing an application for participation in the consortium. I told him that there would be no objection to its being filed, and that we would be glad to consider any application for admission to or comment upon the consortium the Italian Government might have to make but that the matter would have to be considered by the American group and the other Governments. Breckinridge Long. File No. 893.51/2884. The Japanese Group to ^fr. Thomas W. Lamont." Tokyo, May 11, 1920. Sir: You will recall that upon the organization of the consortium at Paris, on May 11 and 12, last, the representatives of the Japanese, American, British and French banking groups attached their signatures to the resolutions and agreement subject to the approval of their respective Governments. You will further recall that, upon the instructions of the Japanese Government, our banking groups addressed you a letter dated 18th June last as regards the conditions of accepting the new consortium agreement. " Inclosure to letter from the American group, dated July 22, 1920, 133 We have now the honor to inform you that certain points in the agreement and in the operations of the proposed consortium, hitherto somewhat obscure, having been cleared up to the satisfaction of our Government and of ourselves, we -are now able in accordance with the instructions of the Japanese Government to withdraw our letter dated 18th June last and announce that, conjointly with the American, British and French banking groups and on like terms with them, we will accept the consortium agreement. We beg at the same time to express our hearty concurrence with the general ideas and objects of the consortium in respect to China. Very truly yours, Nakaji Kajiwaea, Tlie President of the YolcoMma Specie Bank, For anxl on heJuilf of the Japanese Group. File Nq. 893.51/28Si. The American Group to Mr. Nakaji Kajiwara." Tokyo, May 11, 1920. Dear Sir : We beg to acknowledge with thanks, the receipt of your communica- tion of May 11th, 1920, informing us, in behalf of the Japanese banking group that, under the instructions of your Government, you have now withdrawn your letter dated June 18th, 1919, and have adopted, in association with the banking groups of America, Great Britain and France and on like terms with them, the agreement for the establishment of a new consortium in respect to China. We are happy to note that certain points that had hitherto been somewhat obscure to your group and to your Government have now been made plain, and we trust with you that the way is clear for the consortium to undertake operations. Inasmuch as some questions have arisen during our discussions as to the status of specific railway enterprises contemplated or actually begun in Manchuria and Mongolia, we hereby confirm that we have agreed with you as follows : (1) That the South Manchurian Eailway and its present branches, together with the mines which are subsidiary to the railway, do not come within the scope of the consortium; (2) That the projected Taonanfu-Jehol Railway and the projected railway con- necting a point on the Taonanfu-Jehol Railway with a sea-port are to be included within the terms of the consortium agreement; (3) That the Kirin-Hueining, the Chengchiatun-Taonanfu, the Changchun- Taonanfu, the Kaiyuan-Kirin (via Hailung), the Kirin-Changchun, the Sinminfu- Moukden and the Ssupingkai-Chengchiatun Railways are outside the scope of the joint activities of the consortium. The foregoing letter of acknowledgement, although written in behalf of the American banking group, has, we are assured, the cordial approval of the British and French banking groups, also of the Governments of the United States, of Great Britain and of France. Pray be good enough to present our regards to your colleagues in the Japanese banking group and our best wishes for the success of the joint Four-power under- taking. Very truly yours, Thomas W. Lamont, For and in behalf of the American Group. >' Inclosure to letter from the American group, dated July 23, 1920. 134 File No. 893.51 2S29. , ^ ,.r • . .i rr ± s Ot t Ambassador Morns to the Secretary oj btate. [Telegram— Paraphrase.] American Embassy, Tolcyo, May U, 1920— € p. m. 238. The Embassy is requested by Mr. Lament to send the following for the information of the Department and to be forwarded to the American banking group: 1. I herewith file mv preliminary report with the approval of Ambassador Morris. 2. I have had, from the time I arrived in Japan, March 2, the earnest cooperation of the Japanese banking group concerning the entry of that group into the international consortium without reservation. The individual members of the Japanese group, with the exception of Mr. Inouya, governor of the Bank of Japan, were devoid of courage to offer their views on the matter to the Japanese Government and the public -ndth force, and the whole burden of that group rested on the shoulders of Mr. Inouya, a good type of the modern liberal group of Japan. He labored faithfully in his attempts to convince his Govern- ment that the military faction ought to be overruled. This clique is the super-government in Japan and it persisted in adhering to the formulas which reserved South Manchuria and Eastern Inner Mon- golia to Japan. 3. The Hara administration was convinced early during my visit there in March that it would be better if the reservations were withdrawn. I conferred privately with the principal members of the Cabinet and also with the diplomatic advisory council, which I was enabled to do through Ambassador Morris's unusual alertness and activity. The American formula had the approval of both these bodies and they expressed their good faith by voting that the reservations should be withdrawn at the time I left for China. The Japanese Government, however, presented a new and unexpected contention in its Foreign Office note of April 2, which seemed to me at the time a violation of Uchida's promise which he had given to me and was undoubtedly imposed on him, as Ambassador Morris has already explained, by the military faction as a last effort. 4. When I arrived in China every obstacle was thrown in my way by this military faction, which, of course, resembles, the former Prussian general staff. The Chinese people have far more confidence in America to-day and on that account in the American group than any other group or nation in the world. To overcome this confidence a vicious propaganda was carried on during my entire stay in China against the international consortium and the American group; it was conducted through circulars and the press, principally the papers printed in the vernacular which are in the hands of Japanese, and also through a few Japanese-controlled English journals and through certain journalists who are subsidized by the Japanese. Misstatements of a most malicious nature were constantly reiterated. There were addressed to me unjustifiable and aggravating memorials and then published in the press which were based on these misrepresentations. A change in the spirit of this propaganda may now be expected since Japan has entered the consortium. 5. The securing of intimate viewpoints of leaders of South China, and I met nearly all of them, was considered my principal work while at Shanghai. Generally speaking I was impressed by them as earnestly desiring peace with the North and willing to go considerably farther than half way. But they lack consolidation and do not work well together. As contrasted with the civil part of the poeple of the South with whom I came more in contact, the military faction of that section is at heart more in harmony with the military clique of North China. 6. I was importuned by the civil leaders of the South for a promise that, until actual peace had been concluded between the two sections, no loan would be granted to the Government at Peking. They thought that if this were made a condition peace would soon be at hand. The student organizations are still a factor to be reckoned with, but they are losing some of their influence on account of numerous and useless strikes. These bodies made similar requests also. To these representations I replied that it was evident that no substantial loans could be made by the groups for a long time unless China had returned to a peaceful basis with itself, and that it had been made a condition for the emergency loan that effective steps should be taken to restore peace before the loan could be granted. The weakness of the Chinese Government is illustrated by the fact that when news was received at Peking that I had received the delegation from the student bodies — in the same manner as other representative bodies had been received — a considerable number of students were released from prison where they had been held by the Peking Government. 7. As requested by Mr. Polk I observed with particular care the financial and political conditions of the Chinese Government, and found them much worse upon my arrival than I had expected. I did not find any forceful man in that Government upon whom reliance could be placed or who showed any strength. The President was a pleasant, refined man, but without power. The premier, who is a well meaning but dull ex-military leader, was absorbed in a mass of detail and lacked nerve. With the ex- ception of the Minister of Communications, (telegraphs, railways, etc.) who is generally known as being subject to the Japanese military faction and is the president of the Anfu club, the men all the way down the line were of that stamp. The above allegation about the Minister of Communications is borne out by his whole attitude towards me. 8. I had no trouble in obtaining from the Minister of Finance the figures showing that the Govern- ment is incurring a deficit of from eighty to one hundred million dollars per annum. About seventy-five per cent of all the Government's income is expended on military affairs, three-fourths of that is usless and 135 keeps up an army, as I have been informed, of one and one-half million of men just to continue this comic ■warfare. 