It will be remembered that early in 1938, there was an exchange of Notes between Great Britain, and Japan on the subject of the fünds of the Chinese Maritime Customs collected in the areas occupied by the Japanese forces, by which it was sought to protect the interests of foreign investors in loans Secured on. Customs revenues, and to maintain the integrity of the service. Generally speaking it was agreed between the diplomats of the two countries that. China's obligations secured by the Customs' revenues should be paid in proportion to the funds set aside for the same purpose in territory controlled by the Nationalist Government. The. scheme was undoubtedly a fair one doing justice all round, and it was hoped that the Chinese Government would accept it. That they refused to do, claiming that the scheme was an infringement of the Chinese sovereignty, and the result has been that foreign investors in Chinese loans have been suffering very considerably. It may safely be said of both China and Japan that whereas the latter has shown that she has scrupulously, and sincerely honoured her contractual obligations, the former has also shown her good intentions by a desire likewise to meet her engagements. Yet holders of Chinese bonds have become the victims of a very unfortunate train of circumstances, a fate which would have been avoided by acceptance on the part of the Chinese Government of the Anglo-Japanese agreement of two years ago. In some countries holders of foreign bonds have been victimized by the bad faith and political opportunism of the borrowers. This cannot be alleged against China, for it will be remembered that in 1936 the Chinese Government set about the task of reorganizing the entire status of her external indebtedness in a manner which was at one and the same time most realistic; and commendable. An influential, and representative committee in London representing the bondholders was formed, and came to an understanding with the Chinese Government's representative there whereby a sensible compromise was made with regard to past defaults in order to pave the way for the future honourable servicing of China's loans, and the re-establishment of her credit.
Great attention was directed towards China as a result of these endeavours to put matters on a proper footing, and as a result an enormous appreciation took place in her loans secured on the Customs, salt, railways, etc, a measure of the admiration which was felt for the goodwill thus displayed by the Chinese Government. Another instance of 's determination to safeguard her credit was shown by the manner in which she sought to service her entire domestic bond issue, both as to interest and amortization since the commencement of hostilities in 1937. These domestic bonds are for the most part secured on the Customs surplus, and according to the loan agreements, their servicing comes after the obligations on external loans, assured by direct charge upon Customs revenues, have been met. The Anglo-Japanese agreement of May, 1938, was designed to come into operation to safeguard bondholders' interests, as a purely temporary measure for the duration of hostilities. It was an admirably-conceived plan, and, if put into effect, would have had the result of ensuring that external loans secured on Customs revenue would continue to be serviced, and Chinese credit abroad maintained on the level which the decisions of 1936 placed it. It represented no infringement of Chinese sovereignty, and in making such an excuse for not consenting to the plan China herself gave a sharp blow to her finan-cal prestige on an argument which, even if true, would not amount to a similar loss of face. Xndeed had there been any such thing, the fact that China was still seeking to maintain the high level of her credit would have more than compensated for it. The scheme was in fact a method whereby it would be possible to bridge the unfortunate, and it was thought, temporary period of financial dislocation attendant upon hostilities. Failure to put the scheme into operation has brought about the most paradoxical situation imaginble. The financial world is seeing domestic {sues secured upon surplus revenues mostly, being met in full by monthly payments, both as to interest and amortization, while the servicing of those issues, which are a direct charge upon the revenues themselves, is being left in abeyance.
In the meantime the funds which could be used to fulfil China's obligations to the holders of these bonds are lying idle in the bank appointed for their reception, while considerable distress, and hardship is being inflicted upon a very large section of people of all nationalities, both in the Far East, and abroad, through the non-functioning of the external loan service. With some hundreds of millions of dollars earmarked for such service it seems incredible that some relief should not be forthcoming for the bondholder to enable-him to meet the many calls that come his way. It is also a tragic thought that these funds which have been accumulate ing since 1937 should have suffered a grave depreciation in exchange value which would bever have occurred had they been made available in the manner contemplated by both the British, and the Japanese Governments. There can be no criticism of the decision of the Chinese Government to service the domestic issues out of surpluses for it would undoubtedly have been wrong to refrain from doing so when the necessary funds were available. But surely the same doctrine should apply in the case of the external loans which are endued with priority rights, and especially must this be the case when the requisite money is already in hand. Such reluctance on the part of the Chinese Government to meet the requirements of the foreign bondholders amounts to a form of useless discrimination from which the Chinese Government itself does not benefit, while those who have placed confidence in its credit in the past are being made needlessly to suffer. It should not even at this late. date be impossible to devise some scheme whereby it would be possible to meet the just requirements of the holders of external loans. The money to do so is available, or at least that part which has been collected in territories under the occupation of the Japanese. There is no reason to believe that the Chinese Government has not been just as scrupulously careful to see that the funds collected in the areas under its control have been similarly earmarked, and if this is the case there can be no acceptable reason why in all fairness the servicing of the external loans should not be permitted to take place. It is not merely a question of expediency, but one of utter justice.
Text read from the printed page and cleaned; old type leaves the occasional error.