FOREIGN FINANCIAL CONTROL IN CHINA
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THE MACMILLAN COMPANY
MXW VOKK • BOSTON • CHICAGO • DALLAS ATLANTA • SAN FRANCISCO
MACMILLAN & CO., Limitbd
LONDON • BOMBAY • CALCUTTA MBLBOURNS
THE MACMILLAN CO. OF CANADA, Ltd.
TOXONTO
FOREIGN FINANCIAL CONTROL IN CHINA
BY
T. W. OVERLACH
iI3eto gotb
THE MACMILLAN COMPANY 1919
A.U rights reserved
COPTBIflHT, 1919
bt the macmillan company
Set up and electrot}i)ed. Published, January, 1919
TO
THE MEMORY OF
WILLARD D. STRAIGHT
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CONTENTS
THEORETICAL INTRODUCTION
PAGE
Foreign encroachment on China (i), Struggle of inter- national financial interests (ii), Conquest by railroad and bank (ii), China important center of world politics (iii), Necessity for clearer vision in international affairs (iii), Task (iii), Definitions: "Spheres of Interest," "Spheres of influence" (iv), "Open Door" (vi). Railroad "conces- sions" (vii), "Control" denotes certain "Financial Safe- guards" (viii). Foreigners have no right to political con- trol (x). Abuses of "Control" (x). Method of Investiga- tion (xii).
CHAPTER I
Historical Introduction : Foreign Relations with
China before 1895 i
The East India Company; Monopoly (i). The "Hong" as intermediary (2), Lord Macartney's attempts to estab- lish direct relations with Chinese government (3), Con- ditions of trade at beginning of 19th century (4), Abol- ishment of East India Company's Monopoly (5), Lord Palmerton's instructions to Lord Napier (5), Admission of Elliott as Comptroller (6), Treaty of Nanking, Con- cessions to British (7), John Quincy Adams on the Opium War (8), Foreign relations with China remain unstable (9), License and violence of the foreigner (10), French and British interference (10), Treaty of Tientsin provides for British diplomatic agent (11), Establishes "Extra- territoriality" (12), Foundation of " Tsungli Yamen " (15), Formation of Maritime Customs Service (16), Un- satisfactory state of affairs (17), Expansion of trade (18), British policy of non-interference (21), French in Tonking and Annam (22), British secure counter-concessions (23), Burma and Sikkim pass under British rule (23), Chino- Japanese war opens new political problems (24), The "battle of concessions" of 1897 to 1898 (24), Play of eco- nomic forces (26).
VI CONTENTS
CHAPTER II PAGB
Great Britain 27
Great Britain's "open door" policy (27), Lease of Weihaiwei and Russia's advance in the north (28), France in Yunnan, British secure counter-concessions (28), Ex- tension of Hongkong (29), Non-alienation of Yangtsze Region (30), Preferential advantages of other Powers (31), British counter-demands (32), "After consultation with the Admiral" (33), 2,800 miles of railway conces- sions (33), Delimination of British and Russian spheres (34). Of British and German spheres (35), Lord Salisbury and Mr. Hay on the "open door" (38), China attempts to bar foreign capital (39), Indemnity loans (40), For- eign pressure and the Boxer Rebellion (41), Opinion of a rebel leader (41), Russia's duplicity (42), Anglo-Japanese alliance (43), Powerful influence of local vested interests (45), The Hongkong and Shanghai Banking Corporation and British government support (47), British Syndicate, the British and Chinese Corporation's monopoly (48), British "control" (49), Shanhaikuan-Newchwang rail- way contract (50), "Control" provisions (51), Shanghai- Nanking Railway contract (53), Canton-Kowloon Rail- way agreement (54), Peking Syndicate's rights in Shansi and Honan (55), Willard Straight on "control" (57), Kent's summary : Syndicate " mortgagee in possession " (58), British control: private, financial, and non-political (60), Admittance of non-British interests to British sphere (60), The Chinese Central Railways and international amalgamation (61), Advent of Deutsch-Asiatische Bank (62), British misgivings (63), British "laissez-faire" policy (64), Hobson on International Finance (66), Fur- ther railway concessions (67).
CHAPTER III Russia 69
Russian imperialism (69), Designs upon Chinese ter- ritory (70), Siberian Railway (71), Russia and Li Hung Chang (73). "Yellow Peril" argument (74), Cassini convention (75), Manchurian Railway agreement (78), Political aspect of Russo-Chinese Bank (78), The bank and the Chinese Eastern Railway (79), Land grants (79), Troop movements (80), Railway controlled by Russian government (82), Russian "control" nominally financial, in fact political and military (83), Railway "guards" (84), Railway part of Transsiberian system (84), Rus- sian domination of North Manchuria (85), Russia's ad- vance into Southern Manchuria (85), Lease of Port Ar- thur (85), Russification of Manchuria (87), Russo-British
CONTENTS vii
PAGE
animosities (88), Russo-French-Belgian cooperation (91), Sir Claude MacDonald's protest (92), Belgian "control" financial (94), Further Russo-Belgian schemes (94), Se- cret Russo-Chinese convention (97). Treaty of Ports- mouth (100), A check to Russian ambitions (loi), Rus- sian administration of railway "zones" (102), Concilia- tory post-bellum attitude ( 108) , Russia and Japan mutually guarantee their respective spheres (no), New railway enterprises (in), Advance upon Mongolia (112), Rus- sia's attitude toward Asiatic peoples (116).
CHAPTER IV France 119
Early intercourse with China (119), Shaping of railway policy (120), Penetration of Southern China (121), Eco- nomic and political motives (122), Mr. Hazen on French foreign policy (123), Mr. Doumer's railway program (124), China grants railway rights to France (126), Lease of Kuangchouwan (126), Chinese "non-alienation" decla- rations (127), French Chamber authorizes construction (128), French syndicate concessionaire Yunnan Railway (128), French "control" (130), "Policy of Colonization" (131), Furtherance of French Commerce (131). Pro- hibitive freight rates (132), Expansion of French am- bitions (133), Franco-Russian cooperation (134), Govern- ment safeguards French interests (136).
CHAPTER V Germany .... 137
Occupation of Kiaochau (137), German indifference as to future of China (139), Prince Biilow on the partition of China (139). Railway concessions (141), The Shantung Railway Company and the Deutsch-Asiatische Bank (143), "Control" by governor of Kiaochau (144), China has no right to assume control (145), Shantung German sphere of interest (145), "Control" nominally financial (146), Political aspect of German "control" (147), British German agreement (147), Splendid location of Tsingtau (149), Later railway concessions (150), Coordination of German finance and industry (151), Government promo- tion of foreign financial enterprise (151), Concentrated upon exclusively German success (152). Purpose of Deutsch-Asiatische Bank (153), German-British cooper- ation (154), Elimination of Germany's interests (155).
viii CONTENTS
CHAPTER VI PAGE
Japan 156
The Russian peril (156), The Korean question (157), Humiliation of Japan by Russia, France and Germany (158), Sagacity of "Elder Statesmen" (160), Motives of Japan's foreign policy (161), Economic difficulties (162), China: Japan's commercial hope (164), Treaty of Ports- mouth unsatisfactory (165), Transfer of Russia's Man- churian interests to Japan (165), The South Manchurian Railway Company (167), Large scope of enterprise (168), "Guards" and "zones" (169), Close connection of com- pany with Japanese government (171), Japanese "con- trol" in South Manchuria (171), Economic paternalism (172), The Hsinmintung-Fakumen project (i73)> Chin- chau-Aigun and Kirin-Changchun Railways (175). Mili- tary aspect of South Manchurian system (176), The evacuation period (177), Japanese pledges to doctrines (178), Count Okuma claims strict adherence to Inter- national Law (181), Japan's justification (181), Russian precedence (182), Russo-Japanese agreements mean di- vision of interest (183), Monarchical-paternalistic form of government (185), Significance of Japanese-British Alliance (186), Japan seizes German possession in Shan- tung (187), Occupation of German railway (188), Fur- ther concessions from China (188), United States-Japan agreement of 1917 to disperse suspicions (191), Latest Russo-Japanese conventions (192), American recognition of Japan's "special interests" in China (193), "Pax Japonica" (195)-
CHAPTER VH
United States 196
Unselfishness (196), Secretary of State declines partici- pation in Chinese war (197), Anson Burlingame advocates "open door" (197), Mr. Hay's "Open door" notes (199), Further steps towards permanent safety of China (200), Mr. Taft on the "open door" (202), American participa- tion in financial development of China (204), Mr. Harri- man's Manchurian Railroad Scheme (205), Mr. Knox's "Neutralization" Scheme (205), Refused by Russia and Japan (207), Mr. Leroy-Beaulieu's opinion (209), Strengthening of American prestige (210), Admission of American capital to interlational loans (211), President Wilson refuses support (213), Directed against certain "control" provisions (213), American criticism (214), The American International Corporation (217), Latest loan proposals (217), American Japanese agreement of 1917 (218).
CONTENTS IX
CHAPTER VIII PAGE
International Control 220
Early international loans. Secured by Maritime Cus- toms Revenue (220), "Control" (221), Anglo-German Tientsin-Pukow railway agreement (222), "Control" re- mains with Chinese government (224), Favorable terms (225), Unsatisfactory operation (226), Anglo-American- French-German "Hukuang" loan (227), Final agreement (229), "Control" (230), secured by salt, likin, and rice tax (231), In case of default to be administered by Mari- time Customs Service (232), Lenient "control" provisions (232), "Four Powers" currency loan (234), "Control" over administrative expenditures (235), China's financial plight (236), Quadruple syndicate advances funds (239), President gives firm option to banks (240), A "Belgian" loan (241), Its political aspect (242), China's breach of faith (243), Four Power Syndicate's protest (244), Stand- point of British foreign office (244), Addition of Russia and Japan (246), Mr. Willard Straight's summary on loan negotiations (247), Vital question of "control" (251), Chinese opposition (251), Sir Edward Grey's approval of group action (252), Independent loans (253), The " Crisp" loan (253), Hypothecation of surplus revenues of Salt Gabelle (254), Crisp gives up privilege (255), Continu- ation of international loan negotiations (256), Interna- tional rivalry (256), America's withdrawal (257), Final "Reorganization loan" agreement (257), Charge upon salt revenues (258), Central Salt Administration under international "control" (259), Chinese opposition (262), Necessity of loan (263), Necessity for supervision over expenditure and revenues (266), Responsibility of Bankers (267), Satisfactory result of salt reform (268), Vindica- tion of "control" (268).
Conclusion 270
Important aspects of the problem (270), Foreign com- mercial pressure on China (271), Profit of the West (272), Burden of indemnities (272), Chinese obstruction (273), Stability of China's foreign policy (274), Foreign powers moderate their policies (275), Count Hayashi on foreign combinations (275), International finance as a peace maker — Quotation from J. A. Hobson (276), Slow Trans- formation of China (279), Advisability of international cooperation and "control" (279), Necessity for tolerant spirit of mutual respect (280).
Bibliography 283
THEORETICAL INTRODUCTION
With the conclusion of the Chino-Japanese War in 1895, a new era opened in the Far East, an era of rapid encroachment on China by powerful western nations and by Japan. These powers secured strategic bases on Chi- nese territory and sought to control certain parts of the Empire through the medium of railways. Railway con- j cessions, and to some extent public loans, were the instru- 1 ments by which the foreign powers advanced and carried out their policies. The obvious tendency of foreign am- bitions at this time in regard to railway enterprise was to secure a monopoly of rights within socalled " spheres of interest," and as far as possible to exclude Chinese as well as other foreigners not only from securing con- cessions but also from any share in the control or manage- ment of those railways that were to be constructed in their respective spheres.
Though at first sight political, and fought by diplom- acy, the struggle for foreign control in China was not less one of international financial interests, contending for the exploitation of new opportunities for investment. Foreign capital was attracted by the great profits to be
ii INTRODUCTION
gained from the impending industrial revolution of China. In order to eliminate financial competition of other na- tions or to counteract political moves on the part of other governments, if such were destined to be harmful to its own expansion, foreign finance often solicited, and freely received, diplomatic protection. With a protection and promotion of foreign enterprise several governments combined the furtherance of national ambitions of a more or less political character. All banks and syndi- cates in charge of the railways and loans became more and more generally recognized as indispensable means to the political and commercial ends of their respective gov- ernments. The struggle for foreign control in China has accordingly been marked by a most singular and dis- tinguishing feature, namely, the closest possible coopera- tion between foreign finance and foreign policy. The period was one of " conquest by railroad and bank."
The tenacious determination on the part of several powers to control their respective spheres to the greatest possible exclusion of their competitors not only tended to prejudice China's integrity but also the full and free en- joyment of the treaty rights of others. Though protest- ing vehemently and professing adherence to the ** open door " doctrine nations viewed, nevertheless, with jeal- ousy the preserves seized by others. They were driven to bitter diplomatic strife over each new prospective " sphere." In short, the tremendous pressure of modem
INTRODUCTION iii
imperialism coupled with modern capitalistic enterprise was, in China as elsewhere on earth, a constant menace to peace ; and a continued application of imperialistic poli- cies to exclusively national ends might again make for war, as soon as the present conflict is over. For China will unquestionably become once more one of the principal centers of world politics, in which Great Britain, Russia, France, Germany, Japan, and the United States are con- cerned.