9. The idea was prevalent in Government circles that the American group was most anxious, in order to save its reputation, to conclude a loan with the Chinese Government. Some of the Government officials became convinced of their error soon after my arrival, but the majority were not convinced until I left Peking. 10. Considering all the circumstances it became fully evident to me, as I have already stated, that! any loan extended to the Chinese Government for general purposes of the administration would simply \ be squandered by grafting officials and would keep in existence a weak government for some little time. I At the same time I should have felt that the financial groups were morally obliged to make the proposed emergency loan of five million pounds sterling, provided it was to be used for constructive purposes only and that expenditures would be strictly supervised if the Chinese Government had not, to my surprise, interjected its objection to reconsider the decision concerning the payment of Hu Kuang traffic thereby making it impossible to float a new loan in New York at ninety-five or above while only forty-six can be obtained for their present obligations. The Cabinet came near rendering a favorable decision at one time, but was overruled by the strength and backing of the Minister of Communications. 11. When I left Peking the Japanese press in Japan as well as in China began an active campaign claiming that my mission had been an utter failure. The purpose of this campaign was to derogate further from the other groups and give Japan a clear field of action. The Chinese Government joined in this campaign for appearance sake because it had been unsuccessful in securing the loan which the Govern- ment and its hungry adherents expected. 12. The Chinese Cabinet seemed to be united on only one point, it wanted the consortium or if it could not obtain that then the American group to take over the management of the Chinese ICastern Railway. Fear of Chinese public opinion which had been aroused through all of China by the high handed action of Japan in Siberia, was the reason for this singular unity. While I was at Mukden Mr. Stevens met me and reported to me on conditions in Siberia and the actions of Japan there. This was embodied in a memorandum and Ambassador Morris, to whom I gave it, may inclose it with his report to the Department in which he gives his own views and recommendations which are of especial value on this subject. But I can say in a few words for the information of the bankers of the American group and their commercial interests generally that if the present policy of the Japanese general staff is allowed to continue in Siberia Japan will have in its economic grip that great territory west of the Ural Mountains and American manufacture and export will be excluded from the most valuable market in the world. 13. You may deduce from the above that I hold rather dark views concerning China and that it isl not a good field of investment for the American bankers group and the large body of investors repre- sented by it. On the contrary I have every assurance. The resources of China are so abundant, the/ Chinese people are so full of industry, peace loving and, if the official clique is excepted, so honest thati I believe that a safe and very profitable field for investment will be found in China. It is not expected that the present Government will last and there is much doubt whether a stable administration can be obtained by replacing the members of the present Government with better men. They may clean house when the Chinese people realize at last that their substance is wasted and how the Government budget, satisfactory only a few years ago was without any reason turned into a large deficit. It may be soon or it may take several years before any marked improvement is realized. The consortium could in the meantime work in perfect safety and successfully by making loans for specific constructive projects like the Hu Kuang Railway system bringing the great central west of China into close connec- tion with the north and south. In order to avoid waste in expenditures greater care than ever would have to be taken in arranging such loans and effective control would have to be exercised. Proper safeguards can be thrown around such loans and some elements of China's problems will be solved by every construction undertaken as it will be the means of offering regular employment to the superfluous soldiers who should not be set at large upon the community but set to work in some specific employment ; it would also link up important sections of China and that would wipe out the differences which now exist. 14. According to reports at Peking the Germans never dreamed of taking as complete control of the Peninsula of Shantung as the Japanese military are enforcing there. If only half of the reports are true the Japanese act with incredible dexterity. It seemed to me that the greatest effort was being made by the Japanese general staff, anticipating the downfall of the present Chinese Government, to conclude an agreement about Shantung which would have the general force of being official and which would enable Japan, as it did in the case of the twenty-one demands of Japan on China, to proclaim that China made this agreement in writing. Japan is employing the same cunning representative in the alleged Shantung negotiations, Obata, whom she used to effect the twenty-one demands. It is demed that any negotiations are being conducted, but I believe that the above indications show what is happemng. The whole of the Shantung Peninsula will soon be at the mercy of Japan as much as Korea unless her activities are stayed. . . 15. Japan and the consortium. Although the agreements between the international groups have been signed and exchanged without reservations the British, French and American groups may have the experience of a difficult partner. The Japanese group will endeavor to play fair but can the general staff or the intelligence department be controlled? We need not be surprised to find that mystenous funds will stm be furnished to the corrupt Peking Government and that valuable concessions in turn are given away this will be the function of the Japanese military. If such advances are made the 136 Japanese will, of course, be breaking faith, but did breaches of faith ever bother the Prussian general staff? Unless the Powers continue to allow a free hand to Japan in China and Siberia, Japan will gradually swing into a straight line forward and learn from western groups to act mannerly at table. The members of the American group realize that the economic necessities and present semi-panic conditions in Japan will act as a powerful factor in subduing her militarists, but she will not be kept in line unless the Governments of Great Britain, France and the United States act together towards Japan in the attitude of that Government to Asia, as they united in the negotiations for the consortium. Business might just as well be stopped before it is begun by the banking groups if the Western Powers fail to act as a unit. 16. There were some indications in China that the disorganized and corrupt state of the Chinese Goverimient had been fostered by certain Japanese interests for the sole purpose of creating an excuse for intervention and to foreclose on their loans. It does not necessarily follow that dangerous conditions exist in China because it has a feeble and tottering Government, business is being conducted as usual. The report about the mutiny of the soldiers is not magnified very much. But if Japan so desired she could base an intervention on it. It seemed more Ukely, however, that Japan would suggest to other Powers to make energetic representations to all the principal factions in China, the leading four Powers advising them to put a stop to this absurd and farcical civil war, to begin effectively to disband and to re- establish business. I was told by many Zaku men in China that such action by the Powers, without forceful demonstration whatever, would impress itself powerfully and to a great extent even upon the Tuchuns, that it would give impetus to the force of public opinion and the consortium could start its work in a practical wajf. It would be preferable, in my opinion, that the Department of State should propose such a course to the other Powers, if it is to be taken into consideration, in order to define it and describe its Umits. The proposition would have much more force in China if it became known that the United States had made it. 17. I did not lose sight of the foregoing considerations when the final discussions were held here this week with the American [Japanese?] group. I reached the following final preliminary conclusions and the)' concur therein: (1.) In the way of any [no?] kind of loan to the Chinese Government shall be considered until after my arrival and conference with the American group at Kew York. (;?.) If conditions in the United States permit a small loan of sufBcient size may be considered to liquidate the arrears of the Huk^iang and Tientsin-Pukow Railways and to take over the loan of the Pacific Development Corporation. These loans will not require more than twelve and one-half to fifteen million dollars, it being understood, of course, that the decision of the Cabinet concerning Hukuang ■vidll be reversed . (5.) Any loan granted is to extend simply until early in the fall, as it is proposed that the consortium shall hold its first meeting about the middle of September in New York to consider comprehensive plans which will be prepared in the mean time by those who have the most intimate knowledge of the situation . Officers of the Pacific Development Corporation have hinted that they will agree to the transfer of their loan, and, in my opinion, it is of prime importance that some arrangement be made to take over that loan. 18. All the group representatives at Peking were found to be entirely competent, but I believe that the American group should give earnest consideration at once to the selection of the proper person whom it will send as permanent representative of the group at Peking. The group can well afford to pay any price for the right man of sagacity and determination, whose course can be consulted, which will be a powerful factor for the interests of the United States generally and will be a great help in restoring tran- quility in the entire situation of the Far East. Morris. File No. 893.51/3020. TJie American Group to the Secretary of State. New York, Octoler 23, 1920. Sir: During the consortium conference held in New York October 11th to 15th, the following resolution was presented and unanimously adopted: With reference to the application of a Belgian group for inclusion in the consortium it was resolved to welcome such inclusion subject to the approval of the respective Governments of the parties to the consortiiun. We respectfully suggest that it is in order for the Department to communicate with the other Governments concerned and ask them to join in expressing approval in welcoming a Belgian group into the consortium. Respectfully, J. P. Morgan & Co. For the American Group. 