Mingchien Joshua Bau.

The foreign relations of China: a history and a survey online

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lows:" ""

"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, L919, n

tively, entered into by the bankers of Paris. In the event


of competition in obtaining of any specific loan contract
the collective support of the diplomatic representatives
in Peking of the four governments will be assured to the
consortium for the purpose of obtaining such contract."

On July 17, 1919, the British Foreign Office accepted
the American formula. 1J

( >n June 18, 1919, Mr. Odagiri of the Yokohama Specie
Bank communicated with Mr. Thomas W. Lamont of J.
P. Morgan & Company, setting forth the Japanese reser-
vation of Manchuria and Mongolia from the scope of
the new consortium, claiming special interests therein
arising from historical and geographical relations and cit-
ing as a precedent the same Japanese reservation made at
a meeting of the Six Power Groups held at Paris on
June 18, 1912. A similar communication, mutatis mutan-
dis, was dispatched to the representatives of the British
and French Groups. His letter follows :

"With reference to our interview in Paris, and Mr.
Tatsumi's conversation with you on the 16th instant in
connection with the proposed new consortium for Chinese
business, for your information I would wish to communi-
cate to you that we have been instructed by our principals
in Japan that all the rights and options held by Japan in
the regions of Manchuria and Mongolia, where Japan
has special interests, should be excluded from the ar-
rangements for pooling provided for in the proposed
agreement. This is based on the very special relations
which Japan enjoys geographically, and historically, with
the regions referred to, and which have been recognized
by Great Britain, the United States, Prance and Russia
on many occasions. In this connection I would wish to
specially draw your attention to a Note from the Secre-
tary of State to the Japanese Ambassador, dated, Wash-
ington, November 2nd, 1917.

'Furthermore the following matter which was dealt
with under the present Group Agreement, was reserved


by the Japanese Group at the time of signature of the
Chinese Reorganization Loan Agreement.

"On the 18th of June, 1912, at a meeting of the Six
Groups held in Paris, when discussing the agreement for
the Chinese Reorganization Loan about to be issued, the
following declaration was made by Mr. Takeuchi on he-
half of the Japanese Group and was recorded in the min-
utes of the conference:

"The Japanese Bank declared that it takes part in the
loan on the understanding that nothing connected with
the projected loan should operate to the prejudice of the
special rights and interests of Japan in the regions of
South Manchuria and of the Eastern portion of Inner
Mongolia adjacent to South Manchuria."

On June 23, 1919, Mr. Lamont acknowledged the re-
ceipt of the letter, but in a firm tone rejected the reserva-
tion. "Mongolia and Manchuria," he said," are import-
ant parts of China, and any attempt to exclude them from
the scope of the Consortium must be inadmissable." At
the same time he informed the Japanese representative
that he would refer the question to the Department of
State, it being "beyond the immediate competence of
the financial group to discuss." In refutation of the pre-
cedent cited by Mr. Odagiri respecting the previous reser-
:: made on June 18, 1912, he observed that the Brit-
ish, German, French and American Groups bad not ac-
cepted the reservation at the conference of that date.

"For your information I beg to recall to you that at the

same time there Was record d in the minutes of the con-
ference the following declaration: 'The British, French,
German and American Groups stated thai they were un-
to accept or consider either of these declarations
upon the ground that they were not competent to deal
with political questions.' "

I: attention having been called to the Japan
vation, the Department of State expressed its view
July 30, 1919, politely declining to entertain the special


: ; m of Japan. "Reservations of regions can only

impair its (the consortium's) usefulness as an instrument
. and limitations on its activity can only detract
from its utility as a means for promoting international
cooperatiori among those most interested in China. More-
over, as all the other parties in the arrangement have

I to ] their rights an 1 options without other •
vati >n than that contained in the terms of the agreement
itself, it is only equitable that the same rule should apply
to all alike." ""

Meantime, on August 11, 1919, the British Foreign Of-
fice called the attention of the Japanese Government to
the fact that her special reservation would be contrary to
the principle of the new consortium and would tend to
give Japan a preferred and special status in the consor-
tium. 15

In response, the Japanese Government, on August 27,
1919, accepted the resolutions adopted at the Paris Peace