But whatever the future relations of these nations in reference to China may be, it would appear that a clearer vision in international affairs would go far towards pre- venting further hostilities, namely, if each nation, with unprejudiced mind, would candidly consider the claims of an opponent as well as its own and would seek to strike a fair balance by mutual concession. Such is at least what we propose to do in the following modest contribution to the study of recent and present day financial and political activities of foreign powers in China. We shall adopt a sympathetic view and attitude towards all the powers concerned, trying to give justice to each, instead of seeing things through the colored glasses of national ambitions. To offer a solution, to give suggestions or to pass judg- ment can obviously not fall within the scope of our inves- tigation. We merely aim to give a comparative and scientific account of what we consider the most tangible and concrete problem of the otherwise so elusive Far
IV INTRODUCTION
Eastern Question, namely, the problem of " Foreign Financial Control in China."
Before we can offer a definite program for our investi- gation we shall have to define our task more clearly. To that end it will be necessary to analyze certain theoretical phrases in their application to our problem and to reduce them to their true meanings. And we shall not be held to anticipate unduly if we define, at the outset, terms which will constantly reappear, although detailed illustrations will as a matter of course have to be reserved for their proper places.
The principal phrases which we have in mind are: " spheres of interest," " spheres of influence," " independ- ence," " open door," " concessions," and " control."
One thing common to all these terms is their flexibility ; for they have been used with the greatest latitude of meaning and have been applied to a great variety of relations; but through all their uses run certain special characteristics which may be determined with a fair de- gree of accuracy.^ The most confusing terms, often used interchangeably even in theoretical literature,^ are *' spheres of interest " and " spheres of influence." A " sphere of interest " is officially earmarked by non-aliena-
1 See P. S. Reinsch, " Colonial Government," page 103.
^W. E. Hall and L. Oppenheim, both of whom will be quoted below, in their treatises on International Law, fail to distinguish clearly between the two phrases, apparently only having conditions in Africa in mind. See Hall, pages 129 to 131, and Oppenheim, Vol. I, page 297.
INTRODUCTION V
tion declarations extracted from the Chinese Government and officially created by an agreement between two powers. It refers to an area frequently adjacent to a possession or a protected or leased territory within which area the foreign power claims the primary right of eco- nomic exploitation.^ Its essential element is a negative one; namely, the term expresses the principle that no other power except the one in whose favor the " sphere of interest " exists shall be permitted to acquire conces- sions or to exert any control or influence whatsoever — not to speak about military occupation — at the same time giving the privileged power a monopoly of the right to seek concessions.* This privilege, however, does by no means entitle its holder to any positive exercise of " in- fluence " within the sphere which would change the " sphere of interest " into a " sphere of influence." For the latter term, which never has been used officially, as far as China is concerned, suggests a certain degree of authority or control, either financial or political, exer- cised by a foreign power within a certain territory.
Political control, however, has to stop short of chang- ing the " sphere of influence " into a protectorate.
3 Foreign " spheres " in China are, legally, only economic spheres in contrast to the political spheres of Africa.
* See Reinsch, page 103. Otto Kobner, " Kolonialpolitik," page 14: " Streng rechtlich betrachtet liegt also nur ein pactum de ex- cludendo alium vor. . . . Erfolgt von Seiten einer dritten Macht ein Widerspruch nicht, so ist rechtlich ein ius excludendi alios, alien fremden Machten gegeniiber entstanden."
vi INTRODUCTION
Though eventual occupation may be contemplated, the re- gion has " not actually been so reduced into control that the minimum of the powers which are implied in a protectorate can be exercised with tolerable regular- ity." "^
As long as control consists merely of a legitimate pro- tection of the financier, subject to agreements of an ex- clusively financial nature, no objection can be raised by anybody. But as soon as the exercise of a reasonable financial control changes into the exercise of an adminis- trative control or an assumption of territorial supremacy by a foreign power, without any sanction on the side of the Chinese, such control would seriously menace the supreme sovereign authority, in other words, the inde- pendence, of China. For one of the marks of an inde- pendent state is that " it is independent of external con- trol." ® " In the interest of the territorial supremacy of other states, a state is not allowed to send its troops ... or its police forces into . . . foreign territory, or to exercise an act of administration or jurisdiction on foreign territory without permission." "^
The wielding of a political control would also be violat- ing the socalled " open door " policy. For this policy aims to be an instrument for the maintenance of the integ- rity of China and the preservation of an " equal oppor-
" See W. E. Hall, " International Law," page 129.
• See Hall, op cit., page 17.
■"■ See L. Oppenheim, " International Law," Vol. I, page 179.
INTRODUCTION vil
tunity for all." It is mainly directed against the assump- tion of an undue administrative control or territorial supremacy within a " sphere." It is, however, not ex- plicitly opposed to the policy of " spheres of interest," and not necessarily to the " sphere of influence " as long as influence means financial control within reasonable bounds. Indeed, the " open door " principle recognizes the " vested rights " and " special interests " within such spheres as long as a certain amount of opportunity for others is preserved, that is, as long as the Chinese treaty tariff is indiscriminately applied, as long as treaty ports are kept open and as long as no harbor dues or railroad charges are levied higher than those imposed upon sub- jects of the country in whose favor the " sphere " exists. The principle is also more or less opposed to the acquisi- tion of a monopoly in the supply of railway materials and rolling stock.
To return to the term " sphere of interest " : The interests have invariably taken the form of the socalled railroad " concessions." The term concession has been as loosely applied as the other phrases. Railroad con- cessions are agreements, conferring on the foreigner cer- tain rights of financing, building and managing of rail- roads. In several cases where the railroad grants have been made under conditions which deprive China of al- most all control and profit in the several undertakings, and which lead to political control and therefore prejudice
viii INTRODUCTION
her sovereign rights within the " sphere," the term " ces- sion " might be more appropriate than " concession." In many cases the " concessions," that is, the railroad agree- ments, are simply in the nature of underwriting contracts. In no instance have the Chinese parted with the ultimate property in the railways.
. The grantor of the railway concessions as well as the principal claimant of capital was the Chinese Govern- ment. But while to strong and reliable governments money is entrusted unconditionally, China's political in- security, together with her financial inexperience, forced the foreign financier to maintain a great amount of con- trol over his investments. The principal feature of all railroad agreements then are the " control " clauses, and the word " control " in this connection is being used " to denote certain financial safeguards for the protection of loan funds " in the interest of the owners and the bond- holders.* These safeguards either consist of a first mort- gage upon the railway if owned by the Chinese Govern- ment and in a certain share in the management of the line in order to prevent fraud and to secure efficiency and an adequate return, since the lenders usually are entitled to a share in the profits of the line. Or " control " means direct management by the foreign owners, if the railway is nominally a private foreign and Chinese joint stock
8 The quotations in the definition of control have been taken from W. D. Straight, " Recent Developments in China," page 131.
INTRODUCTION ix
company in which the Chinese in the natural course of things had but little share.
The word " control " similarly refers to loans, in which connection it signifies certain "guarantees against im- proper loan fund expenditure," and secures principal and interest by some special hypothecation and the supervision or management thereof — as, for instance, when the revenue of customs, taxes, or some monopoly is pledged.
Furthermore has the word " control," though inac- curately, been used in connection with certain monopolies, which interest us only secondarily. On the one hand have the contracting bankers occasionally " controlled " the supply of railway materials and rolling stock by stipu- lating that such were to be purchased from the manufac- turers of their respective countries. On the other hand did the bankers through national or international monop- olistic syndicates attempt to " control " the money supply to China.
The main points we now mean to emphasize, are:
First, that the " control " clauses embodied in the sev- eral concessions as well as loan agreements are nominally of a financial character. All railways and loans are nom- inally, as far as foreigners are concerned, financed, man- aged, or controlled by private citizens, and the control provisions constitute nothing else but foreign expert sup- ervision or management to secure adequate profits. That
X INTRODUCTION
is to say : the provisions confer legally upon the foreigner no rights to political control.
Secondly, that the " sphere of interest " policy and the agreements referring thereto do likewise not confer upon the privileged power any rights to political control. For China had not the slightest intention of selling its sov- ereign rights within said spheres.
Thirdly, that the several control provisions vary con- siderably as to character and degree since they reflect the tendencies of the Far Eastern policies of foreign powers which either represent the results of economic pressure or serve as incidents in a larger policy of national im- perialism. It is important, in this connection, to bear in mind, that concessions and loan contracts have been ne- gotiated not only by bankers who acted as politico-finan- cial agents of their governments but also by diplomats directly. And it will be observed that, whereas it was the aim of the one power to insist upon " adequate con- trol " for economic purposes and incidentally to China's interest, it was the aim of the other power to control railways or loans for more or less political purposes and against China's interests. The control provisions there- fore often tended to evade, by practices which are diffi- cult to trace definitely, the principle of equal opportun- ity, and to undermine China's sovereignty. ; In other words, foreign control in China is nominally purely finan- cial, and if political, it is an undue extension of financial
INTRODUCTION xi
control by means of a peculiar wording and an arbitrary interpretation of the control clauses embodied in the dif- ferent railroad and loan agreements.
It might be objected here that certain powers have ex- ercised and still exercise control upon other premises than railroad or loan agreements. It is one of the aims of our investigation to show that this is not the case, — with the exception of the Maritime Customs Service in its original form.'' True enough, several powers have con- trolled Chinese territory by military force. Such con- trol, however, has always remained a temporary meas- ure. Control as we understand it, is of a permanent nature. Neither must " foreign control " be confused with the sovereign rights enjoyed by foreign powers within " leased territories," nor with the rights of extra- territoriality, nor with foreign administration of interna- tional settlements. In the first two cases China has ex- plicitly ceded certain sovereign rights, and the third case is practically nothing but an extension of the right of extraterritoriality. Foreign " control " is exercised where no sovereign rights have been ceded. If we entitle this book " Foreign Financial Control in China " we do so firstly to avoid any possible confusion, and sec- ondly to indicate the sources as well as the raison d'etre of foreign " control."
By too many distinctions at the outset, however, we
^ See Chapter I.
xii INTRODUCTION
might anticipate certain results of our investigation. The advantages and justification of narrowing down the vast field of foreign finance and foreign policies in China to a more concrete question of foreign financial control will, we trust, become clearer when the proceedings and problems which have been touched upon are analyzed and narrated in detail. We shall consider these by treating each foreign power individually, although such treatment may involve repetition in certain particulars, seeing that the several policies are occasionally closely connected. In order to understand fully the character and degree of for- eign control and the policies and operating causes under- lying it, we shall have to give a comprehensive knowledge of past and existing affairs, conditions, and problems. The method of our investigation therefore must be mainly historical. By considering the vastness of the field, the thesis can only aim at a brief analysis and interpretation of history, based upon the most important documents and utterances of authorities and writers such as are enimier- ated in the Bibliography, Many important events which have no direct bearing upon the subject will have to be left unmentioned. Likewise will many of the numerous railways and loans, either contracted or projected, have to be left undiscussed. For our purposes it will be suf- ficient to consider only the more important contracts and agreements.
The main investigation is to be preceded by a general
INTRODUCTION xni
historical introduction, which makes no claim to scientific value whatsoever. In this chapter we merely intend to set the stage, so to speak. The arrangement of the chap- ters which then follow will not be strictly chronological but rather chronological, subject to geographical and his- torical conditions. A separate chapter is to be devoted to international control, while in the conclusion some reflec- tions will be made. A word has to be said about the spelling of Chinese names. The writer has not adopted a uniform system, but has quoted names as he found them printed. The inconsistency in spelling them is due to the fact that each author spells Chinese names as he pleases. The majority of these conform to Giles' system or to common usage.
In concluding our introductory remarks we venture to believe that the subject demands the treatment which we have outlined, and that it will be found both logical and convenient.
FOREIGN FINANCIAL CONTROL IN CHINA
CHAPTER I
FOREIGN RELATIONS WITH CHINA BEFORE iSq^
China's recent and present day international relations will be better understood on the basis of a knowledge of the development of these relations during the nineteenth century. Of the literature available on this period ^ we have principally followed the two admirable accounts of Sargent, " Anglo-Chinese Commerce and Diplomacy," and Morse, " The International Relations of the Chinese Empire " ; and since we can dwell upon the nineteenth century previous to 1895 only in an introductory way, we shall content ourselves with a brief summary of the two books, supported by references to official documents and by a few other quotations.
China has been opened by England to intercourse with the modern world. The early history of British rela- tions with China is to all practical purposes the history of the East India Company, which made the project of opening up a trade with China an integral part of her
* See Bibliography, Section VI.