137 File No. 893.51/3011. The Secretary of State to Ambassador Wallace.^' No. 643, Confidential.] Department of State, Washington, Octoher 29, 1920. Sir: In connection with recent correspondence regarding the organization of a new international consortium for financial business in China, there is enclosed here- with for your confidential information a copy of the consortium agreement which was signed in New York on October 15, 1920, together with a copy of the minutes of the consortium meetings which began in New York October Uth. I am [etc.] For the Secretary of State : Norman H. Davis. [Inclosure-l THE CHINA CONSORTIUM AGREEMENT. An agreement made the fifteenth day of October, 1920 between The Hongkong and Shanghai Banking Corporation, having its office at 9 Gracerhurch Street in the City of London (hereinafter called "the Hongkong Bank") of the first part The Banque de L'indo Chine having its office at 15bis Rue Laffitte Paris (hereinafter called "the French Bank") of the second part The Yokohama Specie Bank Limited having its ofl!ice at Yokohama in Japan (hereinafter called "the Japanese Bank") of the third part and Messrs. J. P. Morgan & Co., Messrs. Kuhn Loeb & Co., The National City Bank of New York, Chase National Bank, New York, The Guaranty Trust Company of New York, Messrs. Lee, Higginaon & Co. of Boston and the Continental and Commercial Trust and Savings Bank of Chicago (hereinafter called "the American Managers") acting as to the United Kingdom by Messrs. Morgan, Grenfell & Co., of 22 Old Broad Street in the City of London and as to France by Messrs. Morgan Harjes & Co. of Paris of the fourth part Whereas the Hongkong Bank the French Bank the Japanese Bank and the American Managers are acting for the purposes of thie agreement as the representatives of the British French Japanese and American groups respectively And whereas the British French Japanese and American groups were formed with the object of negotiating and carrying out Chinese loan business And whereas their respective Governments have undertaken to give their complete support to their respecti^'e national groups the parties hereto in all operations undertaken pursuant to the agreement hereinafter contained and have further undertaken that in the event of competition in the obtaining of any specific loan contract the collective support of the diplomatic representatives in Peking of the four Governments will be assured to the parties hereto for the purpose of obtaining such contract And whereas the said national groups are of the opinion that the interests of the Chinese people can in existing circumstances best be served by the co-operative action of the various banking groups repre- senting the investment interests of their respective countries in procuring for the Chinese Government the capital necessary for a programme of economic reconstruction and improved communications And whereas with these objects in view the respective national groups are prepared to participate on equal terms in such undertakings as may be calculated to assist China in the establishment of her great public utilities and to these ends to welcome the co-operation of Chinese capital Now it is hereby agreed by and between the parties hereto as follows : — 1. Each group reserves to itself the right of increasing or reducing the number of its own members but so that any member of a group dropping out shall remain bound by the restrictive provisions hereof and any member of a group coming in shall become subject to the restrictive provisions hereof and so that no group shall (without the consent of the others) be entitled to admit into its group a new member who is not of its nationality and domiciled in its market. The admission of any new gi'oup shall be determined by the parties hereto subject to the approval of their respective Governments. 2. This agreement relates to existing and future loan agreements which involve the issue for subscrip- tion by the public of loans to the Chinese Government or to Chinese Government Departments or to Provinces of China or to companies or corporations owned or controlled by or on behalf of the Chinese Government or any Chinese Provincial Government or to any party it the transaction in question is guaranteed by the Chinese Government or Chinese Provincial Government but does not relate to agree- ments for loans to be floated in China. Existing agreements relating to industrial undertakings upon which it can be shown that substantial progress has been made may be omitted from the scope of this agreement. " Same to the AJnerican Chargfc d' Affaires at London Nov. 3, 1921, and Tokyo Nov. 8, 1921. 35283—21 18 138 3. The existing agreements and any future loan agreements to which this agreement relates and any business arising out of such agreements respectively shall be dealt with by the said groups in accordance with the proi-isions of this agreement. 4. This agreement is made on the principle of complete equality in e\ery respect between the parties hereto and each of the parties hereto shall take an equal share in all operations and sign all contracts and shall bear an equal share of all charges in coimection with any business (except stamp duties and any charges of and in connection with the realization by the parties hereto in their respective markets of their shares in the operations) and the parties hereto shall conclude all contracts with equal rights and obliga- tions as between themselves and each party shall have the same rights privileges prerogatives advantages responsibilities and obligations of every sort and kind. Accordingly preliminary advances on account of or in connection with business to which this agreement relates shall be borne by each of the parties hereto in equal shares and each of the parties hereto shall be entitled to participate equally in the existing agreements and will offer to the other parties hereto an equal participation with itself in any future loan business falling within the scope of this agreement. Should one or more of the parties hereto decline a participation in the existing agreements or any of them or in any such future loan business as aforesaid the party or parties accepting a participation therein shall be free to undertake the same but shall issue on its or their markets only. 5. All contracts shall so far as possible be made so as not to impose joint liability on the parties hereto but each of the parties hereto shall severally liquidate its own engagements or liabilities. The parties hereto will so far as possible come to an imderstanding with regard to the realization of the operations but so that such realization in whatever manner this may take place shall be for the separate benefit of each of the parties hereto as regards their respective participations therein and so that each of the parties hereto shall be entitled to realize its participation in the operations only in its own market it being understood that the issues in the respective markets are to be made at substantial parity. 6. Any one or more of the parties hereto who shall have accepted its or their participation in any business hereunder shall be entitled by notice in writing to call upon the other or others of the parties hereto who propose to issue their own respective participations to issue for the account of the party or parties giving such notice or notices either all or one-half of the amount which may constitute the participa- tion of the party or parties giving such notice or notices and the party or parties so called upon shall issue the said amount or amounts (hereinafter called "the Residuary Participation") specified in such notice or notices upon and subject to the terms and conditions following, viz: — (1) Such notice or notices must be recei^'ed by the other or others of the parties hereto before the execution of the final agreement for the issiie of the loan or (in the case of an issue of a part only of the loan) of so much thereof as the parties hereto may from time to time agree to issue. (2) The party or parties to whom such notice or notices shall ha^•e been given shall be entitled to decide among themselves and -without reference to the party or parties giving such notice or notices as to which one or more of them shall issue the Residuary Participation but in default of any such decision they shall issue the same equally between them. (3) In issuing the Residuary Participation no distinction shall be made between the Residuary Participation and the amount or amounts issued on its or their own account by the party or parties issuing the Residuary Participation which shall in all respects be subject to the conditions of the respective Syndicates which may be formed for the purpose of effecting the issue. (4) Each of the parties issuing the Residuary Participation shall be entitled to decide for itself and without reference to the party or parties giving such notice or notices as to what expenses shall be incurred in relation to the issue of the total amount issued by such party. (5) The party or parties issuing the Residuary Participation shall be entitled between them to charge the party or parties giving such notice or notices \^dth a commission of not exceeding IJ.