Jan 18
Briefly summed up the effect of the recent statement issued in Chungking on the subject of the servicing of obligations secured on the Customs revenue means that the Chinese Government is refusing to assume responsibility of service on revenue collected in Japanese-controlled areas. It will only carry on by providing that proportion of the whole represented by the ratio between what is collected in areas still under Chinese control, and the whole total Customs revenue of the country. Though it has to be admitted that the Anglo-Japanese Agreement on the subject reached in May of last year met with a very mixed reception, there cannot be the slightest doubt that it was designed to preserve the integrity of the service as a whole, and to maintain China's credit at a time when its maintenance was of prime necessity. Refusal on the part of the Chinese Government to recognize the validity of the agreement, to which it must be admitted it was not a party, has resulted in the breaking down of an' arrangement which was of the utmost importance to investers in China's foreign loans, and the consequent paralyzation of the Chinese bond market abroad. Taking an attitude of opposition from the very first, and in fact Fepudiating the agreement, China sought during the past year to maintain service on the foreign loans and the Boxer Indemnity out of its own resources, and, judging from the statement issued in Chungking, made up the amount which should have come from the Japanese controlled areas, thereby postponing a situation which would have arisen had the Chinese adopted in May last the attitude which they have now taken up. As was pointed out yesterday the agree ment provided for the making of those provisions which the Chinese Government declares itself no longer willing to make, while the Japanese stand firm on their contention that the Agreement not having been implemented, they are not bound to full their part of the bargain. Failure to implement arises out of the fact that at the time the agreement was signed there were two balances tying in the Hongkong Shanghai Banking Corporation to which the Japanese laid claim.
One amounted to £400,000 on account of the Boxer Indemnity, being arrears on the Japanese portion, and $25,000,000 being Shanghai Customs Revenue which had accumulated during the period January-May, 1938, and had not been remitted to the Inspector-General of Customs. To the first the Japanese had an out-and-out claim, while to the second the recognition of Japanese control Jover the area in which Shanghai is situated brought it within the terms of the agreement, whereby local collections would have to be deposited in the Yokohama Specie Bank. itisunofficially stated that in the custody of the Yokohama Specie Bank, asa result of Customs collections in the Japanese-controlled. areas, there is a very large sum accumulated which would become available if the agreement of last year were carried into full effect by the! handing over of the sums above referred to. In view of that fact it is clearly in China's interests that the agreement should be implemented and that this money should be made! available for the servicing of China's foreign obligations, From every point of view it is good business that this should be done. To commence with, it would be a profitable transaction from the point of view of China's ability to continue fully honouring her foreign obligations, which it is quite clear China has up to the present done her utmost to do, while it wauld also obviate the unfortunate effect upon the country's credit which this new development amounting to a partial default must inevitably have. Even if it be admitted, as it must be, that China was no party to the agreement, it must be pointed out that in view of the political condition prevailing at. the ime the agreement was reached, and which prevails now, it was impossible for China and Japan to have negotiated direct. Foreign incrests inthe Chinese Customs being' what they are it was the most convenient form of procedure for Britain and Japan, with the knowledge of other Powers concerned, 0 arrive at some method whereby the interests of all parties were protected. That would be completely effected by implementing this agreement, as it was originally hoped would occur.
The contention that to assent to any such arrangement would infringe pon the sover~ eign dignity of China has not much merit about it. Nor is there much in the suggestion that the agreement discriminates. between China's foreign and domestic loans secured upon the Customs revenue, for in this. con~ nection it must be apparent that any attempt to reach an arrangement providing for the' service of the latter from funds collected in Japanese-controlled areas would be doomed to failure from the very outset. With regard to the first contention it should be emphasized that dignity would accrue to the Chinese Government by the honouring of its obligations find the greater the difieulties under which this is done the greater the dignity. Reduced the plainest terms, in view of the im= Portanee of China doing everything to maintain its credit abroad, the resort to what in the light of all the facts is nothing but a Yory minor quibble consorts neither with the dignity nor the honour of the Chinese Gov= ernment, while good business demands that large balances which are at. present lying in Japanese hands should, under the terms of the agreement, be liberated for the purpose to which they are to be devoted. The effect of this decision abroad, if itis adhered to, will undoubtedly prove unfortunate. Where means has been provided whereby China can meet its foreign obligations, and the Government at Chungking fails to avail itself of it, the impression must naturally be created that it fs not doing everything that it should to maintain its credit. If it fails in this respect, hhow can it hope to obtain those further credits which it apparently expects? A blow such {his to China's financial standing, especially view of the fact that it is so unnecessary, cannot fail to alienate sympathy, which even though it is belated, is being given practical expression both by' Great Britain and the United States. From that point of view it is to be hoped that the Chinese Government will change its decision, for as it stands it ix poor: polities, and worse' business.
Text read from the printed page and cleaned; old type leaves the occasional error.