File No. 893.51/938.]

The American Minister to the Secretary of State.

[Extract.]
No. 551.]

Sir: Continuing my No. 539 of May 7, and referring to my telegram of 11 p.m. of the same date1 and that of May 16, 9 p.m., I have the honor to report satisfactory progress in the negotiations with respect to certain advances of funds to meet the immediate requirements of the Provisional Government.

The Minister of Finance met the groups’ representatives on May 7, and, after a friendly conference, a memorandum was drawn up noting that 6,000,000 taels were needed immediately, one-half of this amount for Peking and the remainder for Nanking, and recording the promise of the Minister to submit to the Cabinet the next day a plan alternative to that of May 1 submitted by the group on the 2d of May to the Premier, which was reported in my No. 539, mentioned above. This alternative plan provided satisfactory conditions for the supervision of expenditures and specified the security to be offered and the method of its administration. The memorandum noted, further, that a statement would be submitted at once of the purposes for which the 6,000,000 taels asked were to be expended.

On the 8th of May the promised statement was sent and showed in detail the amounts needed between April 17 and May 16. It thus appeared that 3,154,000 taels were needed in Peking for the payment of troops, the payment of pensions of the bannermen, allowances to the imperial family, and sundry other items, and that some 4,500,000 [Page 131] taels would be needed for the redemption of the military notes issued by the Nanking government.

On May 9, after conference with the Cabinet, the Minister of Finance replied formally in writing to the groups’ memorandum of May 1, repeating the objections already made orally to the groups’ proposals for the employment of a foreign expert auditor and for the supervision by foreign military officers of the disbandment and payment of Chinese troops. He inclosed a plan for the reform of the army which had that day been agreed upon by the Cabinet and the high military authorities which he believed would result in a satisfactory disbandment of the superfluous troops.

To this note the groups’ representatives sent a reply on May 10, a copy1 of which is inclosed, expressing regret that the proposals made did not meet with the approval of the Chinese Government and voicing the hope that the Government would reconsider the questions of principle involved and the belief that a frank interchange of views would lead to a mutual understanding.

This opened the way to another conference between the Minister of Finance and the groups’ representatives on May 11, at which, after long discussion, the Minister himself proposed a very practicable plan for the pay of the troops in the Provinces and the disbandment of a portion of them under the supervision of an officer representing the Central Government in association with the local commissioner of customs, the funds needed being taken from the customs receipts as far as possible, the amounts thus expended being replaced from the advances to be made by the groups.

It was also agreed that an audit department should be created to consist of a foreign auditor paid by the groups and a Chinese auditor paid by the Chinese Government, with the necessary staff of foreigners and Chinese to be paid by the Chinese Government, the auditors to inspect all pay sheets, etc., and to sign all orders upon the banks for the withdrawal of funds.

These conditions were embodied in a set of seven regulations, a draft of which was submitted by the groups’ representatives to the Minister of Finance in a note dated May 12, a copy of which is inclosed.

These proposals were submitted to the Advisory Council on May 13. The council was persuaded to agree to the conditions, provided better could not be obtained.

When Mr. Hsiung, the Minister of Finance, subsequently met the groups’ representatives in conference he suggested certain amendments of the seven regulations mentioned above. The only important change made was in the text of article 3, which was amplified and so altered as to provide that the auditors, after satisfying themselves that the pay sheets, etc., were in order, should sign the orders for withdrawal of funds “without further question.”

On the night of May 16 other points upon which agreement was reached were that on the conclusion of the provisional advances the audit department should be abolished; that in any comprehensive loan that might be made for productive undertakings a foreign chief accountant approved by the groups should be engaged for each such productive enterprise, who would, conjointly with the Chinese director, [Page 132] sign all orders for the withdrawal of funds, and that accounts of all such undertakings should be audited by an auditor to be employed by the groups.

The proposed loan, the Minister stated, would be devoted to three objects—50,000,000 taels to the building of the Kaifeng-Haichow Railway, 50,000,000 taels to the reorganization of the salt gabelle, and a similar amount to the organization of a Government bank.

On May 17 the groups’ representatives addressed a note to the Minister of Finance informing him that 1,500,000 taels were placed at the disposal of his Government in Shanghai and a similar amount in Peking, subject to certain conditions set forth in the note. The first of these provides that this sum of 3,000,000 taels is to be treated in conjunction with the advances, amounting to 3,000,000 taels, referred to in the letter addressed to the President on March 9, thus making a total of 6,000,000 taels advances to be governed by gold treasury bills.

Another condition specified that the Chinese Government engages to “grant no applications of the provincial authorities for permission to borrow funds from other parties without first applying to the groups”.

Yesterday the revised regulations and other conditions under which the present advance is made formed the subject of discussion at a secret session of the council and the council decided that since the agreement had been concluded it would have to be accepted.

I have, etc.,

W. J. Calhoun.
[Inclosure.]

Draft regulations for the supervision of expenditure of provisional advances.

1.
An audit department to be created adjacent to the Ministry of Finance, composed of an auditor employed and paid by the groups and auditor employed and paid by the Chinese Government and the necessary foreign and Chinese staff, who will be selected by the auditors and paid by the Chinese Government.
2.
All orders on the banks for the withdrawal or transfer of funds must be signed by said auditors.
3.
The Ministry of Finance will publish periodically in the Official Gazette estimates of expenditure required for the various Government departments, and will furnish to the audit department all such detailed pay sheets, statements, etc., as may be necessary to support requisitions for funds.
4.
Each disbursement made will be covered by a detailed voucher in accordance with the practice of modern account keeping. These vouchers will be filed by the Ministry of Finance and will be inspected by the auditors.
5.
With regard to the payment and/or disbandment of troops in the Provinces, a high military officer deputed by the Central Government and the local commissioner of customs will jointly examine and sign the pay sheets in triplicate, which will be furnished to them by the local military authorities. The aforesaid high military officer and the commissioner of customs will be accorded till necessary facilities for investigation. Of the aforesaid signed pay sheets one copy will be handed to the governor of the Province and the remaining two copies, together with the vouchers relating thereto, will be transmitted to the Ministry of Finance in Peking, who will hand one signed copy to the audit department.
6.
The funds for disbursement will be in the hands of the commissioner of customs, who, in order to save the expenses of the unnecessary transfer of funds, will be entitled to employ the customs revenue collection for disbursement, after the same has been duly released by a corresponding transfer by order of the auditors from the funds of the provisional advances to the inspector general of [Page 133] customs account in Shanghai. If there should be any deficit in the sum required by the commissioner of customs for disbursement it will be made up by a remittance from the funds of the provisional advances under order from the auditors.
7.
In case of disbursements for the payment and/or the disbandment of troops in Peking and its neighborhood, a high military officer deputed by the Central Government will cooperate with the auditors in examining and jointly signing the pay sheets in triplicate, and the said high military officer and auditors will be accorded all necessary facilities for investigation. Of the said signed pay sheets in triplicate one copy will be handed to the Ministry of Finance with the vouchers relating thereto and one copy will be retained by the audit department.
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