^ per cent, on the nominal amount of the Residuary Participation and also with a pro rata share of the total expenses which the issuing party or parties may in their sole discretion incur in relation to the whole issue and being in the proportion which the Residuary Participation bears to the total nominal amount of the issue. (6) The party or parties issuing the Residuary Participation shall not by virtue of this agreement incur any responsibility to subscribe for the Residuary Participation or to cause the same to be subscribed. (7) Each party issuing the Residuary Participation shall apply all subscriptions received by it pro rata between the Residuary Participation issued by it and the amount issued by such party on its own account. (8) Each of the parties issuing the Residuary Participation will apply for and use its best endeavors to obtain a quotation on its market for the total amount issued by it. (9) No issue of the Residuary Participation or any part thereof shall be made by the party or parties giving such notice or notices unless mutually agreed by the parties hereto. 7. No participation shall be given by any one of the parties hereto outside its own market. Any participation given in its own market by any one of the parties hereto shall be for its own account only or in the event of the issue including any of the Residuary Participation for the accounts pro rata of the issuing Bank and the party or parties giving such notice or notices as aforesaid and in gi^dng any such participation the party giving the same shall use its best endeavors to secure that no part of such participa- tion shall be transferred to parties outside the market of the party giving the same. Any other participa- tion shall be given only with the consent of all parties hereto and shall be borne in equal shares by the parties hereto. 8. This agreement shall remain in force tor the period of five vears from the date hereof provided nevertheless that a majority of the parties hereto may by twelve months' previous notice in writing addressed to the other parties hereto determine this agreement at any time. 139 V i°.r'*T^ whereof the duly authorized representatives of the respective parties hereto have set their hands the day and year first above written. For the Hongkong and Shanghai Banking Corporation. C. S. Addis, For the Banque de I'Indo Chine. ^" ^'^^^°^ ^' ^"^^^ ''''""P- Th. de la Chaume, For the Yokohama Specie Bank, Ltd. ^"^ ^'^"^^"■^ "*' ^'^"^ ^'"""P- K. Takeuchi, For and on behalf of the American Group. ^"^ ^'''"'^ "^ ^^' ^"P"''''' ^'°"P- J. P. Morgan & Co. KUHN, LOEB & Co. The National City Bank of New York, By J. A. Stillman, President. The Guaranty Trust Company of New York, By J. R. Swan, Vice President. Continental & Commercial Trust & Savings Bank, Chicago, By John Jay Abbott, Vice President. Chase National Bank, New York City, By A. H. WiQGiN, Chairman. Lee, Higginson & Co. The China Consortium. Minutes of a meeting held in the executive committee room of the New York Chamber of Commerce on October 11, 1920. Present: Sir Charles Addis, Mr. S. F. Mayers, Representing the British group. Monsieur R. Thion de la Chaume, Monsieur Georges Picot, Representing the French group. Mr. Kimpei Takeuchi, Mr. Reitaro Iohinomiya, Representing the Japanese group. Mr. Thomas W. Lamont, Mr. Mortimer L. Schiff, Mr. Charles H. Sabin, Mr. Albert H. Wiggin, Mr. Frederic W. Allen, Mr. John Jay Abbott, Representing the American group. In attendance: Mr. R. C. Witt, Mr. F. W. Stevens, Monsieur Henri Mazot, Mr. Jeremiah Smith, Jr. Mr. C. F. Whigham, Mr. A. M. Anderson, Mr. J. RiDGELY Carter, Mr. Robert I. Barr, Mr. Burnett Walker, Mr. L. L. Strauss. I. Chairman: Upon the proposal of Sir Charles Addis it was unanimously agreed that Mr. Thomas W. Lamont take the Chair. II. Secretary: Mr. W. E. Leveson and Mr. J. Ross Tilford were appointed joint secretaries to the meeting. III. Minutes of the Paris meetings: The minutes of the Paris meetings of May 11 and 12, 1919, were confirmed, subject to the following three amendments: — 1. Government support. — The words in the introductory paragraph "and are entitled to the exclusive diplomatic support of their respective Governments" were deleted and the following substituted: "And whereas their respective Governments have undertaken to give their complete support to their respective national groups the parties hereto in all operations undertaken pursuant to the agreement hereinafter contained and have further undertaken that in the event of competition in the obtaining of any specific loan contract the collective support of the diplomatic representatives in Peking of the fourGovernmentswillbeassured to the parties hereto for the purpose of obtaining such contract" * * » 2. Chinese Government Guarantee.— The words "or to companies having Chinese Government or Chinese Provincial Government guarantees" were deleted and the following substituted: "or to com- panies or corporations owned or controlled by or on behalf of the Chinese Government or any Chinese Provincial Government or to any party if the transaction in question is guaranteed by the Chinese Government or Chinese Provincial Government." 140 3. Preamble. — The following addition to the recitals to the agreement was adopted: "And whereas the said national groups are of the opinion that the interests of the Chinese people can in existing circumstances best be served by the cooperative action of the various banking groups representing the investment interests of their respective countries in procuring for the Chinese Govern- ment the capital necessary tor a programme of economic reconstruction and improved communications "And whereas with these objects in view the respective national groups are prepared to participate on equal terms in such undertakings as may be calculated to assist China in the establishment of her great public utilities and to these ends to welcome the cooperation of Chinese capital." IV. Consortium agreement: It was resolved to print the agreement as initialed in May, 1919, with the foregoing three amendments in readiness tor signature on Wednesday, October 13. V. Belgian group: With reference to the application of a Belgian group for inclusion in the consortium it was resolved to welcome such inclusion subject to the approval of the respective Governments of the parties to the consortium. It was further resolved that the share offered to the Belgian group be one-ninth, the shares of each of the existing groups being in such event two-ninths. VI. Italian group: With reference to the Italian application for inclusion in the consortium, having regard to existing circumstances, it was resolved to postpone the matter for further consideration. VII. Chinese group: It was resolved to welcome the cooperation of a Chinese group forming a representative national unit and prepared to undertake the obligations involved, and that the Peking representatives of the consortium be instructed to convey the terms of this resolution to the Ministries of Finance and Com- mimications. VIII. Conditions of pooling: It was resolved that loan agreements when pooled shall be deemed to be assigned to the consortium during the life of the consortium, after which, should no action have been taken under them or in connection with them, they shall revert to the original concessionaires. For and on behalf of the British Group: C. S. Addis. For and on behalf of the French Group : Th. de la Chaume. For and on behalf of the Japanese Group : K. Takeuchi. For and on behalf of the American Group : Thomas W. Lamont. Minutes of an adjourned meeting held in the executive committee room of the New York Chamber of Commerce on October IS, 1920. Present: Sir Charles Addis, Mr. S. F. Mayers, Representing the British group. Monsieur R. Thion de la Chaume, Monsieur Georges Picot, Representing the French group. Mr. KiMPEi Takeuchi, Mr. Reitaeo Ichinomiya, Representing the Japanese group. Mr. Thomas W. Lamont, Mr. Mortimer L. Schifp, Mr. Charles E. Mitchell, Mr. Albert H. Wiggin, Mr. Frederic W. Allen, Mr. John Jay Abbott, Mr. Burnett Walker, Representing the American group. In attendance: Mr. R. C. Witt, Mr. F. W. Stevens, Monsieur Henri Mazot, Mr. Jeremiah Smith, jr. Mr. C. F. Whigham, Mr. Robert I. Barr' Mr. J. RiDGBLY Carter, Mr. L. L. Strauss. The minutes of the meeting of October 11 were read, confirmed and signed. IX. Currency reform: It was resolved that the Peking representatives be instructed to apply for a renewal of the currency loan agreement for a further six months from October 14, 1920. It was further resolved that the groups ask their respectiVe Governments to inquire of the Chinese S.Tr'°^ ^Mr ^ ^""'T.* ''*''.''