PART III - Proposals for an Endowment Fund (a)

• Author: Chamberlam, Austen
• Pages: 60

PART III - PROPOSALS FOR AN ENDOWMENT FUND (a).

(1) INTRODUCTORY AND GENERAL The China Indemnity (Application) Act provides that the money shall be applied to 'such educational and other purposes' as are 'beneficial to the mutual interests' of China and Great Britain One of the first problems which the delegation had to consider, and for which they had to find a solution, was the question whether the whole of the accumulatbu funds and all future indemnity instalments as they came m should be spent m direct grants and subsidies in ad of the various 'educational and other' objects which it considered most worthy of support, or whether a certain portion of the available funds should be set aside as a permanent endowment, to ensure that after 1945 (when the Indemnity payments would cease) the work alieady undertaken should not be allowed to lapse It was not difficult to settle this question m principle, for responsible Chinese and British opinion (so far as the delegates had opportunities of consulting it) was almost unanimous in holding that endowment should be provided for, preferably on su(h a scale as would obviate any necessity to curtail the ' educational and other ' activities upon which the trustees of the fund might be engaged in 1945 The only dissentient voice was that of one of China's veteran statesmen, now living in retirement, who held that all the money should be spent as it became available, regardless of the future. This view was apparently based on the assumption that China needed all the help she could get in the immediate present, and that in twenty years' time she would probably have emerged from her struggles and difficultles and would be m a position to assume full responsibility for any worthy enterprises that might then be deserving of financial support Without any wish or intention to discourage such optimism, the members of the delegation felt that they were hardly justified m accepting it as a basis of policy After full consideration, therefore, and after consulting many representative Chinese, they came to the unanimous decision that an endowment fund should be provided for, subject to the condition that the annual sum available for educational and other purposes should be if possible not less than ~850,000

The next step was to settle the nature of the investments which were to constitute the endowment, and the decision arrived atagain a unanimous one-was that, although the main purpose of the endowment was to provide for the continuation, after 1945, of the work already m progress, instead of being invested m Chinese Government bonds or m foreign 'gilt-edged' securities or deposited m the banks, the money earmarked for endowment purposes should, if possible, be invested m some useful, natinal productive undertaking which, besides yielding an income sufficient to carry on the educational and other work after 1945, would also be directly advantageous to the interests of the people of China With regard to the amounts to be devoted to endowment and to immediate ' educational and other ' needs respectively, the result

of the discussion which took place on this subject will be found succinctl) set forth in the following statement which has been prepared by a member of the delegation-Dr C C Wang-and accepted m principle by all hti colleagues The basis of the calculations with regard to the endowment fund is that it will consist of a sum not exceeding ~5,200,000 and not less than ~8,500,000 * ' It is our opinion that a considerable portion of the annual instalments of the Indemnity funds beginning with 1927 should be applied directly to educational and other purposes ' and that the balance should be invested in some 'productive work' m China, the returns from which should also be applied to educational purposes It is our opinion, further, that the amount to be invested m the 'productive work' should be sufficiently large to ensure that the work m question will be regarded as being of some national significance and that at the same time it should, under ordinary circumstances, yield an annual income not less than the average amount which we may decide to allocate directly to ' educational and other purposes ', so that whatever educational and other works may be undertaken may be yarned on after the term of the Indemnity expires in 1945 ' With the above principle in view it is suggested, as shown m the table, that1850,000 annuall during the years 1927-29, 8300,000,, 1980-2, ~250,000,, 1983-84 ~200,000,, 1985-86 and thereafter, ~150 000 annually should be allocated directly to 'educational and other purposes' during the first several vears, so that building and establishment expenses may be met out of the proceeds of the Indemnity Although the annual sum of the Indemnity fund allocated directly to 'educational and other purposes' becomes smaller beginning with 1983, in fact, the amounts available for such purposes will really become much larger as by that time the 'productive work' will be completed and lielding increasing sums of money every year ' This plan, as outlined m the attached table, will approximately give about ~5 mllhon during the vears 1928-82

This amount will be about sufficient to complete the 'mlssmg link' of the Canton-Hankow Railway or some other similar work 'In order to complete the 'productlve work' within six -ears beginning 1927, loans will have to be made on the security of the Indemnity funds Column 8 gives the amounts of loans to be made during each vear, according to which the loan may be made m three equal instalments of ~1 million each m the years 1980-82 ' The loans may be made by arrangement with some of the British and Chinese banking houses, whereby they will either * Dr Wang's statement refers to the.5,200,000 With regard to the e8.500,000, a statement b3 Dr V K Ting will be found in Appendix (k), iP 167

supply the monev as required from time to time by the 'productive work,' bv 'advances or by the flotation of three equal instalments of short-term bonds In case the construction of a railwax is decided upon then a considerable portion of the 3 million sterling short-term notes may be accepted by the manufacturers for railway materials supplied 'Interest on such loans is calculated at 7 per cent per annum Redemption of the principal of all loans would be made out of the Indemnmt fund and should be completed by the end of 1945 Bv using the Indemnity fund as a primary security for the payment of princpal and interest, loans mar be relatively easily floated 'It is suggested that the annual income which may accrue from the permanent investment should also be applied to educational purposes Beginning m 1984, that is one year after the completion of the 'productive work,' if we base out calculations on a 5 per cent basis for the first five years, we shall have available ~250,000 annually for educational purposes during this period After the fifth year we may expect m ordinary circumstances 6850,000 to ~500,000 as income from the permanent investment, annually, for the same purposes Thus all educational and other works which may be undertaken may be carried on after 1945' )*' e i s: 'I- ^ ~ ^ 4 -a 1 I i 1927 1,700 413 163 350

1929 8;0 413 913 350

1930 1,000 413 1,043 300 70

1971 1,000 1,000 413 973 300 140 1

1932 2,000' 1,000 00 1,090 300 210

19-3 3,000 I 600 140 250 210

1934 3,000 600 250 210 140

1935 2,860 600 200 200 200

1936 2,B60 600 200 186 214

137 2,446 600 L0 171 219

1938 2,167 600 150 162 298

1939 1,869 00 150 131 319

1940 1,550 600 150 108 342

1941 1,208 413 150 84 179

1942 1,029 413 15 72 191

19430 1, 413 1,50 59 204

1944 634 413 150 44 219

1945 413 413 29 384

1946 29

Note 1 -The figures in the table are in thousands of pounds Note 2 -TIBs table is mathemataeal and the ealeulations are not aheeed Therefore it may be taken only as a general guide for our dlscuston and consderaton of various financial schemes

question, the delegates agreed that the principle of using the Indemnity fund or anv part of it as collateral security for the capital expenditure on any productive enterprise presented certain disadvantages from a financial standpoint and should not be made the basis of any recommendations to be made by the delegation In spite of this expression of opinion, which was recorded in the minutes, the members of the delegation desire to explain that they had no intention of debarring the future Board of Control from reconsidering this question, should general conditions in China become more satisfactory in the future than thel are at present If collateral security could be given with reasonable safety, and if it would be of assistance to the Chinese Government in carrying out a national productive undertaking, there would seem to be no insuperable objection to the fund, or a portion of it, being so employed The delegates having reached this point m their deliberations, found that the real difficulty still lay before them m connection with the choice of a national productive undertaking of the kind required It had to be something that could reasonably be regarded as a safe and profitable form of investment, a work of outstanding national importance, and an enterprise which could be counted upon to confer real benefits upon lafge numbers of Chinese people Those who are acquainted with present conditions in China need hardly be reminded that investments of the kind required are not easy to find Given stable political...