I
2 FOREIGN FINANCIAL CONTROL IN CHINA
policy. The great bulk of the capital required for the trade with the East was invested in ships and goods and in a few trading stations in fixed establishments abroad. The Company's station in China was the " factory " at Canton where she enjoyed a monopoly granted to her by Great Britain and special privileges obtained from China. This twofold advantage enabled the Company to main- tain her commercial predominance of the Chinese trade intact throughout the various vicissitudes of its fortunes and in spite of the modifications introduced at successive intervals of the charter. The excellent responsible or- ganization gave her the further advantage of stability in dealing with the Hong merchants and Chinese officials. The latter in their intercourse with foreigners concerned themselves only with two points : the revenue and taxes imposed arbitrarily to be collected, and the orderly be- havior of the traders. As intermediary in all things be- tween the Chinese officials and the foreigners they in- stituted the Hong, which was a body of merchants num- bering from two to eleven. The Hong was responsible to the government for the good behavior of the foreign- ers, and for the customs duties on the whole trade, in- cluding that of outside or unprivileged merchants. The responsibility of the Hong merchants was more than nominal. No foreign ship was allowed to trade until one of their body had become security for the good be- havior of the crew. Those strict regulations served the
HISTORICAL INTRODUCTION 3
purpose of restricting the energetic foreigner to only such intercourse as could be carried on under official super- vision. The monopoly system of the Hong was emi- nently calculated to attain this end. The functions of the Hong were thus diplomatic or political as well as commercial. In the former capacity they acted as a convenient barrier between the degraded " barbarian " and official pride ; in the latter they were useful as a fairly safe and regular means of filling official coffers.
In their dealings with the Hong and the officials, the Company, as the only representative foreign body, was compelled by its traditions to champion the cause of for- eigners in general and it was only at the close of the eighteenth century that the British Government began to take official intercourse in its own hands. This first step was the embassy of Lord Macartney, sent out both on behalf of the East India Company, and in order to im- prove the general relations between the two nations. It was pointed out to Macartney that, though the English were more numerous than other foreigners at Canton, they had hitherto had no official communication with the Chinese Government, and that it was the duty of the Sovereign to take up the matter and defend the interests of his subjects. Here is the beginning of a trouble which required a century for its settlement. It was thought that the local rather than the Imperial officials were respon- sible for the vexatious restrictions on intercourse with
4 FOREIGN FINANCIAL CONTROL IN CHINA
foreigners, and subsequent diplomatic history is largely concerned with attempts to establish direct relations with, and wring concessions from, the Chinese Government. The main questions which were destined to be fought out in the nineteenth century were the legal control over for- eigners and the conditions under which commercial inter- course was to be allowed.
With the beginning of the nineteenth century, this intercourse had become more and more difficult. The number of foreigners resorting annually to Canton had greatly increased ; disturbances were frequent, the anti- foreign feeling became more clearly marked, and there was undoubtedly, on the part of the Chinese, a distinct intention to restrict as far as possible the existing privi- leges of foreigners. With the appearance of numerous private traders the commercial importance of the East India Company began to decline and the profits which so far had been satisfactory began to diminish. In view of these commercial and political difficulties and of the grow- ing hostility of the Chinese, the position of the Company was becoming critical. A final attempt to improve her relations with China by invoking the aid of the State and sending out the embassy of Lord Amherst in 1816 with the hope that the establishment of direct relations between the two governments might lead to better trade conditions generally, also proved a failure. In conse- quence of all this, the monopoly of the Company was
HISTORICAL INTRODUCTION 5
abolished in 1833, owing especially to a large force be- hind Parliament, both of traders and theorists, who advo- cated open trade on various grounds.
Simultaneously with the abolishment of the monopoly, other orders in Council provided regulations for future relations.^ Three " superintendents " were contem- plated to present British authority. The orders also give power to the Crown to create a Court of Justice with criminal and admiralty jurisdiction at Canton and to ap- point one of the superintendents to be the officer to hold such a court. Here we have the formal opening of British relations with China. The instructions by Lord Palmerston to Lord Napier and his colleagues, as the first superintendents, throw considerable light on the ideas and policy of the Home Government.^ The superin- tendents were enjoined to watch over trade generally and to adjust disputes between British subjects and Chinese or foreigners. In doing so they had to avoid irritating Chinese officials and above all impress on British subjects the duty of conforming to the laws and usages of the Chinese Empire. Lord Napier was directed to ascertain how far it might be possible to extend trade to other parts of China and to seek for the best means of estab- lishing direct relations with China. There is evident in
2 See " Additional Papers Relating to China," 1840, Vol. XXXVI. ^ See " Correspondence Relating to China," 1840, Vol. XXXVI, No. 2.
6 FOREIGN FINANCIAL CONTROL IN CHINA
these instructions an attempt to give effect to the aspira- tions of the British mercantile community towards a wider trade based on more secure conditions than the custom of the Company.
The Chinese were well aware of the radical difference between these new officials and their predecessors, and they did all in their power to counteract the British policy. Thus Napier's mission was unsatisfactory. It then be- came clear that nothing had been gained by the removal of the East India Company ; on the contrary the Chinese were attempting further restrictions and continued to refuse acknowledgment of the Government emissaries. However, on February 2nd, 1837, the Chinese policy underwent a little change, when an Imperial Edict gave the required permission for admittance to Canton to Superintendent Elliott as comptroller, who after months of negotiations was successful in really establishing his official position after having boldly informed the viceroy of his appointment to the station of the " Chief English authority in China." * His admission marks a new chapter in the history of English commercial relations with China. The English abandoned the quiescent policy of the earlier times and showed determination. The first result of the new policy was the Opium War, during which the British took permanent possession of Hong-
*See "Correspondence Relating to China," 1840, Vol. XXXVI, pages 142 ff.
HISTORICAL INTRODUCTION 7
kong. The war was concluded by the treaty of Nanking of August 29th, 1842.^
Its enactments are simple in the extreme — they are :
1. The conclusion of a lasting peace between China and Great Britain.
2. The payment of an indemnity of $2i,(X>o,ooo by China to England: $3,000,000 to settle Hong debts, $12,- 000,000 to cover expenses, and $6,000,000 as opium com- pensation.
3. The opening of Amoy, Canton, Fuchow, Ningpo, and Shanghai to British trade.
4. The cession of the island of Hongkong to England.
5. The provision for free transit of goods after pay- ment of the tariff and a fixed transit duty.
Opium was the immediate cause of the war. The Chinese tried to stop opium smuggling, which was strongly supported by the Indian Government. India was profiting enormously by the trade and did not wish to discontinue it. When the Chinese stopped it they put themselves in the wrong. Yet opium was not the prin- cipal reason for hostilities. A contemporary conception of the significance of the Opium War is given by John Quincy Adams in an address before the Massachusetts Historical Society, November 22nd, 1841, on the subject of " The War between England and China,"
^ Sec W. F. Mayers, " Treaties Between the Empire of China and Foreign Powers," page i.
8 FOREIGN FINANCIAL CONTROL IN CHINA
" The justice of the cause between the two parties, — which has the righteous cause? You have perhaps been surprised to hear me answer, Britain. Britain has the righteous cause. But to prove it, I have been obliged to show that the opium question is not the cause of the war. My demonstration is not yet complete. The cause of the war is the kowtow ! — the arrogant and insupportable pretension of China that she will hold commercial inter- course with the rest of mankind, not upon terms of equal reciprocity, but upon the insulting and degrading forms of lord and vassal." ^ " In fact the direct cause of the war was the growing sense of the need for better protection to life and property, though behind this was the ground cause of the need for better relations generally." "^ The Treaty of Nanking, then, intended to settle the disputes between the mandarins and the British traders and it was to be the charter of commercial rights in China, acknowl- edging for the first time in history, the existence of a Western Power on an equality with the Celestial Empire : For Article I stipulates that the respective subjects " shall enjoy full security and protection for their persons and property within the dominions of the other," while ac- cording to Article II Great Britain " will appoint Super-
" Boston Evening Transcript, Wednesday, Nov. 24, 1841, quoting the transactions of the Massachusetts Historical Society of Nov. 22, 1841.
'' See H. B. Morse, " The Trade and Administration of China," page 36.
HISTORICAL INTRODUCTION 9
intendents or Consular Officers, to reside at each of the above-named cities or towns, to be the medium of com- munication between the Chinese authorities and the merchants."
But when England accepted the treaty in final settle- ment of the annoyances which had led to the war of 1839, she had reckoned without her host. Owing to the fact that the Chinese were not permitted by a Christian nation to abolish the infamous opium traffic because it was a very lucrative one, and owing to the humiliation of their defeat and of the Treaty of Nanking, which has "inflicted a deep wound in the pride, but by no means altered the policy of the Chinese Government," ^ and last, but not least, owing to the conservative and even stub- born disinclination on the side of the Chinese to treat other nations on terms of equality, relations between China and other Powers, and especially with Great Brit- ain, continued unstable. The Chinese view of the treaty was in marked contrast to its terms. China had signed it reluctantly and merely to stop the incursions of the British in her realms, and, having obtained her aim, she made no attempt to abide by its provisions. Thus the period following the Treaty was filled with further dis- turbances and difficulties in the relations, the principal complaint being that charges still were suddenly and
• See Alexis Krausse, " The Far East," page 36.
lO FOREIGN FINANCIAL CONTROL IN CHINA
arbitrarily imposed by the provincial officials in spite of the treaty stipulations.
But on the other hand, the reports and opinions of consuls drawn up for the benefit of Lord Elgin show plainly that many elements of disturbance were also to be found within the European settlements, and that in the matter of observance of treaties the Chinese were far from being the only offenders.®
To quote Sargent ^^ : " Foreign merchants, in direct custom-house relations with Chinese authorities, all more or less venal and corrupt, launched into a wholesale sys- tem of smuggling and fraudulent devices for the evasion of duties. Contempt for all Chinese authority, and dis- regard of inherent rights, habitual infraction of treaty stipulations, licence and violence wherever the ofTscum of the European nations found access, and peaceable people to plunder — such were the first-fruits of this important concession; and time only served to increase their growth."
Conditions soon pointed to another armed interference in which the French joined hands with the English, while Russia and the United States abstained strictly from any hostile steps, using moral suasion alone. The re- sult of the interference was the Treaty of Tientsin, which
• Correspondence relating to Earl of Elgin's special mission to China, 1857 to 1859, " China," 1859, Vol. XXXIII, No. i. 1° Sargent, op. cit, page 103.
HISTORICAL INTRODUCTION II
was signed with China on the 26th of June, 1858, by Lord Elgin in connection with representatives of France.^* This treaty strengthens that previously arranged at Nan- king, and suppHes several omissions in the former. It serves as the ultimate basis of foreign relations with China and therefore merits a close examination. The most important novelty is put in the forefront of the doc- ument. Article 2 provides for the sending of an ambas- sador to the court of Peking with all the usual privileges of such ministers and the dispatch of a similar represen- tative from China to London. He may come and go at pleasure; his letters are to be inviolable; he may com- municate with a high official on terms of equality, and shall not be called on to perform " any ceremony derog- atory to him as representing the Sovereign of an inde- pendent nation." By this clause, China is compelled, once and for all, to surrender her formal claim of supe- riority over western nations, which was one of the most cherished principles of the traditional policy of the Em- pire. Next in importance to the position of the British representative comes the fuller recognition of the prin- ciple of extraterritoriality. Referring to the latter Morse writes, ^^ " English . . . were not molested so long as they were law-abiding, but law-abiding in the sense of the law of China. It was irksome to them to have no
11 See Mayers op. cit., page 11.
** See Morse, " Trade and Administration of China," page 179.
12 FOREIGN FINANCIAL CONTROL IN CHINA
lawyer to instruct them in the law of the land, to have no fixed and certain law to appeal to, to be doubtful of the application of the law to any particular case, and to have no doubt whatever on the course likely to be followed by the administrators of the law." While the Treaty of Nanking made consuls the " medium of communication between Chinese authorities and the merchants," and while the supplementary treaty of Hoomimchae ^^ merely contained provisions for extradition, and regulations re- garding the punishment of English criminals, Article XV of the Treaty of Tientsin establishes the principle of ex- traterritoriality as far as British subjects only are con- cerned : " All questions in regard to rights, whether of property or persons, arising between British subjects, shall be subject to the jurisdiction of the British authori- ties." The principle of extraterritoriality was more clearly expressed and expanded in the Chefoo Convention of 1876,** between Great Britain and China, providing for mixed jurisdiction between English and Chinese, and again in the American Supplemental Treaty of Peking of 1880.^'' In the latter. Article IV reads as follows i — " When controversies arise in the Chinese Empire be- tween citizens of the United States and subjects of His Imperial Majesty, which need to be examined and de-
13 See Mayers, op. cit., page 5. 1* See Mayers, op, cit., page 44.
1' See Malloy, " Treaties Between U. S. and Other Powers," Vol. I, pages 239 ff.
HISTORICAL INTRODUCTION 13
cided by the public officers of the two nations, it is agreed between the Governments of the United States and China that such cases shall be tried by the proper official of the nationality of the defendant. The properly authorized official of the plaintiff's nationality shall be freely permitted to attend the trial, and shall be treated with the courtesy due to his position. He shall be granted all proper facilities for watching the proceedings in the interests of justice. If he so desires, he shall have the right to present, to examine, and to cross-examine witnesses. If he is dissatisfied with the proceedings he shall be permitted to protest against them in detail. The law administered will be the law of the nationality of the officer trying the case."
Articles IX-XI of the Treaty of Tientsin contain the new concessions. British subjects may travel for pleas- ure or trade to all parts of the interior, under passports issued by their Consuls, and countersigned by the local authorities. Newchwang, Tangchow, Taiwan, Swatow, and Kiungchow are opened as new treaty ports, where foreigners are privileged to establish consulates and for- eign merchants are permitted to live and trade. The new area thus provided for British enterprise was greatly extended by the opening of the Yangtsze to British merchant ships.
