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have been unwilling to assume the responsibility of undertaking a practical and comprehensive scheme. In following this course these officials are China's worst enemies for the reckless financial policy of the past few months if continued will lead to that very intervention, which in refusing the six groups' terms, these gentlemen have been avowedly trying to avoid.

The groups have not been attempting to force money, with humiliating conditions attached, on China. They have stated merely that they are willing, only upon certain conditions, to loan the money which China has requested them to furnish. The groups do not insist that China accept a loan if these conditions are unacceptable. They do say that they will not issue Chinese bonds on terms which they regard as unsatisfactory. The "six-power" groups do not constitute a monopoly but they are not willing to undertake any loan unless assured that they will be entitled to furnish on sound conditions funds to complete the transactions, the initiation of which they finance, and that they shall have a clear market until the different loan series for which they contract are sold.

For the sake of the preservation of China's integrity and the commercial "open door" it is to be hoped that some mutually satisfactory understanding may be reached between China and the "six-power" group. It is to China's interest that this combination should be maintained, and it is to the interest of China as well as of the United States, that we should retain our present position therein. China's great problem to-day is that of finance. It is to her advantage that we are entitled to a practical voice in its solution, and it is to the advantage of American trade that the United States continue to be an active party in Chinese loan negotiations.

SUPPLEMENTARY NOTE

Although the agreement for the Reorganization Loan was on the point of signature early in February, developments since that time have caused a further postponement of the conclusion of this transaction.

The terms agreed upon by the Chinese government and the bankers are substantially those outlined in the foregoing pages. The purposes for which the money is to be expended were specified by the Chinese government and deemed satisfactory by the bankers.

Provision has been made in the loan agreement to ensure the expenditure of borrowed funds for these specified purposes. The Chinese government has itself established an Audit Department and engaged to appoint a competent foreigner to introduce an effective system of accounting, while a Bureau of Foreign Loans will also be created which will, like the Audit Department, be under the direction of a foreign employee of the Chinese government.

The proposed agreement also stipulates that the Chinese government shall appoint a foreigner who shall act jointly with the Chinese Director General of the Salt Administration and provision is made for the appointment of foreign and Chinese district inspectors, who shall have charge of the salt production, the sale of this commodity to the salt merchants and the collection of the salt revenues, which it is stipulated shall be deposited with the group banks until provision is made for the service of the loan. The loan agreement also contains a provision, which, if the six groups undertake the reorganization loan, will protect the market therefor until it has been issued in entirety.

The negotiations resulting in the preparation of the agreement outlined above were undertaken by the banks on the understanding that the Chinese government would appoint foreigners to the positions mentioned and would satisfy the six legations in Peking that these employees would be engaged under contracts which would enable them to render effective service.

The Chinese government on the night before it was expected that the loan agreement would be signed nominated a Dane for the Salt Administration, an Italian for the Audit Department, and a German for the Loan Bureau. Certain of the interested governments desired that these foreign employees should be of the nationality of the lending bankers. These points were raised at the last moment and re

quired a month to adjust between the various governments concerned. The program agreed upon by the six governments was submitted to the Chinese government early in March and refused by the Chinese. At the time of writing, however, negotiations are still in progress and it is to be hoped that a mutually satisfactory arrangement will soon be reached.

EDITORIAL NOTE

Since Mr. Straight completed this article, the American Banking Group has definitely withdrawn from further participation in the Six Power loan negotiations, due to President's Wilson's refusal to continue the moral support of the Government. The following are the official explanations of the attitude of the Administration and of the American group respectively. President Wilson gave this statement to the press:

We are informed that, at the request of the last administration, a certain group of American bankers undertook to participate in the loan now desired by the government of China (approximately $125,000,000). Our government wished American bankers to participate along with the bankers of other nations, because it desired that the good will of the United States toward China should be exhibited in this practical way; that American capital should have access to that great country and that the United States should be in a position to share with the other powers any political responsibilities that might be associated with the development of the foreign relations of China in connection with their industrial and commercial enterprises. The present administration has been asked by this group of bankers whether it would also request them to participate in the loan.

The representatives of the bankers through whom the administration was approached declared that they would continue to seek their share of the loan under the proposed agreements only if expressly requested to do so by the government. The administration has declined to make such request because it did not approve the conditions of the loan or the implications of responsibility on its own part which it was plainly told would be involved in the request.