*^°° °^ *^' """■"""^ ^'^°™ '1"«^^«"'°. particularly with reference to the proposed establishment of a mint at Shanghai. " v.c w 141 X. Existing agreements and options: The following agreements and options were offered for pooling by the groups concerned: By the British, French and American groups: Hukuang Railways Loan, 1911; second series and further loan. By the British, French and Japanese groups: Reorganization Loan, 1913, further loan. By the British and French groups: Currency Reform and Industrial Development Loan, 1911. By the British group: Pukou-Sinyang Railway Loan, 1913. Nanking-Hunan Railway Loan, 1914. By the Japanese group: Jehol-Taonan Railway Preliminary Agreement. Tsinan-Shunteh, Kaomi-Hsuchou Railway Preliminary Agreement. By the American group: Chinchowfu-Aigun Railroad, 1910. Hengchowfu-Nanning Railway, Fengcheng-Ninghsia Railway, Ninghsia-Lanchowfu Railway, ^1916. Chungchow-Lu Kwei Railway, Hangchow-Wenchow Railway, Grand Canal improvement contract, 1917. Continental and Commercial Trust & Savings Bank loan, 1919. Pacific Development Corporation loan, 1919. The following reservations were noted: The American group stated that the negotiations for pooling the 1916 railway agreements and the Grand Canal improvement contract were stUl incomplete but that of their successful issue there was little doubt. The Japanese group stated that technical difficulties still required arrangement in regard to the Shantung Railways. The British group reserved the rights of the concessionaires under Article 22 of the Pukou-Sinyang Railway loan to the commutation of net profits. XI . Land tax: Referring to the minutes of the Inter-Group Conference of January 30, 1917, on the subject of land tax, it was resolved that the consortium note this source of security for consideration later should occasion arise. XII. Silver loan: It was resolved that the consortium instruct its banking representatives to report as to the prospects of issuing a Chinese silver loan in China to be treated, notwithstanding Article 2 of the draft agreement approved in Paris on May 12, 1919, as within the scope of the consortium agreement. For and on behalf of the British Group: C. S. Addis. For and on behalf of the French Group: Th. De la Chaume. For and on behalf of the Japanese Group: K. Takeuchi. For and on behalf of the American Group: Thomas W. Lamont. Minutes of an adjourned meeting, held in the executive committee room of the New York Chamber of Commerce on October 15, 1920. Present: Sir Charles Addis, Mr. S. F. Mayers, Representing the British group. Monsieur R. Thion de la Chaume, Monsieur Georges Picot, Representing the French group. Mr. KiMPEi Takeuchi, Mr. Rbitaro Ichinomiya, Representing the Japanese group. Mr. Thomas W. Lamont, Mr. Mortimer L. Schiff, Mr. Charles E. Mitchell, Mr. Joseph R. Swan, Mr. Robert I. Bare, Mr. Frederic W. Allen, Mr. John Jay Abbott, Representing the American group. Mr. F. W. Stevens, Mr. A. M. Anderson, Mr. Burnett Walker, Mr. L. L, Strauss. 142 In attendance: Mr. R. C. Witt, Monsieur- Henri Mazot, Mr. C. F. Whigham, Mr. J. RiDGELY Carter, Mr. Jeremiah Smith, Jr, The minutes of the meeting of October 13 were read, confirmed and signed. XIII. Conditions of pooling: ,■ v. u Resolrci That in tabling and offering for pooling the agreements or options of which they have furnished particulars, the groups do so on the understanding that the other parties flill also offer for pooUng their contribution in the form of agreements or options, and until such contribution is forthcoming the consortium shall have power to determine at a meeting of the consortium whether such group shall be entitled to share in any benefits arising out of the agreements or options pooled by the other groups. XIV. Consortium agreement: The agreement submitted on October 11 was signed by the delegates. XV. Pacific Development Corporation loan: The subcommittee upon t)ie subject of the Pacific Development Corporation loan and contract reported unanimously that in their judgment the wine and tobacco revenue is capable, under effective foreign supervision, of furnishing a satisfactory security for a substantial loan. The subcommittee offered for consideration by the consortium the following resolutions: "Resolved, That tiie American group be requested, if it deems well, to take over for its own account, for the ultimate benefit of the consortium, the $5,500,000 loan heretofore made by the Pacific Develop- ment Corporation, and with sucli loan to take over all such rights and privileges with reference to the wine and tobacco revenue as may properly be assigned with it. "Eesolued further, That it is the sense of the consortium that the Pacific Development Corporation contract in its present form does not furnish a practicable working basis for further loans; that an entirely fresh contract should be negotiated by the representatives in Peking; and that the Chinese Go\'ernment should be notified of these views of the consortium." Tlie foregoing resolutions were adopted. XVI. Hukuanj railways loan, 1911, German issue: It was resolved without questioning tliat the course liitherto pursued by the (Chinese Government has been followed in good faith, that it is now manifest that the successful flotation of further Chinese loans in foreign markets, whicli are necessary if the work of the consortium for the benefit of China is to be carried out, imperativel)' requires a public announcement by the Chinese Government with reference to the German issue of bonds forming part of the Hukuang loan, to the general effect that after considera- tion of all the facts and the unprecedented conditions involved, and resolving all doubts in favor of the holders of such bonds, the Chinese Government has determined to recognize the entire issue without distinction. XVII. Railway policy of the consortium: It was resolved that tlie following memorandum for the guidance of the representatives in Peking upon the subject of the railway policy of the consortium presented by the subcommittee appointed to consider tlie question be adopted. memorandum. The early resumption of railway construction in China is of first importance, and completion of the Hankow-Canton section of the Hukuang Railways should be the first aim. Provided that the Chinese Government will accept conditions satisfactory to the consortium in regard to tlie supervision of construction expenditure and of operation, to be embodied in a new loan agreement, the consortium will be prepared to undertake the issue of gold bonds, if market conditions permit, and to authorize their representative banks in China to issue in China, on behalf of the Chinese Government, silver bonds, of sufficient amount to meet the necessary expenditure for eighteen months' requirements, which are tentatively estimated at silver dollars 20 million (say G$15 million). Of this amount the consortium will be prepared, by the issue of gold bonds, to furnisli two-thirds, if the balance can be furnished by the issue of silver bonds in China. On this basis, and without precluding some increase in the amount named in case it is shown to be insufhcient, tlie new agreement should form a foundation for the various modifications which are requisite in giving effect to other railway loan agreements pooled by the groups constituting the consortium. It should be explained to the Ministry of Communications, after study of the question and at the discretion of the Peking representatives, that the desire of the consortium is to place its services at the disposal of the Chinese Government as an instrument to furnish capital and other means for railway construction, and that it cannot convince foreign markets of the desirability of Chinese investments unless it can satisfy them completely that the investments offered are duly safeguarded. The consortium ia fully prepared to leave to the judgment and responsibility of the Peking repre- sentatives the actual definition of tlie safeguards required. It should, however, be borne in mind that the ultimate unification of the Chinese Government railways is an object to be kept in view and that the consortium has recognized in principle the desirability of treating the problem of construction as an undivided whole and not sectionally. Further, it is the desire of the consortium to receive from their Peking representatives suggestions on the question of improving the existing system of purchasing ma- terials, and on the subject of purchase by open tender, as well as information upon the action already taken by the Chinese Government regarding the standardization of railway equipment. 143 In order to carry out the wish of the consortium to be of continuous practical assistance to the Chinese Government, the consortium would view with favor the admission of its representatives in Peking to the counsels of the Ministry of Communications by means of the formation by the Ministry of a standing committee of which the Peking representatives would form part and which would be charged with supervising the construction and operation of Chinese Government railways financed by the consortium. XVIII. Chinese Eastern Railway: It was resolved that the consortium will, if desired by their respective Governments, and if market conditions permit, consider an application for a loan to meet the financial requirements of the Chinese Eastern Railway, estimated at $10,000,000 gold, provided satisfactory conditions can be arranged as to security, as to the payment of the debts due from the Allied and Associated Powers, as to the Allied and Associated Powers undertaking that there shall be no military interference with the traffic of the railway, and as to the position of the representatives of the consortium Powers on the technical board (or other administrative body) being regularized and stabilized. The Japanese representatives stated that they were not in a position to express their views on this question, for the reason that the Japanese group were not authorized by their Government to take up tlie matter, pending negotiations between the Governments concerned, and further that the Japanese group considered the matter as technically lying outside the scope of the consortium agreement. XIX. Central agency and clearing house: It was resolved that, in lieu of the provisions of the minutes of July 7, 1913, and of the arrangement of October 2, 1913, each of the groups shall pay to the Hongkong & Shanghai Banking Corporation an inclusive annual fee of £750, payable half yearly, to defray the cost of tlie special work entailed in acting as central agency to the consortium and including its services for acting as clearing house. XX. Approval of Governments: It was agreed that all resolutions taken by the delegates as recorded in the minutes of the consortium are subject to the approval of the Governments of the respective groups. For and on behalf of the British Group: C. S. Addis. For and on behalf of the French Group: Th. de la Ohaumb. For and on behalf of the Japanese Group: K. Takbuchi. For and on behalf of the American Group: Thomas W. Lamont. File No. 893.51/3026. The Acting Secretary of State to Charge Bell.