Finally Article XXVIII deals with the vexed question of inland transit duties. At all the treaty ports there are
14 FOREIGN FINANCIAL CONTROL IN CHINA
levied dues and duties on the trade according to a tariff settled by both parties. Goods were exempted from all further taxation on movement by one initial payment, except that the goods go " inland " to a place which is not a treaty port, where the bale is liable to the taxa- tion which is levied in China on all movement of com- modities not exempted by " special privilege." This is the one reason underlying the constant demand for the opening of new treaty ports, with all the expense for administrative work imposed on China, and for the en- forcement of extraterritorial rights. This Article XXVIII does away with the arbitrary imposition by provincial authorities of transit duties, so much com- plained of by British merchants, and stipulates a single transit charge to be declared by the collector of duties and to be levied at the first barrier or at the landing port. The_chargejsjtQLb€_asjiear_a^ possible 2^ ad valorem. Hereafter goods are exempt from all further inland charges whatsoever.
Between the signature of the treaty and its ratification there was again a period of armed conflict, illustrating the reluctance of the Central Government. The Con- vention of Peking finally signed the treaty on October 24, i860, a few days after the English and French Allies had found it necessary to give the Chinese a severe lesson in destroying the summer palace.
HISTORICAL INTRODUCTION 15
Treaties similar to the British treaty were immediately afterwards concluded by all the important powers.
The political history of the next few years is largely taken up with the difficulties incidental to the execution of the terms of the treaties. The governments standing behind the two contesting parties, the Chinese officials and the merchants, seemed to be disposed for a time to settle their differences by diplomacy rather than by force. The main step in that direction taken by China was the foun- dation of the Tsungli Yamen, or Board of Foreign Affairs, a product of the moderate party of Prince Kung. Having thus to deal with a responsible central body the English decided not to tolerate local pressure any longer and tried to induce the Chinese to adopt western ideas as to the subordination of local to central authority. The strengthening of central authority as against provincial authority would have been to China's own interests, since local officials were not willing to surrender revenue col- lected for the benefit of the Chinese Government, which was in need of resources to cope with the Taiping rebel- lion. In this connection the English helped China not only to strengthen centralization, but they also sent mili- tary aid to quell the Taiping rising, which at one moment threatened to overwhelm the whole country and to depose the Manchu dynasty. Thus the British Government com- mitted itself definitely by this assistance rendered to the
i6 FOREIGN FINANCIAL CONTROL IN CHINA
upholding of the dynasty and to the protection of the Empire's integrity.
In spite of all this friendly assistance, however, the attitude of the Chinese underwent no material change. Internal disorder and corruption seriously affected the execution of the treaties; the transit system continued to be totally inefficient and unsatisfactory. The internal administration of China was hopelessly corrupt; military and civil organization were in confusion; the Empire, without rail or telegraph, with its capital in the far north, was too vast for effective centralized government. Reor- ganization, indeed, was greatly needed everywhere. The only thing accomplished in that line was the reforma- tion of the customs system on western lines, when native talents and methods were inadequate for dealing with the complicated conditions introduced by the Treaty of Tientsin.
The formation of the " foreign customs," says Morse,^^ " was laid in the necessities of the Chinese Gov- ernment and not in any demand by the foreign merchant that an improved revenue service should be provided for them." The system grew out of the voluntary collection of customs established in Shanghai during the Taiping re- bellion. It was ever more enlarged and Rule lo of the Agreement of the Tariff Commission of 1858 laid the foundation for the appointment of a foreign Inspector-
18 See Morse's " Trade and Administration," page 366.
HISTORICAL INTRODUCTION \^
ate.^^ In 1863 Mr. — later Sir — Robert Hart was ap- pointed Inspector General and brought the system to its highest possible efficiency, thus benefiting the Chinese as well as foreign creditors : for the Chinese Maritime Cus- toms were to serve as securities for loans, to which we shall have occasion to refer later.
All further attempts on the European side at reorgan- ization and the attempts to carry out the different treaty stipulations and the conventions for treaty revisions proved to be without any result. The Chinese were not only not prepared to make any further concessions but they also desired a great deal to be altered. The car- dinal points of Chinese policy were brought to light at the Convention of 1869.^^ These were — the total pro- hibition of opium, the restriction of missionaries from inland residence, and the abolition of the principle of ex- traterritoriality. They amounted to the recovery of the greater part of that liberty which had been wrested from the Court of Peking in the various treaties. Chinese opposition was reen forced by the extravagant demands of the British merchants. The latter insisted upon the most sweeping changes, but were not disposed to concede anything. Indeed, their presence in China was not based on the desire to further the welfare of the Chinese but on their own benefit. And that in the treatment of China
^^ See Mayers, op. cit., page 31. ^* See Mayers, op. cit., page Z7'
l8 FOREIGN FINANCIAL CONTROL IN CHINA
by the foreigner much remained to be desired was amply illustrated by the plea of Burlingame in his famous mis- sion on behalf of the Chinese Government.
The demands of the merchants were not only prompted by an unsatisfactory state of affairs in China, but they also reflected unsatisfactory trade results. For a quarter of a century after the passing of the East India Company, the British had cherished the idea that the Chinese Em- pire, once successfully opened to trade, would offer a vast field of lucrative opportunities for British mer- chants. The several wars and following treaties were deliberately imdertaken for the development and protec- tion of that field. Yet the renewed activities of trade as shown after the treaties of Nanking and Tientsin, and the extension of the markets by the addition of new treaty ports proved to be of little advantage to the for- eign mercantile community in China. The possibilities of the trade and the opening of the Suez Canal had attracted large numbers of traders with small capital or credit, while the more responsible merchant, in anticipa- tion of lower profits on each transaction, was naturally disposed to enlarge the scope of his operations by way of compensation. The result was an artificial expansion of business, greatly to the detriment of the merchants, but to the advantage perhaps of the British consumer and manufacturer and certainly greatly to the profit of the Chinese producer and merchant. These exploited
HISTORICAL INTRODUCTION 19
to the full the competition among foreign buyers, who were helpless in the hands of the native dealer, since the latter was enabled by his excellent gild organization to maintain a strong control over the local markets and to keep up prices. ^^ The control of the whole trade was fast getting into the hands of natives, last not least, through the foreigner's ignorance of language, while the foreigner began to decline to the position of a mere agent, and profits and influence dwindled together. The Chinese evidently were already discovering that there are other means than riot and open opposition for the ousting of the foreigner, — means that cannot be touched by force or treaty.
The increase of trade, furthermore, depended on the expansion of the area and population open to British trade rather than on the increased use of English goods. "If we consider the vastness of the native population within reach of our goods at the opening of the trade, we are forced to the conclusion that we were no nearer capturing the native markets, in the sense of supplying the everyday needs of the masses, in 1884 than in 1834. . . . The economic self-sufficiency of China was perhaps the most formidable barrier which we had as yet encoun- tered in our career of industrial and commercial expan- sion." 20
1" See Schumacher, " Weltwirtschaftliche Studien," pages 430 ff. in : " Die Organisation des Fremdhandels in China." 20 Sargeant, op. cit., pages 224, 225.
20 FOREIGN FINANCIAL CONTROL IN CHINA
Looking back over the whole history of foreign rela- tions with China since the abolition of the East India Company's trading monopoly, a few marked results clearly stand out: The most satisfactory result was the establishment of foreign financial control over the mari- time customs service, which, however, should prove of greatest value and service at a later period and which will be duly referred to at the proper occasion. Further- more, the principle of extraterritoriality was introduced in China. Though it had proved absolutely necessary for the protection of the foreigner, it put a stigma of inferiority on the Chinese which is evident in all further dealings between China and the foreign powers. It re- versed the position of China which formerly was one of overbearance and contempt for the " barbarian." But treaties could neither alter national feelings and long- established customs, nor could they strengthen the inher- ent weakness of the Manchu administration and official corruption. Truly enough, tolerable conditions for com- mercial intercourse were established. Nevertheless, the Chinese trade, upon which great hopes had been founded, remained comparatively insignficant and unsatisfactory considering the sacrifices and risks incurred to develop it; while the experience revealed that it is impossible to create that trade by force of pressure or by treaties. Indeed, Europe used only a moderate amount of pressure in imposing its own will upon the Chinese Empire,
HISTORICAL INTRODUCTION 21
as Morse in a summary of the " Period of Conflict " ^^ emphasizes : " In time the world, East and West, will recognize that the West has exercised great restraint and shown a wise moderation in reaping the fruits of victory, and that the restrictions imposed on Chinese sovereignty were only those rendered indispensable by the inefiiciency and corruption of the mandarinate of the Empire; but this was a lesson for future years; now, as the result of three wars, the Chinese learned, and they accepted as their law, that, whereas formerly it was China which dictated the conditions under which international rela- tions were to be maintained, now it was the Western nations which imposed their will on China."
The policy adopted by the British Government follow- ing the Treaty of Tientsin was one of non-interference. It was found advisable to consolidate what was already gained, and for the future to trust to patient negotiation and moral influence. A reaction of discouragement had set in, which found its expression in a policy of laisser- faire adopted by the Home Government after the removal of Lord Palmerston from the Foreign Ofiice. This pol- icy also reflected a belief in China's ability ultimately to set her own house in order and a desire to be on friendly terms with other nations and to avoid any causes of fric- tion.
In accordance with the laissez-faire and free-trade
21 See Morse, " International Relations," page 617.
22 FOREIGN FINANCIAL CONTROL IN CHINA
principles England was ready, after having obtained new outlets for trade and other privileges, to share them with other nations. Thus her acquisition of trade facilities was followed by the conclusion of similar treaties be- tween China and other Powers. Britain had solved the problem of the conditions most favorable to national prosperity in her way, believing that open competition was the best condition for ensuring such prosperity. Wherever free-trade existed it meant British preponder- ance; and the predominance of England in China was admitted on all hands. Consequently, Great Britain did not attain exclusive privileges for the benefit of her trade and she strove by means of the " most favored nation " clause only to enjoy such privileges as have been accorded to other nations and no more. And she also was willing to refrain from the exaction of further priv- ileges.
Thus her policy, however, had to undergo a moderation as soon as other countries began to seek special advan- tages at the expense of their competitors and of China. French aggrandizement in Tongking, and the declaration of a protectorate over Annam were followed by the Franco-Chinese Treaty of Tientsin, in June, 1885, which seriously afifected British interests in setting up differen- tial duties in favor of France and in defiance of English treaty rights. ^^
22 See Mayers, op, cit., page 239.
HISTORICAL INTRODUCTION 23
The British Government could not view without con- cern the prospect of differential treatment for French goods entering China by way of the land frontier, and the danger of railway concessions leading to commercial monopoly. Frequent protests and warnings were ad- dressed to Peking; and the Chinese were ready enough to give assurances representing wishes, which they were unable to carry out in the face of France's superior force. The only effective reply to the French claims then, it was held, was to be found in the grant of counter-conces- sions by China to England; and so the English secured a series of concessions and advances parallel to those granted to France, and in the same region. The agree- ments of 1886, 1890, 1893, 1^94 ^^^ 1^97 ^^ opened trade and residence to British officials at Yatung, recti- fied the Burmese frontier, organized overland trade, opened the West River to seaborne trade, Wuchau being declared a treaty port. The most important result of English diplomacy was the passing of Burma, thereto- fore under Chinese suzerainty, under complete British rule through the so-called O'Connor Convention of July 24, 1886.24 By Article II China agreed "that, in all matters whatever appertaining to the authority and rule which England is now exercising in Burma, England
28 See Mayers, op. cit., pages 251 ff., and see also Rockhill, " Trea- ties and Conventions," Nos. i and 7. 2* See "China," No. 5, 1886, C — 4861.
24 FOREIGN FINANCIAL CONTROL IN CHINA
shall be free to do whatever she deems fit and proper." In 1890 Sikkim followed the way of Burma.
But while the dependencies of China were dropping from her in the south and southwest and while Korea was preparing her independence, the conclusion of the Chino-Japanese War marked the beginning of a series of new events and the recognition of new political prob- lems concerning China proper. The war disclosed the utter military weakness of the Manchu Government, and several great Powers were not slow in taking ad- vantage of this fact by disintegrating Chinese territory and pressing China for special and exclusive advantages. The most important event at this time was the occupation of the Liaotung peninsula and Port Arthur by Russia, an occupation which had long been determined on and which enabled Russia to obtain a stronger influence over the Chinese at Peking. The occupation was preceded by the seizure of Kiaochau by Germany, which had been well aware of Russia's ambitions, and was immediately followed by similar actions of Great Britain and France.
By this territorial aggression the old method of nego- tiating by force was revived. But while the armed inter- ference of Great Britain in former periods had secured equal opportunities to all other nations, the actions of the powers in the years 1897-1898 proved to be of an indi- vidual and selfish character. They disclosed the growth
HISTORICAL INTRODUCTION 25
of the new principle of preferential concessions, develop- ing into the policy of " spheres of interest." Before long we find Germany maintaining that Shantung, as the hinterland of Kiaochau, could not be open without re- serve to the enterprise of others than Germans. Almost at the same moment, Russia was announcing that she would not permit the Chinese provinces bordering on the Russian frontiers to come under the influence of any other nation. She was pressing on to the economic as well as the political control of north China. While France was aiming at the south, Japan claimed pre- dominance in Fukien, and England in the Yangtsze- Kiang region.