Conference in May, 1919, but still insisted on the- reser-
vation of South Manchuria an 1 Eastern Inner Mongolia
from the scope of the new consortium with this modifi-
cation, however, that Manchuria and Mongolia had been
changed to South Manchuria and Eastern Inner Mongolia,
thus limiting the area of Japan's special interest. The
note follows : 10

"The Japanese Government accept and confirm the
resolution adopted at the meeting of the representatives

of the hankers groups of the United State-, ( ireat Britain,
France and Japan at Paris on May 11 and 12, 1919, for
the purpose of organizing an international consortium for
financial business in China; provided, however, that the
acceptance and confirmation of the said resolution shall
not be held or construed to operate to the prejudice of
pedal rights and interests possessed by Japan in
South Manchuria and Eastern Inner Mongolia."


In response, on October 28, 1919, the Department of
State declared that such a measure would revive the
doctrine of the sphere of influence even in a worse form
than was followed during the days when China w;
the brink of disintegration, but assured the Japanese Gov-
ernment that the vested interests and even the extension
thereof in these regions would be excluded from the
scope of the consortium. 17

Similarly, echoing the sentiment of the United States
Government, the British Foreign Office, on November 20,
1919, notified the Japanese Government that her reserva-
tion, based as it was on territorial claims, would be con-
trary to the principle of the new consortium to a!
the sphere of influence, and to open the whole of China
to world commerce. Further, while assuring Japan that
vested interests, including railways in South Manchuria,
would be exempt from the operation of the new consor-
tium, it pointed out that inasmuch as Japan had not as
yet established any vested interests in Eastern Inner Mon-
. though holding options therein for railways, and
especially in view of the strategic location of Eastern
Inner Mongolia in relation to Peking, whose southern
boundaries extended and practically envelop the capital
of China, the reservation of such a sphere of influence
would be irreconcilable with the principle of the main-
tenance of China's independence and territorial integrity.
It concluded with the friendly suggestion that Japan
should give prompt attention to the situation, "in view
of the disastrous situation on the verge of which China
appears now to find herself," hinting apparently at the
ible insolvency of ( Ihina. 17 **

(ailed forth by the remonstrances of the United States
and Great Britain, Japan, on March 2, 1920 — after a
silence of about six mouths once more reenforced her
insistence on the reservation by the argument of national

defense, contending that South Manehuria and Eastern


Inner Mongolia, located as they are. are vital to Japan's
national defense and economic existence, especially in
view of the growing menace of the Russian situation in

Siberia, and meanwhile offering instead a revised formula
of reservation retaining to Japan the power of veto, or
freedom of action, in case of loans affecting South .Man-
churia and Eastern Inner Mongolia calculated to menace
the economic life and national defense of Japan, and
giving a list of Japanese railways in South Manchuria
which are to be excluded from the control of the con-
sortium. 1 '' A similar communication was handed to the
J'.ritish Foreign Office on March 16, 1920. 10

Meanwhile, to disentangle the situation, at the request
of the American Banking Group, and with the approval
of the Department of State and of the British and French
Banking groups, Mr. Lamont had sailed for the Far
East and was in Japan throughout the month of March,
1920, and conducted negotiations in person with the
Japanese Government. 20 While Mr. Lamont was in Japan,
the Department of State, on March 16, 1920, once more
uttered the remonstrance that in view of the general
recognition accorded to the right of national self-preser-
vation, and further of the Lansing-Ishii Agreement of
September 2, 1917, there was no real necessity even for
a reservation under the form of the revised formula. At
the same time, it pointed out the inconsistency of includ-
ing in the reserved list the projected line from Taonanfu
to Jehol, and thence to the coa>t. which is not essential
to the national safely or economic existence of Japan. 81

Likewise, on March 19, 1920, Earl Curzon responded
to Viscount Chinda, rejecting the revised formula aa be-
ing "so ambigUOUS and general in character that it might
be held to indicate on the part of the Japanese Govern-
ment a continued desire to exclude the cooperation of
the other three banking groups for participating in the
development, for China's benefit, of important parts of


the Chinese Republic," and declining to believe that "it
is essential for Japan alone to construct and control, for
instance, the three railway lines mentioned in the third
reservation lying to the west of South Manchuria Rail-
way, and finally pledging the assurance that the Japan-
ese Government need have no reason to apprehend that
the consortium would direct any activity affecting the
economic security and national defense of Japan." - lA