^^ [Telegram.l Department of State. Washington, November 2, 1920 — 6 p. m. 405. With reference to Department's telegram of today^ concerning approval of consortium, it is desired that you advise the Government to which you are accred- ited that this Government for its part contemplates making on November 8th a public announcement concerning the consortium in the following sense : The Government of the United States is gratified to learn that the agi-eement tentatively adopted in May, 1919, at Paris by representatives of the investing public of America, Great Britain, France and Japan, covering the formation of the new consortium for the assistance of China, has now been confirmed by the signature of the four banking groups. This international association thus coming into existence under the name of the consortium has been organized with the full approval of the four Governments, and in the belief by them that the interests of the Chinese people can best be served by the cooperative action of their several banking communities to the end that the Chinese Government may be able to procure (through loan agreements involving the issue for subscription by the public of loans to the Chinese Government or other agencies involving a guarantee by the CMnese Government or Chinese Provincial Government) the capital required, particularly for the construction of improved means of communica- tion and transportation. It is thus hoped to assist the Chinese people in their efforts toward a greater unity and stability, and offer to individual enterprise of all nationalities equal opportunity and a wider field of activity in the economic development of China. It is further believed that through such coopera- tive action a greater degree of understanding and harmony with reference to Far Eastern matters may be reached among all five of the nations involved. You will state that we submit the text of this announcement in the hope that the other interested Governments will deem it fitting to issue simultaneously and in similar terms such a statement concerning the consummation of the consortmm organization. j^^^^^ 1. Same to the American Ambassadors at London and Paris. ' Not printed. 144 File No. 893.51/3020. / r. n n The Secretary of State to Charge BeU}" [Telegram.] Department of state, Washington, November 3, 1920—2 p. m. 408. The consortium meeting held at New York October 11th to 15th adopted the following resolution : With reference to the application of a Belgian group for inclusion in the consortium it was resolved to welcome such inclusion subject to the approval of the respective Governments of the parties to the consortium. It is desired that you inform the Government to which you are accredited that this Government approves of the admission of a Belgian bankers group to the con- sortium, and suggests that the Belgian Government be informed by the interested Powers that upon its approval and acceptance of the consortium agreement and resolutions a Belgian group will be welcomed into the consortium. File No. 893.51/3011. _ ^ ^, ^ r. 77 ,0 The Secretary of State to Charge BelW [Telegram.] Department of State, Washington, November 3, 1920—3 p. m. 409. It is desired that you recall to the attention of the Government to which you are accredited that the resolutions adopted by the consortium meeting at New York provided that " all resolutions taken by the delegates as recorded in the minutes of the consortium are subject to the approval of the Governments of the respective groups." This Government has for its part conveyed to the American group the formal approval thus contemplated and hopes that the Government to which you are accredited has placed its approval similarly on record. Colby. File No. 893.51/3034. The Belgian Charge d' Affaires to the Secretary of State. Belgian Legation, Washington, November 4, 1920. My dear Mr. Secretary: As you are aware, the delegates of the American, British, French, and Japanese groups of the Chinese consortium, who have met in New York, voted, on October 11, 1920, to approve the admission of a Belgian bank- ing group in the Chinese consortium, subject to the approval of the respective Gov- ernments of the parties concerned. I have been instructed by the Belgian Minister for Foreign Affairs to approach the American Government with a view to obtaining its approval of the aforesaid vote. The Belgian Government would be very grateful if the Government of the United States would be so kind as to grant its approval to the inclusion of the Bel- gian banking group in the Chinese consortium. I am [etc.] C. Symon. File No. 893.51/3048. Charge Bell to the Secretary of State. [Telegram.] American Embassy, Tolcyo, November 9, 1920 — 1 p. m. 579. My 571, November 5, 1 p. m.^ and your 408, November 3, 2 p. m.^ I have received from the Minister for Foreign Affairs the following note dated November, 1920: I have the honor to acknowledge the receipt of your note number 480 of the fifth instant in which you are good enough to inform me that in view of the explicit resolution on the inclusion of a Belgian group " Same to the American Ambassadors at Loudon and Paris and the American Minister at Peking. ' Not printed. 145 into the new consortium -which was adopted at the meeting of the Chines loan consortium, recently held in New York, the Government of the United States approves of such inclusion. The suggestion was made at the same time that the other interested Governments would take steps to acquaint the Belgian Government that, upon its approval and acceptance of the consortium agreement and resolution, the Belgian group would be welcomed into the consortium. The question of admitting the Belgian group to the consortium being one in regard to which the unanimous agreement has already been reached among the Governments concerned the Japanese Govern- ment have no objection whatever to the admission [of] the Belgian group to the consortium. In fact the Belgian Charg6 d' Affaires in Tokyo recently approached me on this subject in accordance with instruc- tions from his Government. The Japanese Government deeming it advisable that a communication to be made on this subject by the Governments concerned to the Belgian Government should be couched in similar sense, gave telegraphic instructions to the Japanese Ambassador in Washington charging him to propose to your Government that, in the event of their views above expressed being shared by your Government, it would use its good offices in making necessary arrangement among the other interested Governments in the matter at issue sending an identic communication to the Belgian Government on this subject. Bell. File No. 893.51/3048. The Secretary of State to Ambassador Davis. [Telegram.] Department of State, Washington, November 12, 1920 — 6 p. m. 1146. Referring to Department's 1115, November 3, two p. m.,^' Japanese Government has suggested advisability that communication couched in identic terms be made by interested Governments announcing to the Belgian Government their approval of the admission of a Belgian group. The Department proposes to com- municate its approval to the Belgian Embassy here in a note as follows : I have the honor to acknowledge the receipt of your note of November 4, 1920, referring to the fact that the representatives of the American, British, French and Japanese groups had voted, at the con- sortium meeting held at New York last month, to approve the admission of a Belgian banking group in the Chinese consortium, subject to the approval of the respective Governments of the parties concerned. In reply I have the honor to inform you that this Government approves of the admission to the consortium of a Belgian banking group on the same terms as those accepted and approved by the American, British, French and Japanese banking groups. It is desired that m laying this note before the Government to which you are accredited you express the hope of this Government that it will make identic com- munication to the Belgian Government. Repeat as nimiber 1634 to Paris referring to Department's 1600.^ Colby. FUe No. 893.51/3053. ^ ti n . .x cy ., V P4 * Charge Bell to the Secretary oj State. [Telegram.] American Embassy, ToTcyo, November 13, 1920—9 a. m. 588. Your 409 November 3, 3 p. m. I have received following note from Mmister for Foreign Affairs dated November 12, 1920: I have the honor to acknowledge your note of the 5th instant in whichyou were good enough to acquaint me that consequent upon the decision taken at the recent meeting of the Chinese loan con- Bortium held in New York that all resolutions adopted by the delegates as recorded in the minutes of the consortium are subject to the approval of the Governments of the respective groups the Government of the United States has conveyed to the American group its formal approval thus contemplated I am happy to be able to inform you in reply that the Japanese Government will ^\.o^^ei^^^ formal a^roval shortly to the Japanese bankers group of the resolutions above alluded to. It is however Se poLted out in jlpan that such approval must be taken subject to the one or two reservations made by the Japanese delegates as recorded in the minutes of the consortium. ^^^^ > Not printed. 