All these concessions were extorted from China prac- tically without any compensation. Stripped of her power, China had to pay the penalty of an unsuccessful war, and was forced to grant such privileges which she had hitherto steadily refused. The concessions were either granted without excuse, or they were the penalties of acts of violence on the part of the Chinese subjects, the missionary being a favorite pretext. But the pen- alty was usually out of all proportion to the crime, and China had reason for regarding the policies adopted by the European Powers as an open attack on the independ- ence of the Empire. And indeed the independence and integrity of China seemed to have been severely menaced, for it is evident that the vision of a " break up of China '*
26 FOREIGN FINANCIAL CONTROL IN CHINA
played a great role in the imagination of European statesmen.
At the same time the commercial and financial world was stirred with splendid visions of the long-deferred unconditional opening-up of China, and finance began to display interest in a country which presented unusual eco- nomic attractions. In this connection it is necessary to bear in mind the tremendous economic changes which had taken place in Europe towards the end of the nine- teenth century. The immense development of the eco- nomic resources of Europe and the overproduction of capital resulted in an unprecedented outflow of capital to all parts of the world. The perfection of the joint stock company, and the general recognition granted to this form of organization, made it possible for capital successfully to undertake in distant lands enterprises which could not otherwise have been undertaken. The private speculator and especially the great financial inter- ests appear in China and behind the latter is the whole diplomatic force of their respective countries; or the governments appear as the economic patrons of their subjects and promote or encourage financial enterprises in China. Finance takes the role which trade so success- fully had played in its connection with foreign policy, the g^eat and principal objects of finance being railway enterprises and political loans. Such were the economic forces behind the " battle of concessions."
CHAPTER II
GREAT BRITAIN
The aim of Britain, the greatest Asiatic power, was the maintenance of her economic preponderance. Since her interests existed in every port and her trade flourished in every province, she was bound to resent the attempt at closing any portion of China to her trade, and she had to oppose any measures which might tend to give undue advantage to another power. The policy of England, under the leadership of Lord Salisbury, was that known a* the " open door " policy, its signification being that the door of trade should be kept open for Great Britain in every place where it was made available to any other country in China, To the demands for an " open door " were added the watchwords : " integrity of China " and " equal opportunity," all of which are constantly reap- pearing in the newspapers,^ and in the official corre- spondence concerning the affairs of China. ^ But the Brit- ish Government had to go beyond the mere proclamation of these principles, as long as other nations did not respect them. When Germany leased the territory of
* See, for instance, London Times, April 6, 1898, and otherwise. 2 See " China." No. i, 1899, Vol. CIX.
37
28 FOREIGN FINANCIAL CONTROL IN CHINA
Kiaochau, Russia Port Arthur and Talienwan, and France Kuangchouwan, England was apparently unable to raise effective objections and resolved to follow the example of the others. The foreign office was especially worried about Russia's advance in the north, since Rus- sia was considered England's great opponent in Asia. Lord Salisbury declared that " the balance of power in the Gulf of Pechili is materially altered by the surrender of Port Arthur by the Yamen to Russia." ^ The English therefore entered into negotiations with the Yamen which resulted in the leasing of the harbor of Weihaiwei to England. A convention was signed on the first of July, 1898: " In order to provide Great Britain with a suit- able naval harbor in North China and for the better pro- tection of British commerce in the neighboring seas." * Of great significance for Great Britain's policy is the clause in the first paragraph in which China agrees to lease Weihaiwei " for so long a period as Port Arthur shall remain in the occupation of Russia."
In the meantime French plans had expanded with the success of their policy of pressure. France demanded the right to construct a railway from the Tongking fron- tier to Yunnan and a few other privileges, whereupon the British Government adopted the policy of counter- concessions. British policy and British demands are
3 See " China," No. i, 1898, Vol. CV, page 54. *See "China," No. i, 1899, Vol. CIX, page I99-
GREAT BRITAIN 29
illustrated in the instructions of Mr. Balfour to Sir C. MacDonald of April 13, 1898: ^ " Inform Yamen that, although they have not followed our advice, we are anxious to maintain, as far as possible, integrity of China, and will, therefore, not make new territorial de- mands upon them. It is, however, absolutely necessary, if we are to pursue this policy, that they, on their side, should first immediately conclude negotiations — (a) for giving us all the land required for military defenses of Hongkong; (b) to fulfill their promise to make Nan- king a Treaty port; (c) to give some railway concession; (d) an agreement as to the non-alienation of Kuang- tung and Yunnan. In connection with condition (d), it is in the interests of the integrity of China and is justified by the proximity of Yunnan to Burma, and by our commercial preponderance in Kuangtung."
The first result of British demands was a convention for the extension of Hongkong, signed on June 9, 1898,^ by which China granted a lease for ninety-nine years of 400 square miles of territory in the peninsula of Kowloon, immediately opposite to Hongkong. As to railway concessions mentioned by Mr. Balfour, Eng- land found herself soon in a position to press her de- mands, when the Peking-Hankow concession menaced England's interests in the Yangtsze Valley.
5 See "China," No. i, 1899, Vol. CIX, No. 21.
6 See " China," No. i, 1899, Vol. CIX, No. 174 ; see also Rockhill, op. cit., No. 12.
30 FOREIGN FINANCIAL CONTROL IN CHINA
One of the first things undertaken by the British after the ratification of the Treaty of Tientsin, had been the exploitation of the Yangtsze-Kiang. Since British interests along the great valley were greater than those of other countries and as it was alike the most fertile, prosperous and densely populated region of China, it was essentially the most important British sphere of interest in that country. Hence the British Government, in or- der to prevent eventual inroads of other powers into this territory, exchanged in February, 1898, notes with the Chinese Government respecting the non-alienation of the Yangtsze-RegionJ In this correspondence, which in its character is extremely vague, China gives an assurance that she would " never alienate any territory in the provinces adjoining the Yangtsze to any other power, whether under lease, mortgage, or any other designa- tion." The conclusion of the agreement was highly wel- comed by the British interests in China. Thus writes the China Association to Lord Salisbury : " The Asso- ciation has ventured on former occasions to indicate the Yangtsze Valley as a region in which British interests must prevail. It welcomed with cardial satisfaction, therefore, the announcement that China had been led to promise that no portion of that area should be leased or ceded to a foreign power." ^
T See " China," No. 2, 1898, Vol. CV ; see also Rockhill, op. cit, No. 22. "See "China," No. i, 1899, Vol. CIX, No. 25.
GREAT BRITAIN 31
British interests now were menaced, when, in 1897, a Belgian S)aidicate obtained a provisional concession for the great trunk line from Peking to Hankow.® There was clearly ground for Great Britain to be alarmed that Belgium served the plans of France and Russia. Lord Salisbury declared that " a concession of this nature is no longer a commercial or industrial enterprise and becomes a political movement against the British interests in the region of the Yangtsze. You should inform the Tsungli-Yamen that Her Majesty's Government cannot possibly continue to cooperate in a friendly manner in matters of interest to China, if, while preferential ad- vantages are conceded to Russia in Manchuria and to Germany in Shantung these or other foreign Powers should also be offered special openings or privileges in the region of the Yangtsze. Satisfactory proposals will be forthcoming if the Chinese Government will invite the employment of British capital in the development of those provinces." ^^ Mr. MacDonald strongly protested, whereupon the Yamen assured the British minister that the Russians were not interested in the scheme, and that no agreement admitting the Russo-iChinese Bank to par- ticipation would ever receive the Imperial sanction.^^ In spite of all protests the Chinese signed the final contract of the Peking Hankow Railway early in August, admit-
^ See Rockhill, op. cit., No. 34.
10 See "China," No. i, 1899, Vol. CIX, No. 175.
" See " China," No. i, 1899, Vol. CIX, Nos. 196, 263, 289.
32 FOREIGN FINANCIAL CONTROL IN CHINA
ting the Russo-Chinese Bank to financial participation. ^^ The greatest objection which the British raised to the contract was that the receipt and payment of funds by the Russo-Chinese Bank, on behalf of the syndicate, would pave the way to a future interference with the construction and control of the line. Mr. MacDonald declared Russian admittance a " breach of faith " on the side of the Chinese and demanded " reparation." He informed the Yamen that " Her Majesty's Government ponsidered that they had been badly treated by China in the matter of railway concessions, and now demanded from the Chinese Government the right for British merchants to build the following lines upon the same erms as those granted in the case of the Belgian line : — ientsin to Chinkiang (to be shared, if desired, with the ermans and Americans), Honan and Shansi, Peking yndicate lines to the Yangtsze; Kowloon to Canton; ukou to Sinyang; Soochow to Hangchow, with ex- ension to Ningpo. The lines from Shanghai to Nan- king, and Shanhaikuan to Newchwang, I added, were ^ot included in this list, as preliminary agreements had Already been signed for them, and they might be con- sidered settled." ^^ Mr. Balfour's instructions further- more illustrate the great amount of pressure exacted by Great Britain. Mr, MacDonald was authorized to in-
" See " China," No. i, 1899, Vol. CIX, Nos. 347 and 383. " See " China," No. i, 1899, Vol. CIX, No. 382.
GREAT BRITAIN 33
form the Yamen that, " unless they agree at once, we shall regard their breach of faith concerning the Peking- Hankow Railway as an act of deliberate hostility against this country, and shall act accordingly. After consulta- tion with the Admiral, you may give them the number of days or hours you think proper within which to send their reply." "
The Yamen, being aware of the concentration of the fleet, conceded everything, ^^ Thus did Great Britain ob- tain her railway concessions. The total length of the lines conceded amounted to 2,800 miles extending over ten provinces, as compared to 1,530 Russian miles, the rest of the nations falling way belov/ the Russian figure.^* To England fell the lion's share of the " battle of con- cessions," as Lord Salisbury properly styled this " peace- ful " conflict.i^
But with that the " battle of concessions " was not finished. Russia considered Manchuria and Pechili her exclusive sphere of interest. She therefore pressed Pe- king for the removal of Mr. Kinder, an Englishman, from his position as superintendent of the Tientsin-Shan- haikuan Railway, demanding that the " line north of Shanhaikwan should be constructed by Russian engineers and with Russian capital." ^® Ignoring Russian de-
" See " China," No. i, 1899, Vol. CIX, No. 286. " See " China," No. i, 1899, Vol. CIX, No. 324. ^^ Detailed analysis will be given below. " See " China," No. i, 1899, Vol. CIX, No. 232. 18 See " China," No. 2, 1899, Vol. CIX, No. 2.
34 FOREIGN FINANCIAL CONTROL IN CHINA
mands, the Hongkong and Shanghai Bank entered into an agreement to furnish the capital to construct a railway between Peking and Newchwang, taking a mortgage on the line.^® This caused much irritation in Russia and the relations between Russia and England became more strained than they were before. The friction which had arisen over railways rendered it desirable to come to an understanding in regard to mutual privileges and spheres of interest in China. After a long series of negotiations an exchange of notes was effected between the two coun- tries in April, 1899.2° The text of the agreement is as follows: " I. Great Britain engages not to seek for her own account, or on behalf of British subjects or of others, any railway concessions to the north of the Great Wall of China, and not to obstruct, directly or indirectly, applications for railway concessions in that region sup- ported by the Russian Government. 2. Russia, on her part, engages not to seek for her own account, or on behalf of Russian subjects or of others, any rail- way concessions in the basin of the Yangtsze, and not to obstruct, directly or indirectly, applications for railway concessions in that region supported by the British Government." By a supplementary note, the rights of the British and Chinese Corporation, un- der the loan contract, over the section from Shan-
" See " China," No. 2, 1899, Vol. CIX, Nos. 4 and 10. 20 See " China," No. 2, 1899, Vol. CIX, No. 129.
GREAT BRITAIN 35
haikuan to Newchwang were reserved, " and the Chi- nese Government may appoint both an English engi- neer and a European accountant to supervise the con- struction of the Hne in question, and the expenditure of the money appropriated to it. But it remains understood that this fact cannot be taken as constituting a right of property or foreign control, and that the line in question is to remain a Chinese line, under the control of the Chi- nese Government, and cannot be mortgaged or alienated to a non-Chinese company! " With this agreement the " sphere of interest " theory was considerably strength- ened.
