CO129-451 - Public Offices - 1918 — Page 154

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Such being the case, it should be reasonably apparent that our Allies will not be disposed to look with great cordiality on those who precipitated the issue, and, although they have to depend upon us for financial and other support at this time and are reluctant to criticise, it is logical to suppose that they will passively, at least, oppose any further muddling of the situation in China by the selection of other railway lines for the Americans to finance and construct, until a disposition to find an amicable solution is manifested.

The situation at present is that the American International Corporation, having simultaneously raised the issue with the four Allies at the same time, and having seen their original five lines protested and cancelled, are now negotiating with the Chinese to obtain in substitution and in conformity with the terins of their contract other profitable lines for exploitation. Obviously, the only lines they will be permitted to Belect are what the other Powers designate as "buffer lines," or lines between spheres, lines which begin nowhere and end nowhere, and whose acceptance by the Americans can only tend to further complicate the situation, by emphasising the "spheres of influence" which in the end must enibarrass the American Government in defending its traditional policy of the open door. In plain words, the American International Corporation will not now be permitted to select profitable lines to supersede those that were protested, and, after the refusal of the American Government to stand by the original lines, the Chinese authorities will hardly dare to concede other lines which may result in further protests at this time.

The situation is further complicated by the fact that the American Corporation has received terms which make it impossible for the Allies' concession-bolders to finance their own contracts in America. Although the terms are equitable, and the Corporation is fully justified in asking for and obtaining every legitimate profit as a business proposition, a situation has been created which now calls for a complete revision of China's outstanding railway contracts, covering the construction of 10,000 miles of lines and involving foreign loans aggregating 700,000,000 dollars, and incidentally imposing an additional burden of 100,000,000 dollars on the Chinese taxpayer. The only possible manner in which these new railways can now be financed lies in the extension of the American terms to all the other contracts, and thus conceding terms to the Europeans which will leave sufficient margin of profit to enable them to raise the funds in the American financial markets. As the Chinese Government is already compromised to concede the most favourable terms to the new German and Japanese lines, the other interested Powers must in self-defence, and when the time is opportune, demand the extension of the same terms to cover their own contracts.

Under present Wall Street conditions there is every reason to believe that an understanding has been reached between the leading financial institutions whereby the American International Corporation will have a free field for the exclusive financing of American railway and other concessions in China, thus making it impossible, or at least most exceedingly difficult, for any other American combination to obtain financial support in this field. This tendency towards a financial monopoly for the Corporation which precipitated the issue with the four Allies at the same time would therefore give the American International the whip hand over all the foreign bankers who must look to America for support, and so practically places the Chinese policy of the nation in the hands of those who have already ignored it. If the American International Corporation through a quasi-financial monopoly is permitted to dominate the Chinese railway investment field, and the European bankers have to accept such terms as they may be willing to concede, it is clear that a situation will again be created which can only result in further misunderstandings.

The situation then is this: the American International Corporation precipitated the issue of the open door with the four Allies at the same time; Great Britain, France, Russia, and Japan are therefore justified in the suspicion that it was a German trap, into which the Americans walked with their eyes open; the official European concession- holders cannot finance their contracts in America unless they are conceded the same terms as the Americans or better; they are not willing that the American Corporation be permitted to further complicate the situation by selecting other lines; the Chinese authorities will not now dare to select other lines which traverse the so-called spheres of special interest; the Allies are stopped from openly voicing their disapproval at this critical time because of their dependence upon us for financial and moral support in the conduct of the war; they are naturally disinclined to seek or to accept ternis from the combination which forced the issue at this time, and would rather have the problem approached as a whole so that an amicable solution can be found acceptable to all interested parties. If the American International Corporation has acted independent

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of the policy of its Government in raising the issue with the four Allies at the same time, it is hardly fair to expect the others to be compelled to negotiate with that corporation.

The European financiers must depend upon American financial co-operation to comply with their contracts in China, and to do this they must receive at least equal As long as terms, so as to enable them to obtain this support upon a business basis. there is no effort made to find a suitable common ground for co-operation, the other interested Powers can hardly be expected to surrender what they still consider as their special rights and privileges in their respective spheres, nor is it reasonable to suppose that they will permit the Chinese authorities to select further profitable railway con- cessions for the Americans to finance and construct until a satisfactory solution is found.

It must be remembered that, previous to the war, American bankers were unable to find the funds in America for the development of Chinese opportunities, and in the various past transactions the major portion of their participation in bond issues has been absorbed by the London and Paris markets. It should also be kept in mind that, rightly or wrongly, the British and French must feel that the wealth that has rolled into our coffers since the outbreak of the war represents their life blood, and that it is this wealth that now enables us to seek concessions in China. Relying on our high sense of honour and justice, they therefore cherish the hope that in any American scheme for co-operation in China they should have the first preference, and while for obvious reasons they may not openly voice their disapproval at this time, human nature being very much the same the world over, they must view with deep concern the recent arrangement of the American International Corporation in co-operating with Japan, while our financiers have shown no disposition to reach some amicable adjustment with themselves.

If the so-called "spheres of influence" in China are to be abolished, and American capital permitted free scope to obtain valuable railway concessions in disputed spheres, it would seem reasonable to suppose that the other Powers will be loth to surrender their pretensions and rights at this time unless some genuine spirit to co-operate with them is manifested by American financiers.

Exclusive of the American contract for financing and constructing 1,500 miles of railways, the Chinese Government has compromised itself to the further construction of 10,000 miles of lines with the other Powers, of which approximately 7,000 miles are under contract to British, French, and Belgian interests, and the loans for which have still to be raised when conditions permit. These 7,000 miles of railways will call for approximately 400,000,000 dollars. It is manifestly impossible for this amount to be raised in Europe immediately after the war, and if the lines were to be built at all the financing will have to be spread over a period of from ten to fifteen years, calling for an annual instalment of from 25,000,000 dollars to 40,000,000 dollars for investment in Chinese Government railway bonds, which will probably be as much as the markets can absorb. This total might be materially reduced by the elimination of certain sections of the difficult French and Belgian lines, and the total brought down to about 300,000,000 dollars, and spread over a period of ten years. It would be extremely difficult, if not impossible, to raise such a loan at one time for the development of Chinese railways; besides, it would be unnecessary. It is generally estimated that if a Chinese railway proposition is assured of 5,000,000 dollars a year for construction and other expenses, work can be pushed ahead without any fear of financial difficulties,

This being the case, if we take three British, one French, and one Belgian contracts to finance, these will call for an annual investment of 25,000,000 dollars in Chinese Government railway bonds for the next ten or twelve years to see these five propositions through to completion. The question therefore arises: Is it not better for the American Government to use its good offices with its own financiers to persuade them to guarantee the annual investment of 25,000,000 dollars for the next ten or twelve years in Chinese Government railway bonds, so as to permit the British, French, and Belgians to comply with their obligations in China? Is it not better to make this safe and conservative investment rather than face the possibility of further serious complications arising out of these railway concessious in China? In other words, is it not best, for the higher interests of the nation, for the Government to recognise the present situation and the drift of events and use its influence to have this sum invested as an insurance against possible war, and so amicably settle the Chinese railway problem in such a way that all can work harmoniously together, and take this ever-recurring irritant out of the scope of dangerous international politics? If a disposition be manifested at this time to co-operate with the others, is it not reasonable to suppose that there will be an

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