35283—21 19 146 File No. 893.51/3060. Ambassador Davis to the Secretary of State. [Telegram.] American Embassy, London, November 15, 1920 — 8 p. m. 1615. British Government informally states that if all other Governments agree regarding public announcement of consortium agreement it will likewise concur, but meanwhile makes following observations on general question. 1. Official notification of resolutions have now been received from British group which will forthwith be approved specifically save as to resolution sixteen, on which pomt however it is not desired to delay matters. It is considered sufladent if Chinese Government choose of its own free will to act as suggested in the resolution. 2. Belgian Ambassador will be notified of approval of the entry of a Belgian group, his attention being called however to reported conclusion of Belgian-Dutch loan agreement for sixty million francs to the Chinese Government and the bearing this has on resolution seventeen. 3. Communication to the approval of the consortium before the public announce- ment would appear to be the most logical procedure. The gist of the resolutions have been telegraphed to British Charge d'Affaires Peking who is instructed to collaborate with American Minister. I have just received from Embassy Paris and British Foreign OflBce news of French concurrence regarding pubhcation on 20th instant. Davis. rUeN'o. 891.51/3060. The Secretary of State to Ambassador Davis. [Telegram— E.\tract.] Department of State, Washington, November 16, 1920 — 5 p. m. 1154. Your 1615, November 15, 8 p. m. The four Governments having approved announcement Department will issue statement to press November 20th. With reference item 3 of your telegram instructions are being sent to American Minister at Peking to communicate this Government's approval of the consortium agreement and resolutions to the Chinese Government and to that end to collaborate with British Legation. Colby. File No. 893.51/3060. The Secretary of State to Charge Bell.'^ [Telegram.] Department of State. Washington, November 16, 1920 — 5 p. m. 426. The four interested Governments having approved, the Department will give statement to press concerning consortium on November 20th. British Gov- ernment suggests that Chinese Government be notified of four Governments' approval of consortium before that date, vimerican Minister Peking is therefore being instructed to collaborate with his British, French and Japanese colleagues in com- mimicating approval. It is desired that you request the Government to which you are accredited to instruct its Minister at Peking to co-operate in the matter. COLBY'. " Same to American Ambassador at Paris. 147 rile No. 893.51/3060. The Secretary of State to Minister Crane. [Telegram.] Department of State. Washington, November 16, 1920 — 7 f, m. 336. Embassy at Tokyo will communicate to you text of a public announce- ment concerning the consortium which Department will give to the press November 20th. Before that date it is desirable that you in collaboration with your British, French and Japanese colleagues communicate to the Chinese Government the approval of the four Governments of the consortium. Department understands British Legation has been instructed to consult with you in this matter. Colby. File No. 893.51./30«5. Ambassador Davis to the Secretary of State. ITelegram.l American Embassy, London, November 17, 1920 — 2 p. m. 1627. Your 1154, November 16, 5 p. m. Foreign Office suggest that second paragraph of proposed note to Belgian diplomatic mission contained in your 1146 be substituted by paragraph reading as follows: At the same time I note that under the terms of a later resolution the groups have adopted the principle that no group which has failed to make any individual contribution to the agreements now pooled with the consortium shall be entitled to share in the individual contribution of the others. 1 think it my duty in informing your excellency that His Majesty's Government readily give their approval to the entry of the Belgian group into the consortium to bring this provision to notice of the Belgian Government in connection with a report which recently reached me and the accuracy of which your excellency can doubtless check of a recently concluded loan agreement between a Belgian-Dutch syndicate and the Chinese Government for, it is said, sixty million francs. Should the report be correct the consortium would no doubt look to Belgian group to bring their share of this loan to the general pool, Paris informed together with my 1615 and your 1154. Davis. File No. 893.51/3067. Ambassador Wallace to the Secretary of State. [Telegram.] American Embassy, Paris, November 18, 1920 — -7 p. m. 1934. Urgent. Department's 1641, November 16, 5 p. m. In accordance with instructions thereio contained I requested French Government to instruct its Minister at Peking to cooperate in this matter and Foreign Office replied that a telegram would be sent this evening to the Minister at Peking instructing him to collaborate with his American, British and Japanese colleagues in communicating approval of consortium to Chinese Government. Having today received from London its telegram to the Department, 1615, November 15th, also Department's 1154, November 16th, I immediately inquired if Foreign Office had sent proposed identic coromunication to Belgian Government. I was informed that French note to Belgian Government agreeing to inclusion of Belgian group in consortium had already been sent to Belgian Ambassador. Kepeated to London. Wallace. File No. 893..)l/3i)7 148 Charge Bell to the Secretary of State. [Telegram.] American Embassy, Tolcyo, November 21, 1920—10 a. m. 601. Foreign Office last evening issued public announcement in Japanese and English. English version is identical with statement contained in your November 2, 6 p. m.^ while Japanese texts is an accurate translation. Kepeated to American Minister Peking. File No. 893.51/.3065. The Secretary of State to Ambassador Davis. [Telegram.] Department of otate, Washington, November "23, 1920— I^ p. m. 1174. Your 1627, November 17, 2 p. m. You may inform Foreign Office that the Department believes that it would be well to make the statement relative to the pooling of options general rather than specific and that it would be desirable to leave such matters to the determination of the banking groups. In view of this and to avoid a possible ambiguity in the last paragraph of the proposed note to Belgian Government quoted in Department's 1146, November 12, 6 p. m., it is suggested that the following be substituted for the second paragraph: In reply I have the honor to inform you that this Government approves of the admission to the con- sortium of a Belgian banking group on the terms accepted and approved by the American, British, and Japanese banking groups. In appro\'ing the application of Belgium to enter the consortium it is assumed that the Belgian banking group understands it is obligated to turn in or to see that there is turned in such concessions or obligations as may properly come within the pur\aew of the consortium. It is hoped that the British Government will concur in the views of this Govern- ment as above set forth. Colby. File No. 893..51/30Sr., The American Grouf to the Secretary oj State. New York, November 24, 1920. Sir: Confirming our telephone conversation of yesterday on the suggestion from the British Foreign Office amending the note which the Department proposes sending to Belgium announcing its approval of the entry of a Belgian banking group into the consortium, we would state that while we would not have thought of making as a condition the point which the British Foreign Office raises, we nevertheless think it worth considering. The Department will recall the situation which arose during the October meeting because of the failure of the French group to turn in any options, and it would seem to us well to avoid the same difficulty in connection with Belgium. We therefore suggest for the consideration of the Department that the second paragraph of its proposed note to Belgium read somewhat as follows: In approving the application of Belgium to entry into the consortium, etc., the Department is pro- ceeding on the assumption that the Belgian banking group understands it is obligated to turn in, or to see that there is turned in, such concessions or options as may properly fall within the pur\T.ew of the consortium. In our judgment the phrase having to do with "substantial progress" should not be construed in a way to exclude such operations, but rather simply as a per- missive clause under which no group is absolutely compelled to include such opera- tions; but if we can get them included, as we ought to be able to do in the case of Belgium, so much the better. We quite approve the other suggestion that in your note to Belgium you express your approval of the entry of the Belgian banldng group upon terms accepted by the other groups rather than upon the same terms as the other groups. Respectfully, J. P. Morgan & Co. For the American Group. > Not printed 149 Tile No. 893.51/3089. Ambassador Davis to the Secretary of State. [Telegram.] American Embassy, London, Novemher 27, 1920 — 1 p. m. 1652. Your 1174, November 22, 4 p. m. regarding Belgian admission to con- sortium. As nothing had been heard from the French and as Japanese Embassy here preferred to limit note to the Belgians to a simple approval, British Foreign Office decided to adopt wording of the suggested identic note communicated in your 1146, November 12, 6 p. m., with the addition of the statement that the terms of participation will be ascertained by the Belgian group when discussing their entry with the other groups. I believe British Government made this communication to Belgian Embassy on or about 25th instant. Paris informed. Davis. rile No. 893.51/3089. The Secretary of State to Gharge BeU. [Telegram.] Department op