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American financiers, it might become necessary to take possession of the revenues pledged as security for the loans made and this, as the President points out, might require 'forcible interference in the financial and even the political affairs of China.'

In response to Mr. William's request for instructions, Secretary of State Bryan replied on September 11, 1913, that the Department "is extremely interested in promoting, in every proper way, the legitimate enterprises of American citizens in China and in developing to the fullest extent the commercial relations between the two countries." "This Government," he said, "expects that American enterprise should have opportunity everywhere abroad to compete for contractual favors on the same footing as any foreign competitors;" but, he added, "this Government is not the endorser of the American competitor, and is not an accountable party to the undertaking. ... If wrong be done toward an American citizen in his business relations with a foreign government, this government stands ready to use all proper effort toward securing just treatment for its citizens. This rule applies as well to financial contracts as to industrial engagements." The Secretary reaffirmed the Department's instructions of October 21, 1905, above referred to, and referred the legation to Mr. Olney's instructions of December 19,' 1896, above quoted, as a clear statement of the general principle which the Department considered still generally applicable.

Although the President of China thanked President Wilson for withdrawing his support from the Six-Power Loan, this was not an indication that the Chinese Government did not desire the investment of American capital. "The withdrawal of the United States left China without a disinterested friend to help her in her dealings with other powers," says M. Joshua Bau, a recent Chinese writer. "With the absence of the United States there was no moral leader among the Powers who could uphold the doctrine of equal opportunity of trade and the integrity of China. As a result, the other Powers fell into their old practice of international struggle for concessions."20

On October 21, 1913, the American Charge reported that he had been approached by the Premier and three other cabinet ministers on the subis Foreign Relations, 1913, p. 183.

There is another element in the foreign loan situation in China which, though disagreeable to mention, has to be taken into consideration. In a despatch of Sept. 25, 1913, the American Chargé at Peking referred to the extravagance and corruption of the government. "The opinion generally expressed by foreigners in Peking," he said, "is that there is far more corruption under the Republic than under the Manchu regime. There are many more officials to be satisfied now, and the commissions upon contracts that are approved are necessarily much larger. In one instance it is credibly stated to have been thirty-five per cent." (Foreign Relations, 1913, p. 188.)

2»The Foreign Relations of China, by M. Joshua Bau, pp. 67 and 171. (Revell Co., New York.)

ject of a loan by American capitalists to the Chinese Central Government. "The Premier regretted," he said, "that the American bankers had withdrawn from participation in the currency loan, that the currency of the country was in a very bad condition, and that its reform was urgently needed. He said the Chinese Government would be glad if the American Government would give such assurances to American capitalists as would induce them to resume the lending of money to China." The American Charge expressed the opinion that "undoubtedly, the Chinese would like competition between American financiers and those of the quintuple group, since the latter might in such case be induced to moderate their demands."21

No official notice, however, appears to have been given to these appeals, and in 1916, when a Chicago banking house advanced to China $5,000,000 for administrative purposes and sent a copy of the contract to the State Department for a statement of its policy respecting such loans, Mr. Lansing simply replied "that the Department of State is always gratified to see the Republic of China receive financial assistance from the citizens of the United States, and that it is the policy of the Department, now as in the past, to give all proper diplomatic support and protection to the legitimate enterprises abroad of American citizens."22

The entry of the United States into the war, however, produced a radical change in the attitude of the State Department upon the subject. Feeling that proper means should be placed at the disposal of China to equip herself so as to be of more assistance in the war, says a statement issued by the Department on July 30, 1918, "a number of American bankers, who had been interested in the past in making loans to China and who had had experience in the Orient, were called to Washington and asked to become interested in the matter. The bankers responded very promptly and an agreement has been reached between them and the Department of State which has the following salient features:

"First, the formation of a group of American bankers to make a loan or loans and to consist of representatives from different parts of the country.

"Second, an assurance on the part of the bankers that they will cooperate with the Government and follow the policies outlined by the Department of State.

"Third, submission of the names of the banks who will compose the group for approval by the Department of State.

"Fourth, submission of the terms and conditions of any loan or loans for approval by the Department of State.

"Fifth, assurances that, if the terms and conditions of the loan are accepted by this Government and by the Government to which the loan is made, in order to encourage and facilitate the free intercourse between

21 Foreign Relations, 1913, p. 191.

22 New York Times, Nov. 17, 1916.

American citizens and foreign States which is mutually advantageous, the Government will be willing to aid in every way possible 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."

The Department stated that negotiations were in progress with the governments of Great Britain, Japan and France to secure their cooperation and the participation by bankers of their countries in equal parts in any loan which may be made.28

In the correspondence, which has now been published, leading up to the agreement between the State Department and the bankers,24 it appears that the latter informed Secretary Lansing that it would 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 change in our international relations, both diplomatic and commercial, brought about by the war," and they expressed the conviction that no Chinese loan could be placed in this country "unless the Government would be willing at the time of issue to make it clear to the public that the loan is made at the suggestion of the Government." Mr. Lansing replied, on July 9, 1918, that "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 borrowers' good faith and ability to carry out the terms of the contract. This Government realizes fully that condition." In the same letter, however, Mr. Lansing said 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 Republic." Later, in response to a specific request of the British Foreign Office as to the meaning of this statement, Mr. Lansing explained, in a memorandum of October 8, 1918, that it "had reference only to the future activities of the American group" and "that the United States Government did not mean to imply that foreign control of the collection of revenues or other specific security by mutual consent would necessarily be objectionable, nor would the appointment under the terms of some specific loan of a foreign adviser."