In view of the persistent opposition of the United
States and Great Britain, Japan yielded. Relying upon
their assurances, she relinquished the request for the ac-
ceptance of the revised formula, on condition that the
other Powers should give similar assurance. Respecting
the railway from Tannanfu to Jehol and thence to a sea-
port, while admitting that it was projected "with the
strategic object of making it a means of common de-
fense on the part of China and Japan against foreign in-
vasion coming from the direction of Ourga," Japan like-
wise yielded and assented to the inclusion of the line or
lines in Mongolia within the operation of the new con-
sortium. In relinquishing the concession, however, she
attached two conditions which she asked the Towers con-
cerned to accept.-' 2 A similar despatch was sent to the
British Foreign Office on April 14, 1 ( )20. - A

(1) In the event of the new consortium projecting in
future a scheme of extending the Taonanfu-Jehol railway
to the north with a view to connection with the Eastern
Chinese Railway, the assent of the Japanese Government
thereto must he obtained beforehand through the Japan-
ese ,^ r roup, inasmuch as such an extension being tanta-
mount to a renewal of the so-called Chinchou-Aigun rail-
way scheme against which a protesl was lodged by Japan
when the question was motioned some years ago, LS cal-
culated to have a serious effect upon the South Manchuria

(2) In consideration of the particular desire of Japan


that these two lines should he built as speedily as possible,
the Japanese group, after due consultation with the other
groups, may be permitted to undertake their construction
single handed in the event of the other three Powers as-
sociated in the new Consortium being reluctant to finance
it. In that case, having regard to the fact that these rail-
ways must cross the Peking-Mukden Railway at a cer-
tain point, the American group will give their support to
the overture which the Japanese financiers will make to
their British colleagues with a view to perfecting the
junction of these lines."

Regarding the two conditions, Earl Curzon replied, on
April 28, 1920, counseling the Japanese Foreign Office
to forego the conditions and be satisfied with the general
assurance as given above, for "granting to any one party
to the consortium the power to veto in advance the pos-
sible construction of a railway would appear to be con-
trary to the principles upon which the idea of the con-
sortium is based," and because the second condition
would be included in the articles of the Inter-Group
Agreement of May 12, 1919. At the same time he
withdrew the objection of the British Government to the
exclusion from the consortium of the two projected lines
from Tannanfu to Changchun and from Taonanfu to
Chengkiatun.-' 3 In the same way, the Department of
State, on April 29, 1917 — one day after the British an-
swer — replied that the first condition of retaining the veto
power would be contrary to the principles of the consor-
tium and the second condition "would appear to be
already provided for in Article IV of the Inter-Group
Agreement at Paris on May 12th, paragraph 19, of which
the American Government has expressed its approval." 24


In view of this determined resistance, on May 8, 1920,
Japan yielded, this time completely. She waived the two
conditions as above set forth, and consented to enter the
consortium without any reservation or condition.- 5 A


similar note was likewise despatched to the British For-
eign Office on May 11. 1920. 2 ' On May 8, 1920. the De-
partment of State expressed its gratification at the with-
drawal of all conditions and reservations by Japan and
its expectation — "that such practical juint endeavor is
the beginning of a new era of good will and a
plishment for both governments."-' 7 Similarly on May
17, 1920. the British Foreign Office expressed its gratifi-
cation, and reiterated the assurance.-'

On May 25, 1920, the much belated word came from
the French Government pledging to observe the same
general assurance as given by the American Govern-

Meanwhile. Mr. Lamont had already reached a com-
promise at Tokio, which consisted of transferring to the
Consortium the line from Taonanfu to Jehol and another
line from any point on the Taonanfu-Jehol Railway
to a seaport and of excluding the other railways as
enumerated below from the scope of the consortium. On
her part, Japan engaged to withdraw all reservations in
toto. This compromise was embodied in an exchange of
letters on May 11, 1920, as follows: 30