State, Washington, Novemher SO, 1920 — 6 f. m. 437. In view of possible ambiguity in the last paragraph of proposed note to Belgian Government quoted in Department's 523 November 12, 6 p. m.,^^ Depart- ment proposes that the following be substituted for the second paragraph: In reply I have the honor to inform you that this Government approves of the admission to the con- sortium of a Belgian banking group on the terms accepted and approved by the American, British, French and Japanese banking groups. In approving the application of Belgium to enter the consortium it is assumed that the Belgian banking group understands it is obligated to turn in or to see that there is turned in such concessions or obligations as may properly come within the purview of the consortium. The Department will address a note to the Belgian Embassy here using this text. You may inform Foreign Office that it has been shown to Shidehara. You may also state that this Government understands that the French Government communicated its approval to the Belgian representative at Paris prior to November 18, using the text given in Department's 523 referred to above, while the British Government is understood to have communicated its approval to the Belgian repre- sentative in London on or about November 25, using text of Department's 523 with the addition of the statement that the terms of participation will be ascertained by the Belgian group when discussing their entry with the other groups. Colby. rUe No. 893.51/3034. The Acting Secretary of State to the Belgian Charge d' Affaires. Department of State, Washington, December 13, 1920. Sir: I have the honor to acknowledge the receipt of your note of November 4, 1920, referring to the fact that the representatives of the American, British, French and Japanese groups had voted, at the consortium meeting held at New York last month, to approve the admission of a Belgian banking group in the Chinese con- sortium, subject to the approval of the respective Governments of the parties concerned. In reply I have the honor to inform you that this Government approves of the admission to the consortium of a Belgian banking group on the terms accepted and approved by the American, British, French and Japanese banking groups. In approving the application of Belgium to enter the consortium it is assumed that the Belgian banking group understands it is obligated to turn in or to see that there are turned in such concessions or obligations as may properly come within the purview of the consortium. Accept, [etc.] Norman H. Davis. " Not printed. Identic with telegram No. 1146, November 12, 6 p. m., to the American Ambassador at London. 150 File No. 893.51/3279. Minister Crane to the Secretary of State. No. 734.] American Legation, Pehing, January 19, 1921. Sir: I have the honor to refer to the Legation's telegram No. 9, of January 6th, 7 p. m.,^ and to forward herewith copy of a note addressed to the Minister of Foreign Affairs dated January 13th, 1921, and signed by the representatives of America, Great Britain, France and Japan, signifying full approval of the four interested Governments to the new consortium. I have, etc. ^ n /-i Charles R. Crane. llnclosure.l The nepresentatives of Four Powers to the Minister of Foreign Affairs. January IS, 19^1. iloNsiEUR LE Ministre: The undersigned representatives of America, Great Britain, France and Japan have the honour to inform your excellency that an agreement on the lines tentatively adopted m May, 1919, at Paris by the representatives of the investing public of the countries above mentioned, covering the formation of a new consortium for the assistance of China by providing the capital required for constructive works, has now been confirmed at New York by the signatures of duly accredited repre- sentetives of the four banking groups, and that this international association thus coming into existence under the name of the consortium has received the full approval of the four Governments interested. The text of the consortium agreement signed on October 15, 1920, at the recent conference in New York, is being communicated by the group banks' representatives to the Ministries of Finance and Communications. We avail [etc.]. ,, t> r^ '■ Charles R. Crane B. Alston ilAUGRAS Y. Obata File No. 893.51/3329. -, „ j- «_, _■ The American Group to the Secretary of State. New York, March 10, 1921. Sir: In view of the recent change in the administration at Washington, we beg to request that you will, at your convenience, inform us as to whether the poUcy of the Department, up to the present time, in encouraging American interests in the assistance of China through the operations of the international consortium, is in accord with your own views and therefore receives your approval. The ofhcials of the Department will undoubtedly inform you from the record that the principle involved in cooperative effort for the assistance of China was approved by the Department under Secretary of State Knox. Secretary Bryan, however, upon taking ofSce adopted a different point of view, and the American group thereupon withdrew from the then consortium. In June 1918 the Department reconsidered the matter and suggested the formation of a new American banking group made up upon a broader basis than before. Such a banking group was organized, now comprising between thirty and forty members including practically all of the leading institutions and banking firms showing any interest in the Far Eastern situation. (A list of these members appears on this letterhead.^) Upon the tentative formation of the American group, the Department requested the Governments of Great Britain, France and Japan to encourage the organization of similar groups in the countries mentioned in order to form an international consortium or partnership. The Governments in question having approved in general the principle set forth in the Department's memorandum, a meeting for the purpose of organizing the consortium was convened at Paris in May 1919. The tentative organization effected at that time was not then completed owing to the insistence of the Japanese Government that the Japanese banking group make certain reservations as to the exclusion from the operations of the con- sortium of certain portions of Mongolia and Manchuria. > Not printed. 151 The Japanese Government still maintaining its attitude on this point, Mr. Lament, representing the American banking group and in effect the British and French groups, and with the approval of the Department, last year visited Japan and China. There in cooperation with the Department's representatives a formula was arranged under which Japan withdrew the reservations in question. Thereupon a meeting of the various national group representatives was held in New York last October, resulting in the final formation of the consortium, following which a state- ment of its scope and purposes was issued with the approval of the Department, and of the British, French and Japanese Foreign Office. The Department, in conjunction with the British, French and Japanese Foreign Offices, has just formally notified the Chinese Government of the formation of the consortium, and has furnished to it copies of the consortium agreement. The consortium has as yet received no formal application for a loan or loans from the Chinese Government, and in the present state of the financial markets of the world hopes that China's needs will not call for any early loan. In closing, we should make clear the fact that the operations of the consortium are in no way designed to interfere with the private initiative of our nationals or those of any other country. On the contrary, the consortium does not plan to undertake any mercantile, industrial, or banking projects. The plan is simply to help China in the establishment of her great public utilities such as the building of her railways, canals, etc., thereby assisting in stabilizing China economically and financially, and making that field a safer one for the initiative of our citizens in private enterprises in commerce, industry, etc. If there are any points in the foregoing brief summary that are not perfectly clear to you, or if at any time you desire to confer with a representative of the American group, Mr. Lamont will be glad to proceed to Washington. Respectfully, J. P- Morgan & Co. For the American Group. File No. 893.51/3329. „ ,„ t a ■ ^ The Secretary of State to the American Group. Department of State, Washington, March 23, 1921. Gentlemen: I have received the letter of March 10, 1921, in which you request that I advise you whether the policy of the Department of State, in encouraging American interests in the assistance of China through the operations of the inter- nation consortium, is in accord with my views and therefore receives my approval; and in which you state that the operations of the consortium are in no way designed to interfere with the private initiative of our nationals or those of any other country that it does not propose to undertake any mercantile, industrial or banking projects, but plans only to help China in the establishment of her great public utilities such as the building of her railways, canals, etcetera, thereby assisting in stabilizing China economicaUy and financially, and making that field a safer one for the initiative of our citizens in private enterprises in commerce, industry, etcetera. In reply I am happy to advise you that the principle of this cooperative effort for the assistance of China has the approval of this Government, which is hopeful that the consortium constituted for this purpose will be effective m assistmg the Chinese people in their efforts towards a greater unity and stability, and in affording to individual enterprises of all nationahties equahty of commercial and mdustrial opportunity and a wider field of activity in the economic development of Chma. I am, [etc.] Charles E. Hughes. O