[This Document is the Property of His Britannic Majesty's Government)
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AFFAIRS OF CHINA.
CONFIDENTIAL.
[13246]
No. 1.
REC
[April 10.]
SECTION 1,
Sir J. Jordan to Sir Edward Grey.-(Received April 10.)
(No. 125. Confidential.) Sir,
Peking, March 21, 1911. IN my despatch No. 104, Confidential, of the 4th instant, I had the honour to enclose copies of the preliminary agreement and of the draft final agreement drawn up by the Chinese Government and the representatives of the American, British, French, and German hanks for the issue of a loan of 10,000,000., destined to meet the expenses of the currency reform programme and of industrial enterprises in Manchuria.
As I intimated would be the case, the draft final agreement has undergone considerable revision, and has now reached a form which, with the addition of some further conditions and reversations, is likely to prove acceptable to both parties. The draft, of which I have the honour to enclose copy, is dated the 16th March.
It will be noted that the estimated revenues pledged to the service of the loan are reduced from 5,500,000 taels to 5,000,000 taels. Payment of interest is to be handed to the banks ten days before due dates instead of fourteen as was proposed in the previous draft, and the wording of the agreement appears generally to have been toned down to meet Chinese susceptibilities. The essential features, however, remain the same as those outlined in my despatch No. 104, and the agreement is silent on the subject of a financial adviser. The Chinese Government are required, it is true, to hand to the banks quarterly statements showing the disbursements incident to the inauguration and operation of currency reform and to the promotion of industry in Manchuria, and to publish annual reports based on those statements, but there is no foreign supervision of the actual application of funds, and it remains to be seen how this will be reconciled with the reservation of the French Government that expenditure in Manchuria is to be approved by Russia and Japan.
The American Minister gives me to understand that the Chinese are disposed to insist upon the programme of currency reform drawn up by themselves in May 1910, on which Mr. Max Müller commented in his despatch No. 188 of the 3rd June last year, and the modification introduced in article 8 of the draft agreement tends to confirm Mr. Calhoun's statement. It is, I believe, the intention of the Chinese Government to apply this programme to the treaty ports and the great centres of trade, but not to China as a whole. The scheme was drawn up Dr. Chen and other Chinese theorists who have had little practical experience in finance, and, although it undoubtedly marks a step in the right direction, it scarcely seems to me to offer a sound basis for a large foreign loan.
However this may be, the Chinese have certainly shown no disposition to submit it for revision by foreign experts, and no financial adviser worthy of the name is likely to come to China to carry out in its entirety a scheme devised by Chinese financial empirics schooled in the Ta Ch'ing bank.
ment.
There are several points of an unusual character to be noted in the draft agree- If the Chinese Government should be in immediate want of funds, the banks agree, upon the execution of the agreement and so soon as they shall have been furnished with satisfactory statements in regard to the nature of the undertakings in Manchuria or the preliminary measures for currency reform and the amounts to be applied to them, to advance 1,000,000l. to the Chinese Government for the first purpose and 1,000,000l. for the second. The Mauchurian Government is very hardly pressed for funds in connection with plague measures, and this factor doubtless constitutes the chief incentive with the Chinese for the speedy conclusion of the agreement. But advances of 2,000,000%, out of a total loan of 10,000,000l. are unprecedented in my experience of financial negotiations of this kind. The want of security attaching to these advances is evidenced by the fact that they bear interest at 6 per cent, instead of the 5 per cent. carried by the loan.
The representatives of the banks appear to be sanguine that a final agreement
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