In the case of the other trunk line from the north, that from Tientsin to Chinkiang on the Yangtsze, Eng- land inevitably came into collision with the interests of Germany. The English were bidding for construction or at least participation in construction of this line. The German minister, in 1898, was objecting that no line could be constructed through Shantung without the con- currence of Germany. In August, 1898, Baron Heyking informed the British minister of his instruction from his home government, of which the respective passage reads as follows : " Should the Chinese Government decide to grant a concession for the Tientsin-Chinkiang Railway regardless of German claims, you are instructed to op- ^ pose such a decision, and, should it be necessary, you may 1
inform the Chinese Government that the German Gov- \
i
36 FOREIGN FINANCIAL CONTROL IN CHINA
emment would consider as * non avenu ' any concession in that province, and would reserve the right of making the Chinese Government responsible for any such conces- sion in the event of its being granted by them." ^^ It has to be remarked here, that England as early as April, 1898, had formally declared to Germany: " that in estab- lishing herself at Weihaiwei she has no intention of injuring or contesting the rights and interests of Germany in the Province of Shantung, or of creating difficulties for her in that province. It is especially understood that England will not construct any railroad communica- tion from Weihaiwei and the district leased there- with into the interior of the Province of Shantung." ^^ But a mutual official declaration as to the respective spheres of interest had not taken place. Both govern- ments considered that a specific delimitation would " not be opportune, and that a friendly understanding in each case as it arose would be preferable." ^^ Such friendly compromise was finally concluded between the respective German and British financial interests, on Sept. ist and 2nd, 1898, at London. The text reads, in parts, as fol- lows : ^*
I. British sphere of interest, viz.:
" The Yangtsze Valley subject to the connection of the
81 See " China," No. i, 1899, Vol. CIX, No. 305. 2» See " China," No. i, 1899, Vol. CIX, No. 31- 2» See " China," No. i, 1899, Vol. CIX, No. 307. 2* See " China," No. i, 1899, Vol. CIX, No. 312.
GREAT BRITAIN 37
Shantung lines to the Yangtsze at Chinkiang; the prov- inces south of the Yangtsze ; the Province of Shansi with connection to the Peking-Hankow line at a point south of Chengting and a connecting line to the Yangtsze Val- ley, crossing the Hoangho Valley."
2, German sphere of interest, viz. :
" The Province of Shantung and the Hoangho Valley with connection to Tientsin and Chengting, or other point of the Peking-Hankow line, in the south with con- nection to the Yangtsze at Chinkiang or Nanking. The Hoangho Valley is understood to be subject to the con- necting lines in Shansi forming part of the British sphere of interest, and to the connecting line to the Yangtsze Valley, also belonging to the said sphere of interest."
This was agreed to with the modification that the line from Tientsin to Chinkiang be financed jointly, con- structed separately according to the respective spheres through which the lines were to run, and, on completion, to be worked for joint account.
The various railway questions had led to many crit- ical moments for Great Britain in 1898. In order to protect her own interests, she was forced to desist some- what from the traditional open door policy. Standing alone she had to fear that she might not be able to sustain China's absolute integrity against the aggression of other powers. A union of aim between her and any other nation or a combination of nations she recognized
38 FOREIGN FINANCIAL CONTROL IN CHINA
would go far to end the rivalries which threatened to par- tition China. Consequently, she eagerly seized the op- portunity of expressing her adherence to the open door policy in replying favorably to Mr. Hay's propositions of 1899.2^ The United States, though it has never taken an active part in the opening up of China, had gradually developed a very considerable interest in the country, which it was eager to see preserved. In this year the United States sent a circular letter to the European Powers to seek information as to the possibility of com- ing to an understanding in regard to the maintenance of treaty rights, and the safeguarding of the integrity of the Empire. The requirements of the policy of equal opportunity known as the " open door " were categoric- ally set out in this circular,^® with the object of obtaining the definite adherence of the various powers to its sup- port. The replies of all the powers concerned was in the affirmative. England's attitude is expressed by Lord Salisbury in his acknowledgment of the last of the com- munications from the American minister : " I may assure Your Excellency that the policy consistently advocated by this country is one of securing equal opportunity for the subjects and citizens of all nations in regard to com- mercial enterprise in China, and from this policy her Majesty's Government has no intention or desire to de-
28 See Rockhill, op. cit., No. 28, and Malloy, op. cit., I, 244 ff. 2« See Chapter VII.
GREAT BRITAIN 39
part." ^'' A similar policy was contained in an agree- ment identical in its contents to the note of Mr. Hay, concluded between Great Britain and Germany in Octo- ber, 1900.*®
The unfortunate Chinese officials in the meantime had learned that in spite of all the assurances of the for- eigners, friendly intercourse might be as dangerous as open hostility. They took the lessons of the extorted concessions to heart and attempted to apply their experi- ence in dealing with the railway problem. Fearing that railways constructed by foreign capital might later be : nade an excuse for territorial claims, they put every pos- sible obstacle in the way of such undertakings. Thus hey steadily refused the promised British concessions in Yunnan and decided towards the end of 1898 not to give any new railway concessions exclusively to foreign- ers. To that end they issued regulations on November 19, 1898, for mines and railways in China, which throw light on the real motives of Chinese policy.^® In these it was stated that the concessions in Manchuria, Shan- I tung and Luzchan (referring to the Russian, German and \ French spheres) " are affected by international relations, I and therefore will not be allowed to form precedentSy^ either for Chinese or foreigners." In Article 9 it is r^ quired that Chinese capital was to be employed as far as
2"^ See Rockhill, op. cit., page 191. 2* See Rockhill, op. cit., No. 14. 2» See Rockhill, op. cit., No. 48.
40 FOREIGN FINANCIAL CONTROL IN CHINA
possible, and that in all cases of concessions an endeavor must be made to have the Chinese part of the capital in such enterprises the greater proportion, at least a mini- mum of three-tenths of the total. By another rule, as an inducement to the natives, rewards were to be granted to Chinese promoters raising a capital of 500,000 taels, or contriving that half the shares in a company were Chinese-owned. The essence of the whole matter was summed up in the thirteenth clause : " In order to pro- tect the sovereign rights of China, the control of all railways and mining companies, irrespective of the for- eign capital concerned, must remain in the hands of the Chinese merchants." The regulations clearly meant noth- ing else than an absolute bar to the further investment of foreign capital. China once more tried to rid herself from the grip of foreign influence. But she foimd her- self unable to do so.
While they were not at all without success as far as concessions are concerned they became, on the other hand, more and more dependent upon the foreigners in another phase of finance. The financial necessities of China, a result of the Japanese War, and the indemnity had provided another means of dependence on the for- eigners and a new lever for inducing the acceptance of western demands. The different loans contracted in this connection amounted to L54,45 5,000 and were di- vided into one Franco-Russian Government loan and
GREAT BRITAIN 4I
two joint Anglo-German Government loans of 1896 and 1898, each being L 16,000,000.^^ The maritime customs served as security under the Inspector-General of Mari- time Customs. A special assurance to Great Britain was that the Inspector should be an Englishman so long as England should maintain her preponderance of trade.^^ This was necessary since Russia was trying to insist on a Russian for the post, which until then had so success- fully been administered by Sir Robert Hart.
The permanent foreign pressure for concessions, the territorial acquisitions and the constant attempts at intro- ducing western ideas into China, or in other words, the period of 1 897-1 898, had brought about a strong anti- foreign sentiment all over China. The result was the Boxer Rebellion of 1900. Referring to its causes, Lancelot Lawton quotes from one of the proclamations issued by the rebel leader Yu Tung Chen, who wrote : ^^ ** These foreigners, under pretext of trading and teach- ing Christianity, are in reality taking away the land, food, and clothing of the people ; besides overturning the teaching of the sages, they are poisoning us with opium and ruining us with debauchery. Since the time of Tao Kuang, they seized our territory and cheated us out of our money; they have eaten our children as food and
80 See "China Year Book," 1914; see Chapter VIII.
31 See " China," No. i, 1899, Vol. CIX, No. 20.
32 Lancelot Lawton, " The Empires of the Far East," Vol. I, page 2.
42 FOREIGN FINANCIAL CONTROL IN CHINA
piled up the public debt as high as the hills; they have burnt our palaces and overthrown our tributary states, occupied Shanghai, devastated Formosa, forcibly opened Kiaochau, and now wish to divide up China like a melon." This passage shows that the Boxer rising though primarily fanatical in its aspect, was none the less evidence of the awakening of a national spirit. But once more the Chinese were forced to recognize the superiority of foreign arms and foreign methods. The rebellion resulted in humiliation for China.
In connection with the Boxer event and its sequels there are two points of supreme interest. The first is the resulting political constellation. The campaign dis- closed Russia's diplomatic duplicity. Her policy was to back up the Chinese against the European Powers in order that she might pose as the protector of China for her own ends. She displayed a friendship for China and a protective attitude directed against foreign, especially English, aggression.^^
England was well aware of the menace which Russia's policy meant to her. She saw in Russia her traditional enemy more than ever. She strongly resented the for- ward policy of Russia in China, but found herself unable to check it single handed. Consequently she looked for an alliance which might restore the equilibrium of power in the Far East. The ally she found in Japan. The
»8 See Chapter III.
GREAT BRITAIN 43
island kingdom considered itself equally menaced by Russia's aggression, which already extended to the southern shore of Manchuria and which began to make itself felt in Korea, the independence of which kingdom was of vital interest to Japan. In seeking among the powers one who would support and finance her in active opposition to Russia's, Japan's inclinations leaned to- wards Great Britain, who formerly had refused to join other powers in turning her out of Port Arthur. Great Britain, on the other hand, was almost forced to throw in her lot with Japan, since Japan otherwise had to come to an understanding with Russia which would have destroyed the British position in China almost entirely. The Anglo-Japanese Offensive and Defensive Alliance concluded on January 30, 1902, then, was intended to check the encroachments of Russia upon Northern China and adjacent territories and to safeguard British and Japanese commercial and financial interests in those re- gions ; ^* or as the treaty expresses it : the two govern- ments are " specially interested in maintaining the inde- pendence and territorial integrity of the Empire of China and the Empire of Korea, and in securing equal oppor- tunities in those countries for the commerce and industry of all nations." Its significance is, according to Aubert, the addition of a maritime sphere of influence policy to the already existing territorial sphere of influence policy, ** See Rockhill, op. cit, No. 16.
44 FOREIGN FINANCIAL CONTROL IN CHINA
— the English sphere being the Indian Ocean and the Japanese sphere the seas of the Far East.^''
The second point of importance in reference to the Boxer rising, is the indemnity imposed upon China ac- cording to Article VI of the Final Protocol signed on completion of negotiations by the various Powers at Peking on September 7, 1901.^® The indemnity amounted to L67, 500,000, Great Britain's share being L7,425,ooo.^^ It proved to be a tremendous burden upon China's budget. China certainly had to pay heavily for the Boxer rising, which, after all, was nothing else than a protest against the aggression of 1898.
In Article XI of the Peking Protocol the Chinese Government had also agreed to negotiate the amendments to the existing treaties of commerce and navigation deemed necessary by the foreign governments. Ac- cordingly Great Britain concluded on September 5, 1902, a new commercial treaty with China, the so-called Mackay Treaty, which provided for further trade facili- ties and opened a few new treaty ports.^*
85 L. Aubert, " Paix Japonaise," page 50: "A la politique des spheres d'influence territoriales en Chine, le traite anglo-japonais substitue une politique de spheres d'influence maritimes. D'Aden jusqu'au detroit de la Perouse, Anglais et Japonais se partagent la maitrise de la mer. Les mers extreme-orientales sont laissees a I'influence speciale du Japon, tandis que I'Angleterre fortifie sa posi- tion dans I'ocean Indien; chacun son domaine."
38 See Rockhill, op. cit, No. 15.
" See Chapter VIII.
»8 See Rockhill, op. cit., No. 18.
GREAT BRITAIN 45
After the successful conclusion of the alliance with Japan, and the treaty with China, England could, at least for the time being, breathe freer. Having cleared the horizon of menacing clouds, the government left the long deferred and hoped for expansion of trade and the devel- opment of the railroad schemes to the parties directly interested. Excepting official support given to the Hong- kong and Shanghai Banking Corporation and its allied interests, the British Government retired from its labors, so to speak, and from now on did little in protecting or promoting national or individual interests. " Therefore when questions arose from the evasion or repudiation of China's obligations in the matter of railways and mining enterprises, not to speak of everyday commercial cases, the nature of the support rendered by His Majesty's Gov- ernment took the form of permitting the parties con- cerned to make the best compromise possible and pro- claiming the results (when there were any) as triumphs of British diplomacy." ^®
It is of importance to know that British policy at this period, as on former occasions, continued to be influenced primarily by the English business world in China. The Chinese trade had gradually built up predominant local interests in the hands of a few powerful firms. While British foreign policy usually is largely directed by pub- lic opinion, the constant absence of any public opinion
39 Bland, op. cit., page 273.
46 FOREIGN FINANCIAL CONTROL IN CHINA
regarding China, based on a lack of interest in this re- mote country, had caused the policy of the Foreign Office to be guided by the advice of the individuals and firms most prominently associated with China. It was as- sumed that those who had long experience and repre- sented special interests should frequently be consulted by the Foreign Office. The " China Association," for in- stance, has for many years rendered notable services to the advancement of Great Britain's interests in the Far East. It was this body that attracted Lord Salisbury's attention to the dangerous activities of France in south- em China and Russia in Manchuria.'**^
As the problems of China became more and more involved and complicated, and as railway construction and finance began, the activities of the vested interests naturally widened and added the cares of finance to the former protection of trade. " As a direct result of the situation," writes the Far Eastern Review, " arising from the keen struggle for railway concessions in 1898 to strengthen the political hold of the European powers on China, the organization of a purely British company be- came essential to act as the official instrument for the execution of the concessions extracted from the Chinese Government."*^ The forming of such company fell naturally to the Hongkong and Shanghai Banking Cor-
*«" China," No. i, 1899, Vol. CIX, No. 35. ♦1 " Far Eastern Review," Vol. 10, page 297.