The conditions of the loan seem to us to touch very nearly the administrative independence of China itself; and this administration does not feel that it ought, even by implication, to be a party to those conditions. The responsibility on its part which would be implied in requesting the bankers to undertake the loan might conceivably go the length in some unhappy contingence of forcible

interference in the financial, and even the political affairs of that great Oriental state, just now awakening to a consciousness of its power and of its obligations to its people.

The conditions include not only the pledging of particular taxes, some of them antiquated and burdensome, to secure the loan, but also the administration of these taxes by foreign agents. The responsibility on the part of our government implied in the encouragement of a loan thus secured and administered is plain enough and is obnoxious to the principles upon which the government of our people rests.

The government of the United States is not only willing, but earnestly desirous of aiding the great Chinese people in every way that is consistent with their untrammeled development and its own immemorial principles. The awakening of the people of China to a consciousness of their possibilities under free government is the most significant if not the most momentous event of our generation.

With this movement and aspiration the American people are in profound sympathy. They certainly wish to participate and participate very generously, in opening to the Chinese and to the use of the world the almost untouched and perhaps unrivalled resources of China.

The government of the United States is earnestly desirous of promoting the most extended and intimate trade relationships between this country and the Chinese republic. The present administration will urge and support the legislative measures necessary to give American merchants, manufacturers, contractors and engineers, the banking facilities which they now lack and without which they are at a serious disadvantage as compared with their industrial and commercial rivals. This is its duty. This is the main material interest of its citizens in the development of China. Our interests are those of the open door-a door of friendship and mutual advantage. This is the only door we care to enter.

The following was handed to the press by the American group, March 19:

The American Group, consisting of J. P. Morgan & Co., Kuhn, Loeb & Co., The First National Bank and the National City Bank, was formed in the spring of 1909, upon the expressed desire of the Department of State that a financial group be organized to take up the participation to which American capital was entitled in the Hukuang Railway Loan Agreement, then under negotiation by the British, French and German banking groups.

This group thus became interested in Chinese Loan matters, not primarily for its own profit, but for purposes indicated by President Taft and Secretary Knox. As stated in President Taft's message to Congress of December 1909, these purposes, in effect, called for the co-operation of the bankers as the "indispensable instrumentality" which the American Government needed to enable it

"to carry out a practical and real application of the open door policy." The Department of State considered that American cooperation with the Banking Groups of the several great powers enabled the United States to exercise a practical voice in China's affairs and constituted the best guarantee for the preservation of China's integrity.

In pursuance of the policy so advocated, the American Group, with the Administration's approval, entered into an agreement with the British, French and German Groups for the purpose of rendering financial assistance to China. In February 1912 these four groups at the request of their respective Governments and with the consent of the Chinese Government, admitted Russian and Japanese financial groups to the negotiations for the Reorganization Loan, thus constituting what has since been known as the Six Power Group.

Following the revolution and despite the fact that the authority of the new Republic had not been generally accepted, the American Group joined with the other groups in making to the Provisional Government substantial advances to enable it more firmly to establish its authority and to restore normal conditions throughout the country.

Meanwhile there had been in negotiation, during a period of many months, a loan agreement which, in its general terms, appeared last month to meet the approval of the Six Governments, of their banking groups, and the Chinese Government, and to be ready for signature.

These terms were intended to cover two points. The first was to enable the Chinese Government to reorganize its administration on an effective modern basis, to pay off its large outstanding debts and build up Chinese credit. The second was to protect the interests of American and European investors. For such protection, in the judgment of the Governments and the Groups, the only method was to ensure, despite any possible recurrence of political unrest in China, the proper expenditure of the funds loaned to China and to safe-guard the handling of the revenues pledged for principle and interest of the bonds.

As announced in the statement given to the press yesterday the present Administration at Washington, with a desire to be of assistance to China and to promote American interests in the Far East, has decided that these purposes may better be served by the adoption of a different and independent policy. As the American Group had been ready to serve the Administration in the past, irrespective of the heavy risks involved, so it was disposed to serve the present Administration if so requested. But deferring to the policy now declared, the Group has withdrawn entirely from the Chinese Loan negotiations and has so advised the European and Japanese banking groups.

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