N. Kajiwara to T. W. Lamont. May 11, 1920.

"We have now the honor to inform you that certain
points in the Agreement and in the operations of the pin-
posed consortium, hitherto somewhat obscure, having
been chared up to the satisfaction of our Government
and of ourselves, we are now able in accordance with
the instructions of the Japanese ( iovernincnt to withdraw
our letter dated 18th June last and announce that, con-
jointly with the American. British and French Banking
Groups and on like terms with them, we will accept the
consortium agreement We In '4 at the same time I

our hearty concurrence with the general ideas and

objects of the consortium in respect to China."

T. W. Lamont to X. Kajiwara. May 11, L920.


"We beg to acknowledge with thanks, the receipt of
your communication of May 11th, 1920, informing us,
in behalf of the Japanese Banking Group that, under the
instructions of your Government, you have now with-
drawn your letter dated June 18th, 1919, and have
adopted, in association with the Banking Groups of
America, Great Britain and France and on like terms
with them, the agreement for the establishment of a New
Consortium in respect to China.

"Inasmuch as some questions have arisen during our
discussions as to the status of specific railway enter-
prises contemplated or actually begun in Manchuria and
Mongolia, we hereby confirm that we have agreed with
you as follows :

"(1) That the South Manchurian Railway and its
present branches, together with the mines which are sub-
sidiary to the railway, do not come within the scope of
the consortium ;

"(2) that the projected Taonanfu-Jehol Railway and
the projected railway connecting a point on the Taonan-
fu-Jehol Railway with a seaport are to be included within
the terms of the Consortium Agreement ;

"(3) that the Kirin-Huining, the Chengchiatun-Taon-
anfu, the Changchun-Taonanfu, the ECaiyuan-Kirin (via
Ilailung), the Kirin-Changchun, the Sinminfu-Moukden
and the Supingkai-Chengchiatun Railways are outside
the scope of the joint activities of the consortium.

"The foregoing letter of acknowledgment, although
written in behalf of the American Banking Group, has,
we are assured, the cordial approval of the British and
French Banking Groups, also of the Governments of the
United States, of Great Britain and of France."

Having thus smoothed the way by the compromise, the
representatives of the four national hanking groups met
in New York City in October, 1920. At the conference,
the application of the Belgian Banking Group was ac-


cepted, subject to the approval of the four governments
already involved. The suggestion was also favorably
entertained of welcoming a Chinese National Banking
Group, provided such a unit should be formed in China.
It was further agreed to inquire of the Chinese Govern-
ment as to the possible measures to be taken to render
assistance to the currency reform of China. Respecting
the German-issued bonds of the Hukuang Railway Loan
of 1911, the interest charges of which the Chinese Gov-
ernment had withheld, the conference resolved to ask the
Chinese Government to recognize these bonds just as the
other bonds of the entire issue. Particular attention was
also given to the new railways, improved methods of com-
munication, the purchase of materials, standardization of
railway equipments, etc.

On October 15, 1920, the Consortium agreement was
signed, and the New Consortium was formally organized.


1. MacMurray, 1911/5.

2. MacMurray, 1911/2.

3. MacMurray, 1913/5.

4. Documents Concerning the New Consortium, released to
press by the Department of State, March 30, 1921, Am. Bankers
to Dept. of State, July 8, 1918.

4A. Ibid., Department's Letter of July 9, 1918, to the Bankers.

5. N. Y. Times, July 30, 1918.

6. Documents Concerning the New Consortium, British For.
Office to American Embassy, London, Aug. 14, 1918.

7. [bid., Department's Note ami Memorandum to the French,
British and Japanese Embassies, Oct. 8, 1918.

8. Ibid., British For. Office to American Embassy, London,
March 17, I'M''.

9. Ibid., Department's Note of May 31, 1919, to the French,
British and Ja] ies,

10. Ibid., British Embassy. Washington, to the Department of
Stat,-, June 7. I'M'*.

11. Ibid.. Department's Note of July 3, to French, Ja;


Online LibraryMingchien Joshua BauThe foreign relations of China: a history and a survey → online text (page 31 of 39)