GREAT BRITAIN 47
poration. This bank was the predominant British finan- cial institution, and its power can hardly be exaggerated, since the entire British community in China depended more or less on its credit facilities.
The bank, having on its Board of Directors the principal partners of the great German trading firms, had up to this time been operating under an agreement with the official German Banking Syndicate for mutual partici- pation in administrative and railway loans to China.'* ^ When the battle of concessions began and the " sphere of interest " policy became generally recognized, the Hong- kong and Shanghai Banking Corporation, foreseeing the great advantages and profits to be derived as the repre- sentative British organization for the railway develop- ment of British policy, terminated their working arrange- ment with the strong German syndicate, and the manager on April 4th, 1898, directed a note to the Foreign Office to the following effect :
" I have the honor to acquaint you that the arrange- ments under which this bank has hitherto worked with the German Syndicate for the construction of railways in China has been terminated by mutual consent. It is now agreed that the German Syndicate and ourselves shall each work separately.
" I may here mention that the German Syndicate, always
*' See Kent, " Railway Enterprise in China," page 150. See also Chapter VIII.
48 FOREIGN FINANCIAL CONTROL IN CHINA
a powerful combination, has of late consolidated its posi- tion very much, and now includes all houses of any importance in Germany. It also enjoys the confidence of, and receives the support of, the German Govern- ment.
" In order that British commercial interests may be fully represented, and that we shall be in a better position to cope with the powerful combination now opposed to us in China, the bank has decided to form a strong repre- sentative and influential Syndicate to deal with railway construction in China. . . .
" In the meantime, I trust the explanation I have given will warrant you in giving the necessary instructions to Sir Claude MacDonald to give Messrs. Jardine, Mathe- son and Co., and the bank such support as they may require." ^^
The result of this letter was the early organization of the British and Chinese Corporation, Ltd., formed by the Hongkong and Shanghai Banking Corporation and the firm of Jardine, Matheson and Co. This strong, repre- sentative and influential syndicate has been able since to command, with the exception of the Peking Syndicate — whose activities however lay in another direction — a monopoly of the British Government's support. This corporation contracted henceforth with the Chinese Gov- ernment the construction of all the great British built « See " China," No. r, 1899, Vol. CIX, No. 5.
GREAT BRITAIN 49
railroads in China. " From time to time," says the Far Eastern Review, " other British railway constructors en- deavored to secure a footing in China, but were compelled to retire after severe financial losses and leave the field to the undisputed control of the official commercial organ- ization." ^* Exclusive official support was still enjoyed during the international loan negotiations, when the Brit- ish Government repeatedly assured the syndicate of its protection.*^ And it was mainly owing to the failure of these negotiations that the field for financial enterprise was finally opened to other British concerns.
The monopoly exercised by the syndicate within the British sphere and under Government support was a monopoly of rights to contract railway construction at the exclusion of non-British as well as other British interests. On the strength of this monopoly the syndi- cate concluded agreements with the Chinese Government, by which it was granted a certain amount of " control " to be exercised within the sphere. " Control " indeed was uppermost in the minds of the syndicate as well as of the British Government. The fact that " foreign con- trol " was assured in the Peking-Hankow agreement, that foreign political influence might menace British pre- ponderance in the Yangtsze Valley, and that " by differ- ential rates and privileges the managers of the railways
■** See " Far Eastern Review," Vol. X, page 298. *5 See " China," No. 2, 1912, Vol. CXXI, No. i to 7 ; see also Chap- ter VIII.
50 FOREIGN FINANCIAL CONTROL IN CHINA
may strangle our trade " worried British officials con- siderably.*^ Terms and privileges equal to those ac- corded to other nations were vehemently demanded. But we have to emphasize that the British Government, though it had forced the Chinese Government to grant railway concessions to British subjects within the sphere, had no part whatsoever in construction or control and it was not even a party to the signing or wording of the railway agreements or other contracts — with the exception of railways and also loans to be under interna- tional control.*'^
To determine the amount and degree of control exer- cised by the British syndicate we now have to turn to the respective clauses of the railway agreements. The first railway contracted was the section Shanhaikuan- Newchwang of the Imperial Railways of North China. The preliminary agreement was signed on June 7, 1898, and the final railway loan agreement on Oct. 10, 1898, between the syndicate and the Administrator General of the Railways of North China, acting under authority of the Imperial Chinese Government.*® The principal clauses, establishing control, read as follows:
In Article i : The Corporation agrees to issue on be- half of the Administrator-General a sterling loan for the
48 See " China," No. i, 1899, Vol. CIX, Nos. 135 and 232.
*7 See Chapter VIII.
** See Rockhill, op. cit., Nos. 42 and 46.
GREAT BRITAIN 5 1
amount of L2,300,ooo. (The term of the loan being 45 years: Art. 9.)
In Article 3 : This loan shall be a first charge upon the security of the permanent way, rolling stock, and entire property, with the freight and earnings of the ex- isting lines between Peking and Shanhaikuan, and on the freights and earnings of the new lines when constructed.
In Article 4: The principal and interest of this loan are guaranteed by the Imperial Government of China, and in the event of default in payment of interest or re- payment of principal at due date, the Corporation shall immediately notify the Imperial Government of China thereof, and the Imperial Government of China will thereupon provide the funds necessary to meet such pay- ment in sterling in London. In the event of the Imperial Government of China being unable to provide the funds necessary to meet a payment of interest or principal, when called upon by the Corporation to do so in terms of this clause, the said railway lines and the entire property shall thereupon be handed over to the representatives deputed by the Corporation to manage, on their behalf, until prin- cipal and interest of the loan have been redeemed in full, when the management will revert to the Railway Admin- istration. . . .
This arrangement, which differs from other contracts in that the Administrator-General retains control of the railway lines so long as the principal and interest of this
52 FOREIGN FINANCIAL CONTROL IN CHINA
loan are regularly paid, has been agreed to in consequence of the friendly relations which have long existed between the Contracting Parties.
In Article 6: During the currency of this loan the Chief Engineer of railway shall be a British subject. The principal members of the railway staff shall be cap- able and experienced Europeans, who shall be, as at present, appointed by the Administrator-General of the Railways. . . .
In addition to the above, a capable and efficient Euro- pean Railway Accountant shall be appointed, with full powers to organize and direct the keeping of the railway accounts, and to act with the Administrator-General and the Chief Engineer of the railway in the supervision of receipts and expenditure.
In Article 8: All receipts and earnings of the lines herein specified shall be paid into the credit of the Rail- way Administration with the Hongkong and Shanghai Banking Corporation, Tientsin. . . .
In reimbursement of expenses incurred in connection with the distribution of the service to the bondholders of the principal and interest of the loan, the Hongkong and Shanghai Banking Corporation, Tientsin, shall receive from the Railway Administration a commission oi % per cent, on the annual loan service, which will be in- cluded in the yearly Schedule for the same.
In Article 14: All bonds and coupons and payments
GREAT BRITAIN 53
made and received in connection with this loan shall be exempt from Chinese taxes and imposts forever.
The next railway of importance contracted was the line from Shanghai to Nanking. The preliminary agree- ment was signed on May 13, 1898, and the final agree- ment on July 9, 1903, both between the syndicate and the Director General of the Chinese Imperial Railway acting under authority of the Imperial Chinese Govern- ment. The final agreement provided in particular for the following terms : "^^ The corporation agrees to issue a loan not exceeding L3, 250,000, for which Chinese Gov- ernment Bonds are to be issued. The duration is fifty years. The Chinese Railway administration undertakes to buy and pay for the land required. The loan shall be secured by mortgage on all lands, material, rolling stock, buildings and property and no further mortgage or loan shall be created on the said lines. In order to pro- vide for a final authority, a " Board of Control " is cre- ated to be composed of the Director General of the Chi- nese Railway Administration and nominee of his, to- gether with three representatives of the syndicate. The Chief Engineer, at the same time Chief Administrator, shall be nominated by the syndicate with the concurrence of the Director General, and shall be paid by the Chinese railway administration. The residue of the net profits in each year after paying the sum annually due for inter-
*^ See Rockhill, op. cit., No. 39.
54 FOREIGN FINANCIAL CONTROL IN CHINA
est and redemption of the loan and all other sums which may be due to the syndicate, shall be divided into five shares, one to be retained by the syndicate as remunera- tion for superintendence and services; the syndicate shall receive five per cent, on the entire cost of all ma- terials purchased for the railway. Finally it is to be mentioned that all bonds are exempted from taxation. The money actually lent was L2,25o,ooo in 1904 and L630,ooo in 1907.°^
The Canton-Kowloon Railway agreement between the Board of Foreign Affairs of the Chinese Government and the British and Chinese Corporation, Ltd., concluded on the 7th of March, 1907, contains control provisions similar to those of the two preceding agreements.^ ^ Im- perial Chinese Government bonds are to be issued for the amount of Li, 500,000 similar to the bonds of the Shang- hai-Nanking Railway, with the railway as first mortgage security therefor. The loan is to be secured by a specific and legal first mortgage in favor of the Corporation upon all lands, materials, rolling stock, buildings, property and premises, of every description purchased or to be pur- chased for the railway, and on the railway itself, as and when constructed, and on the revenue of all descrip- ptions derivable therefrom. A British Engineer-in-Chief 1 and a British Chief accountant are to be associated with
60 See " China Year Book," 1913, Chapter XVI. 51 See Kent, op. cit., Appendix F, No, 4,
GREAT BRITAIN 55
the Chinese Managing Director. It is also agreed, that if interest or principal in accordance with the amortization schedule is not paid on due date, the whole railway with all its appurtenances mortgaged to the Corporation for the bondholders, shall be handed over to the Corporation. The Corporation are appointed trustees for the bond- holders. In remuneration for all services rendered by the Corporation, during construction, the Corporation shall receive the sum of L35,ooo. The handling of all funds is entrusted to the Hongkong and Shanghai Bank- ing Corporation.
Next in importance to the agreements concluded by the British and Chinese Corporation come those concluded by the Peking Syndicate, a powerful Anglo-Italian cor- poration.^^ Although the driving power of the syndi- cate was an Italian subject, Mr. Luzatti, the British For- eign Office used a considerable amount of " pressure " upon the Chinese Government towards obtaining the grant of the concessions in question.^^ By the agree- ment from May 21, 1898, the syndicate obtained the sole right to open and work the coal and iron deposits of central and southern Shansi and Honan and the pe- troleum deposits of the entire province, and secured the right to construct and operate all necessary railways to maintain trunk lines or navigable waters for exporting
=2 See Kent, op. cit., Chapter XIII.
'8 See " China," No. i, 1899, Vol. CIX, No. 6, 106, and otherwise.
56 FOREIGN FINANCIAL CONTROL IN CHINA
the mining products.^* " All matters of administration, exploitation, employees, and finances shall be controlled by the Board of Directors of the Peking Syndicate, and the Chief of the Shansi Bureau of trade shall cooperate. . . . Each line must have one foreign and one Chinese manager, the foreigner to control the works, the Chinese to attend to all matters between natives and foreigners. Accounts will be kept by the foreign system." By the agreement for the Construction of a Railway from Taokow to Chinghua by the syndicate, the Chinese Gov- ernment agreed that the railway for all practical pur- poses was to remain under the control of the syndicate until the bonds have been secured.^^ The amount of the loan was L7oo,ooo and was secured by a first mortgage on the railway, its line, rolling stock and earnings. A commission of one-fourth of one per cent, on the amount of interest coupons paid, and the like commission on all bonds drawn for payment was to be paid to the syndicate. Finally, according to the additional working agreement was the syndicate entitled to receive from the Imperial Chinese Railway Administration 20 per cent, of the sur- plus of each year.
Although these control provisions appear to be very favorable to the syndicate, they remain nevertheless in- significant, since this railway is very short and of abso-
^* See Rockhill, op. cit., No. 40.
55 See Kent, op. cit., Appendix C, Nos. i and 2.
GREAT BRITAIN 57
lutely secondary importance when compared with the vakiable mining concessions. The " control " provisions are in substance similar to those of the British and Chi- nese Corporations' agreements. In order to reduce the above enumerated control provisions to their essence and true meaning we can not do any better than use the words of Mr. Willard Straight and Mr. Kent. Mr. Straight writes in " China's Loan Negotiations " : ^^
" Control in the at present accepted sense of the word was first embodied in the agreement made by the Chinese Government in 1898, with the British and Chinese Cor- poration, for a loan to the Imperial Railways of North China.
" Under this agreement, and in several others concluded at about this time, the lenders, besides securing a first mortgage on the railway whose construction they financed, were entitled to a share in the profits of the line.
" For this reason and also because of the inexperience of the Chinese in railway matters, the bankers required assurances that the loaned funds should be so expended that the mortgaged property would constitute a suf- ficient security.
** They furthermore obtained a certain share in the management of these lines in order that there should be secured therefrom an adequate return (to a certain per- centage of which the banks were entitled), and to prevent
°8 See Straight, op. cit., page 131.
