XXIV

THE NEW INTERNATIONAL BANKING

CONSORTIUM

If there is any factor destined to affect the foreign relations of China in the next decade or so, it is the New International Banking Consortium. From a business point of view, it is nothing more than an international combine of the banking groups of the United States, Great Britain, France, and Japan, for the purpose of coöperative investment in China; but from the viewpoint of history and the political situation in the Far East, it signifies more than mere business, and is pregnant with tremendous political potentialities.

The new consortium is not a novel invention; it has its predecessor. To recall what has been said, the old consortium was formed in 1908, consisting of the bankers of France, Great Britain, Germany, and the United States, which concluded the Hukuang Railway loan of May 20, 1911. The same consortium also negotiated the currency and industrial development loan of April 15, 1911.2 Subsequently, this quadruple syndicate was expanded into a sextuple consortium, adding to its memmbership Russia and Japan, which, despite the withdrawal of the American group, concluded the Reorganization Loan of April 26, 1913. With the advent of the World War, the sextuple consortium, which had been reduced to a quintuple group, passed into oblivion.

To be brief, the formation of the new consortium dates from 1917, when a suggestion was made as to an American Loan to China so that the latter could be equipped for an effective participation in the World War. In June of 1918, the Department of State called together

a number of American bankers interested in Chinese finance. As an outcome of the conference, it was decided that in addition to the American Group of Bankers, the United States Government would request the governments of Great Britain, France, and Japan, to organize their respective banking groups and participate in the new consortium, on the basis of full equality and partnership. Accepting the principles of the American proposal, representatives of the Allied Powers concerned met at the Paris Peace Conference on May 11 and 12, 1919, when several resolutions were passed and an agreement was reached. Upon approval of the governments concerned, the representatives of these banking groups met in New York City in October, 1920, and signed the agreement.

To be more specific, the formation of the new consortium is a long story, and marked by several diplomatic events of great political significance. The beginning of the project goes back to the month of June, 1918, when the State Department called together the American bankers interested and experienced in Chinese finance. At the conference, the project of loaning to China and the best way of doing so were discussed. On July 8, 1918, the banking firms interested (J. P. Morgan & Co., Kuhn, Loeb & Co., The National City Bank of New York, the First National Bank, New York, the Chase National Bank, the Continental and Commercial Trust & Savings Bank of Chicago, Lee Hegginson & Co., and the Guaranty Trust Commpany of New York), informed the Department of State that in their opinion a consortium of the banking interests of the four Powers-the United States, Great Britain, France and Japan-should be formed, that one of the conditions of membership should be the relinquishment of existing or future options, and that in case of a loan issue, the Department of State should make a declaration announcing that the loan was

to be made at the suggestion of the Government. In response to this communication, the Department of State replied, on July 9, 1918, that it would comply with the wishes of the American Bankers.44

As a fuller statement, the Department of State gave to the press on July 29, 1918, the statement which we have quoted in the chapter on The Policy of the United States in China, setting forth the essential features of the new policy.5

(1) The formation of a group of American bankers. (2) The coöperation of the bankers with the Department of State, particularly with reference to policies. (3) The approval by the Department of State of the names of banks composing the group.

(4) Approval of the terms and conditions of the loans. by the Department of State.

(5) Diplomatic support in the execution of equitable

contracts.

(6) The formation of the national banking groups of Great Britain, France and Japan and their association. with the American group.

Meanwhile, the Department of State entered into negotiation with the Governments of Great Britain, France and Japan. On August 14, 1918, the British Foreign Office asked for an elucidation of the scope of the new consortium; whether the contemplated loan was to be a second or supplementary Reorganization Loan or an entirely different one; whether it was to include only administrative loans or also industrial and railway loans, the latter of which were excluded from the scope of the former consortium by the intergroup agreement of Paris, September 26, 1913; whether the relinquishment of options was to include only the options on administrative loans or also on industrial in which case the British Government feared to concur until they should have consulted the British interests involved; and finally, whether the

policy of maintaining the political independence and sovereignty of China was to preclude any possibility of foreign supervision in collection of revenues pledged as securities and the employment of foreign advisers to supervise the introduction of reforms. In reply, the Department of State, on October 8, 1918, despatched a memorandum covered by a note, to the French, British and Japanese Embassies explaining that it was not the intention of the United States Government to rejoin the old consortium, but that a new one was to be organized; that the relinquishment of options was to cover all options of whatever nature; that the loans were to include both administrative and industrial loans; and that the policy of maintaining the political integrity and sovereignty of China did not preclude the possibility of foreign supervision in the collection of revenues pledged as securities and the employment of a foreign adviser as prescribed in the terms of the loan."

On March 17, 1919, the British Foreign Office accepted the proposals of the United States Government for a new consortium, setting forth as their understanding that the formation of the four Power group should not prejudice the claims of Belgium and Russia, that financial operation not involving a Chinese Government guarantee or a public issue should remain open to all, that "the groups will pool all existing and future options except such concession as may be already in operation," that each national group will receive the active and exclusive diplomatic support of its government, and further adding that the contracts for the execution of the engineering or other works to be built out of the proceeds of the loan and for the supply of the necessary materials should be put up to public tender and that the loans to be made in the immediate future, in view of the dire need for reconstruction in consequence of the World War, should be of moderate dimensions.8

On May 11-12, 1919, the representatives of the bank

ing groups of Great Britain, France, Japan and the United States with the sanction of their respective governments, met at the Paris Peace Conference for the purpose of organizing the new consortium. A set of resolutions was unanimously adopted and submitted to the four governments concerned for approval. On May 31, 1919, the United States Government, in a note to the French, British and Japanese Embassies announced its acceptance and approval of the resolutions and at the same time urged the other governments to give similar confirmation, "in order that the formation of the new consortium may be completed, prior to the expiration of the old consortium agreement on June 18, next." "

On June 7, 1919, the British Foreign Office signified its acceptance and approval of the resolutions with the exception, however, to "the statement in the preamble of the agreement that the groups are entitled to the exclusive support of their respective Governments," giving as its reason that the British Group "have hitherto failed to comply with the conditions on which alone His Majesty's Government are prepared to guarantee exclusive official support." 10 In view of this exception of the British Foreign Office, at the suggestion of the French Government, the formula regarding diplomatic support was slightly modified, the principal change being "in pledging each government to the support of its respective national group rather than to the consortium collectively." The modified form which was communicated, on July 3, 1918, to the French, Japanese and British Embassies, reads as follows:" 99 11

"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 of Paris. In the event