File No. 893.51/1793
Minister Reinsch to the Secretary of State
Peking, August 6, 1917, midnight
[A certain Chinese official] yesterday in long conversation expressed the desire of the Government that American bankers should participate in future Consortium loans. He stated that it had become necessary for the Chinese Government to adopt attitude friendly to Japan because that country could cause China the greatest difficulty by stopping financial supplies through control over the salt industry and by stirring up or encouraging revolutionary movements, etc. On account of the unfriendly attitude [or the?] unfavorable situation of the European partners, the Japanese are now controlling Consortium finance. The entry of the United States into the Consortium, he stated, would restore the balance and accomplish more for Chinese actual independence than any other possible action.
On the other hand Japanese Minister also expressed to me the hope that the United States might enter Consortium because European partners temporarily unable to carry their shares. Japanese attitude may be due partly to desire to prevent independent action of the United States, partly owing to realization that Japan may safely join the United States in a formal maintenance of Chinese unity, independence, considering the existing opportunity for infiltration of Japanese influence through special arrangement with all local and central authorities.
Greatly changed circumstances consequent upon the war, carefully considered, appear to impose the conclusion that the participation of the United States in international public finance in China is the best method for preserving the international balance, Chinese national existence and full fruition of American enterprises, educational and economic. If, during the last three years, American financiers had taken a strong interest in China, constructive Republican elements would have been strengthened so as to assure free development. This opportunity has now passed away forever. Only by joining in the councils with other friendly nations will it be possible for the United States effectively to push its influence not only in behalf of efficient popular Government in China, but safeguarding of American interests. The entry of the United States into the war has made natural such cooperation in China through which the high principles of American war action will be advanced.
Cooperation in the Consortium should be free from any conditions which would impede independent action of the United States in the matter of industrial and banking loans or in extending direct Governmental financial aid to China on account of the war.
As a result of the war not only does international cooperation promise to be the mode of settling external questions but American banking [Page 136] interests have been prepared for joint action in foreign matters excluding invidious monopolies for special interests, both through the creation of the Federal Reserve Bank system and through united national action in the matter of the liberty loan. Under the new conditions both from an international and national point of view, cooperation with friendly nations offers the most likely solution of China’s difficulties.
As the Minister of Finance informed me that the proceeds of the reorganization loan are to be used for disbanding troops, introducing gold standard, and converting the likin revenue until customs duties can be increased as per Mackay treaty, it would seem that a friendly restraining hand and expert advice will be much needed in Chinese finance unless the nation is to be loaded with a vast unremunerative burden. Also as most of the funds required will ultimately have to come from America, the United States might as well have a voice in the matter.