23 New York Times, July 30, 1918, p. 13.

2<The documents were made public by the State Departemnt on March 30, last, but their bulkiness forbade their textual reprinting. They have now been issued by the Carnegie Endowment for International Peace in a pamphlet of 78 printed pages, in an information series published upon questions relating to the Conference on the Limitation of Armament and Problems of the Pacific. Pamphlet No. 40, Division of International Law.

The proposals of Secretary Lansing for the formation of the consortium met with the approval of the British, French and Japanese Governments, and the negotiation by the international bankers of the terms of the consortium took place at Paris coincident with the meeting of the Peace Conference. A draft agreement was drawn up on May 12, 1919 and submitted for the approval of the respective governments. Two obstacles arose, however, which prevented the prompt approval of the draft bankers' agreement.

The first obstacle related to the measure of diplomatic support to be accorded to the banking groups by their respective governments. The draft agreement recited that the groups "are entitled to the exclusive diplomatic support of their respective governments." In Mr. Lansing's memorandum of October 8,1918, outlining his plan to the other governments, he stated that it was intended to include in the membership of the national groups all financial firms of good standing interested in administrative and industrial loans to China and that the interested governments should withhold their support from independent financial operations without previous governmental agreement. Mr. Lansing stated that thirty-one banks representative of all sections of the country had joined the American group. The British Foreign Office, in its note of March 17, 1919, accepted this proposal and offered exclusive support to the British group on condition that it was enlarged in such a manner as to render it sufficiently representative of the financial houses of good standing interested in Chinese loans to prevent criticism on the ground of exclusiveness.

On June 7, 1919, however, the British Government informed the State Department that it could not extend its exclusive support to the British group "as the latter have hitherto failed to comply with the conditions on which alone His Majesty's Government are prepared to guarantee exclusive official support."25

The French Government also expressed its inability to extend exclusive support to the French Group. Its reasons may best be expressed by quoting from the note of the French Foreign Office to the American Ambassador at Paris, dated June 20, 1919, as follows:

You are no doubt aware that both in France and England the groups whilst admitting new members have for various reasons excluded firms with important interests in China. New enterprises may, moreover, at

25 in a letter of June 4, 1919, the Hongkong and Shanghai Banking Corporation, when informing the Foreign Office that they considered the British group as at present constituted fully representative of British finance, stated that "they are well content with the general measure of government support which they at present enjoy and have no desire to change it for any other. Their sole object in assenting to the conditions attached to exclusive support was to further the policy of His Majesty's Government with regard to the American consortium proposal, of which exclusive support was a postulate." For the full correspondence between the British group and the Foreign Office, see Miscellaneous, No. 9, pp. 12-36.

any time spring up desirous of carrying on business in China, but not disposed to enter the consortium just as the consortium may possibly not be disposed to admit them. Now, there is nothing in French law which permits the limitation of the individual activity of private persons nor that of financial and industrial companies, nothing which permits the restriction of their activities in China or in any other part of the world. It follows that the consortium, not having united and being indeed practically speaking unable to unite all the French interests which operate or which may some day desire to operate in the territory of the Chinese Republic, could not claim the exclusive support of the French Government. The principles of our public law as well as parliamentary opinion would not allow us to grant it a sort of monopoly. Besides, you are aware that at the time of the formation of the old consortium it was not accorded any privilege in law or in fact, and its founders simply relied on the financial strength of the organization, the resources of the participating concerns and the co-ordination of their efforts to obtain for themselves the preponderating position in the Chinese market, which they have not ceased to enjoy. It is on these intrinsic elements of success, rather than on legal privileges, that the new consortium should base its prospects.28

The American State Department seems to have held itself competent and to have been willing to guarantee exclusive support to the American group, but in order to obtain the approval of France and Great Britain it proposed and they accepted the following formula in lieu of the provision objected to:

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 11th and 12th of May, 1919, respectively, entered into by the Bankers at Paris. 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 Consortium for the purpose of obtaining such contract.

A more serious obstacle to the approval of the draft agreement arose from the attempt of Japan to exclude certain parts of Manchuria and Mongolia from the operation of the consortium. Such exclusion was proposed at Paris on June 18, 1919 by the representative of the Japanese group and was confirmed by the Japanese Embassy at Washington on August 27, 1919, which offered to accept the draft agreement of May 12, 1919 with the following proviso: "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."

The attempt to exclude these regions was immediately protested by the American State Department and the British Foreign Office. Secretary Lansing, in a memorandum of October 28, 1919, stated that the

26 Miscellaneous No. 9, 1921, pp. 27-28.

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