58 FOREIGN FINANCIAL CONTROL IN CHINA
the administrative inefficiency and fraud which they feared if the operation of these railways were placed en- tirely in Chinese hands."
Mr. Kent's summary of the aspects of the contracts is similar : ^"^
" Firstly, the syndicate is given the right to construct the line, and in return for its trouble in this connection it is in most cases allowed a sum equivalent to 5 per cent, on the total cost. It is this right which presumably gives rise to the idea of concession.
" Secondly, on completion of the line it is placed in some cases under a theoretically joint Chinese and for- eign control, in which in practice the foreign element pre- dominates. In other cases the Chinese have merely a consultative voice.
" Thirdly and lastly, at this stage, or rather from the time of the issue of the loan, the syndicate become trus- tees for the bondholders, and it is easy to see that, in the nature of things, the loan being secured by a first mort- gage upon the railway, the position of the syndicate for all practical purposes must be that of mortgagees in pos- session."
Such are the imderlying principles of the agreements which confer these rights, which for want of a more precise term we call, and shall continue to call, conces- sions. The details, of course, vary.
" See Kent, op. cit., page 95.
GREAT BRITAIN 59
According to Mr. Kent the agreements are in the na- ture of underwriting contracts, and the indirect profits to the syndicate accruing therefrom are very hand- some.^ ^ " The contracting syndicate undertakes to pro- vide 90 per cent., for example, of a loan of so many millions of pounds or dollars, as the case may be, re- payable at a certain specified time and bearing interest at the rate of 5 per cent, per annum ; it takes its chance of being able to float the loan upon the public at a higher percentage of its nominal value. What has happened in most cases is that on every Lioo bond, for example, issued by the Chinese Government the latter received L90, while the syndicate have succeeded in getting them taken up at L97 or thereabouts, thus securing a respect- able margin on the transaction."
Another source of profit to the banks as well as to English industries, was the provisions which made the syndicate the purchasing agents of materials and rolling stock. Outside of the fact that the corporation was to receive on the average 5 per cent, commission of the entire cost of all materials purchased, the materials were naturally almost exclusively purchased in England.^® Although all materials were nominally to be purchased in the open market, the usual clause that " at equal rates and qualities, goods of British manufacture shall be given
*' See Kent, op. cit., page 94. " See also Chapter VIII.
6o FOREIGN FINANCIAL CONTROL IN CHINA
preference over other goods of foreign origin " provided an opportunity for almost exclusive purchase in England. Thus writes the Far Eastern Review, referring to the open market provision : " We find, how^ever, that, not- w^ithstanding the specific agreement the purchases were made exclusively in London without reference to the lowest price or open tenders." ®^
On the strength of the foregoing analysis we now draw the conclusion that British control in China consists of nothing more than safeguards for the protection of ^the bondholders and bankers, guaranteeing proper loan fund expenditure and adequate return. British control in China, exercised exclusively by private corporations, is therefore essentially financial and non-political.
Its non-political character may be further illustrated by the fact that the syndicate, in spite of its monopolistic rights, admitted non-British interests to participation in its privileges within the British sphere.
On February i, 1899, the British and Chinese Corpor- ation and the American China Development Company, the latter having no exclusive government support, made an agreement that each party should offer to the other a participation of one-half of its own interest in any busi- ness hereafter obtained by it in China, excluding, how- ever, a number of agreements which had been entered
1
«oSee "Far Eastern Review," Vol. VIII, page Sz. See also Straight, op. cit., page 123.
GREAT BRITAIN 6l
into previously by either party.^^ This agreement, how- ever, was terminated later.
In 1905 the British and Chinese Corporation, the Pe- king Syndicate and French bankers joined for general participation as to railway construction in the Yangtsze Valley, and especially in the regions north of the Yang- tsze Valley,*^ ^ namely, for the construction of the Pukow- Sinyang and Sinyang-Chengtu or Hankow-Chengtu rail- ways.
One of the objectives of the British and Chinese Cor- poration had been a railway from Pukow to Sinyang and its eventual extension to Chengtu. The Peking Syndi- cate, however, had planned a line which would seriously compete with the British and Chinese Corporations' line. *' This and other considerations led to an amalgamation of the two companies for all future railroad development north of the Yangtsze," says Kent.^^ The combination was henceforth known as the Chinese Central Railways, Ltd. At the same time a group of French and Belgian"^ capitalists, headed by the Banque de I'lndo-Chine, were also interested in securing the concession for a line from the Hankow-Sinyang district westwards to Chengtu.^'* To avoid competition the British combination entered
•1 See Rockhill, op. cit., No. 49.
^2 See Laboulaye, " Les Chemins de fer en Giine,'* pages 182 and 206.
*^ See Kent, op. cit., page 128.
«* See " Far Eastern Review," Vol. X, page 298.
62 FOREIGN FINANCIAL CONTROL IN CHINA
into negotiations with the French capitaHsts for joint construction of the Hnes in question, absorbing their interests into the Chinese Central Railways, Ltd. The Pukow-Sinyang line was, however, eventually constructed as a purely British line.®^
As early as 1895 the Hongkong and Shanghai Bank- ing Corporation had entered into an agreement with the Deutsch Asiatische Bank to share all Chinese Govern- ment business thereafter obtained by either party. The resulting financial transactions, done in common, and especially the Tientsin-Pukow agreement with its import- ant control provisions, shall be analyzed in the Chapter on " International Action." Their agreement as to mutual participation was terminated in 1898, with the exception of the Tientsin-Chinkiang-Pukow Railway, and the bank- ers agreed to respect their mutual spheres.®® As .a con- sequence the Germans abstained for several years from demanding participation in the railway enterprises within the Yangtsze sphere. But, presumably owing to the political and economic changes after the conclusion of the Russo-Japanese War, and owing to the increasing com- petition for a share in the benefits of Young China's promised development of trade and industries, the Ger- man bank around 1908 changed its policy. It henceforth demanded rights of participation under the terms of the former agreement and intended to compete for railway •5 See below, page 76. •' See above, page 46.
GREAT BRITAIN 63
and other Chinese Government loans, in the Yangtsze Valley and elsewhere, unless admitted on terms of equal- ity. The British financiers acquiesced in the German demand for participation, and the Germans associated with the British and French interests in the syndicate known as the Chinese Central Railways, Ltd. The activ- ities of this " Tripartite " and, after the admission of the United States, the " Four Nations " group from now on are cosmopolitan in character and consequently shall be dealt with in detail in the Chapter on " International Action."
The admission of German participation with the An- glo-French Combination in the Yangtsze railway loans and in an area which had been recognized as reserved for the British, was an event sufficiently important to provoke criticism, such for instance as has been forthcoming from Mr. J. O. P. Bland in his excellent book on " Recent Events and Present Policies in China." *' His criticism may be summarized as follows: That British and French financiers worked in common is easily explained by the excellent relation then and thereafter existing be- tween the two countries; but that German and British financial interests should continue to cooperate in the Far East, while there was friction between the two coun- tries at home, was a matter of much surprise to the English world, and the British bank having for years
•^ See Bland, op. cit., pages 273 ff.
64 FOREIGN FINANCIAL CONTROL IN CHINA
enjoyed a monopoly of British Government support and become identified with British enterprise of far-reaching poHtical importance, could not openly endorse the Ger- man claims without arousing opposition in England. The correspondent of The Times at Peking, expressed the general wonder that " the British Government should delegate to one British bank, which is naturally com- pelled to consider financial rather than national interests, the right to assist the extension of German influence." ®^ It was demanded that the Government should organize and direct the use of British capital as a weapon of offense and defense and that it should follow the example of other countries and notably that of Germany where the financiers are obliged to conform strictly to the polit- ical directions of their Governments who are profiting by the laisser-aller methods of Great Britain.
The reasons that the Foreign Office showed no appre- ciation of the fact that other nations were successfully developing their rights of railway construction to the sup- posed detriment of Great Britain, and that no strong national policy could be expected, is on the one hand evidence of the absence of an effective force of public opinion. For with the exception of very rare cases Eng- land's policy follows and does not lead public opinion. This is illustrated in a manifesto issued by the China League in February, 1901, wherein the following passage
•8 London Times, May 9, 1909.
GREAT BRITAIN 65
occurs : " At a time when the future of China hangs in the balance, when the maintenance of our position and trade in that Empire (that is to say, the welfare of Great Britain in years to come) depends on the imme- diate policy of her majesty's Government and the action of the British representative in the Concert of the Powers at Peking: at such a time, the Imperial Parliament, its attention apparently concentrated on personal explana- tions of unimportant matters, enunciates no policy on the Far Eastern question. Statesmen on both sides of , the House, and publicists of all shades of opinion, remain silent in regard to the crises, offering no solution cal- culated to protect British interests. A debate on the China question attracts less attention than a minor ques- tion of parochial Government," ^'-^
Furthermore, considering the situation as a whole and having reference to the particular history of British- Chinese relations and the various experiences of the Gov- ernment, we are faced with the fact that the Government finally was wearied by the futilities of the many negotia- tions and the ever increasing complexities of the sit- uation. Great Britain's foreign policy in China, con- sistent with the traditions of British statesmanship, con- tinued to be guided by the old traditional " laisser-faire " and free trade principles, which had made the Empire great. Therefore it left the control of Britain's financial ^^ See Bland, op. cit., page 270.
66 FOREIGN FINANCIAL CONTROL IN CHINA
interests to the parties directly interested. And there is little wonder that the business of the British Syndicate, being unhampered by governmental interference or re- striction, speedily assumed cosmopolitan character. For in its cosmopolitan tendencies, which are towards elim- ination of competition and towards consolidation, British finance is quite in harmony with leading British economic thought.
According to Mr. Hobson and other prominent econo- mists the conception of nations as hostile competitors in world finance is economically unsound.'^® International finance is peace-loving, since the cooperation of the finan- ciers of the various countries in business enterprises in all parts of the world is binding up the prosperity ot each individual country intimately with the welfare of all other countries. Says Hobson : " Modern finance is the great sympathetic system in an economic organism in which political divisions are of constantly diminishing importance." "^^
That the policy of non-interference — barren of deep laid plans such as characterize the policies of other Powers in China, and at times criticized as suicidal to British prestige and British economic interests — has by no means handicapped the tremendous growth of British
70 See J. A. Hobson, "Work and Wealth," Chapter XVII; see also Same, "An Economic Interpretation of Investment," passim, and J. H. Withers, " International Finance," pages 93 ff.
71 See Hobson, " Investment," page 122.
GREAT BRITAIN (^^
railway interests in China, is amply illustrated by the various concessions contracted by British financiers in later years, especially in 19 14. An authoritative text of the agreements was not available to the author, with the exception of one. The control provisions seem to be of a milder form similar to the so-called Tientsin- Pukow terms, which will be a subject of investigation in Chapter VIII. Since the fate of these railways is un- certain owing to the war, we shall only give a brief enumeration of the more important ones.
The final loan agreement of the Pukow-Sinyang Rail- way was concluded on Nov. 14, 19 13, between the Chi- nese Government and the Chinese Central Railways, Ltd.'^^ By Article 9, the Loan was secured by a mort- gage on the railway, all lands, materials, rolling stock, buildings, etc., and the revenues. And according to Arti- cle 16, the construction and control of the railway shall be vested in the Chinese Government with a Chinese Director General and a British Engineer in Chief.
In July, 1 91 4, an agreement for the construction of the Nanking-Pinghsiang Railway was entered into between the Chinese Government and the British and Chinese Corporation.'^
And finally, also in July, 19 14, a final agreement was signed between the Ministry of Posts and Communica-
'2 See " Far Eastern Review," Vol. X, page 307. ^' See " Far Eastern Review," Vol. XI, page 49.
68 FOREIGN FINANCIAL CONTROL IN CHINA
tions and Messrs. Pauling & Co., Ltd., of London for the construction of a railway starting from a point on the Yangtsze River opposite the city and port of Shasi, in the Province of Hupeh, through Lichow, Changteh, Shenchow, Yuanchow, Chenyuan, Kweiyang, Anshunfu to Shingyifu, in the southwestern corner of the Province of Kweichow, with a branch from Changteh to the city of Changsha, the capital of the Province of Hunan.'^^ The loan is for L 10,000,000 for 40 years at five per cent, interest. The railroad is to be built by contract, a firm of British consulting engineers acting with the Chinese managing director in drawing plans and supervising the work. The admission of Messrs. Pauling & Co. was due to a modification of British policy following the fail- ure of the International Loan Negotiations.*^^
Succeeding chapters will incidentally, by means of comparison, further emphasize the preponderance of British finance in China, based as it is upon the wealth and the extended and old established trade relations of Great Britain, both of which — at least previous to the Great War — were superior to those of any other country.
7* See " Far Eastern Review," Vol. xi, page 52. " See Chapter VIII.
CHAPTER III
RUSSIA
Russia's policy in the Far East shows a marked con- trast to that of Great Britain. The causes of this contrast lie in the differences in national character and governmental system of each.^ The administration of the Russian Empire under autocratic rule, resting nom- inally in the hands of the Tsar, was actually entrusted to a body of ministers and officers who were practically untrammeled in their action, and their freedom was restrained neither by the criticism of a free press, the influence of public opinion, nor the liability of being de- prived of office by a parliamentary vote of censure. It follows that the Russian diplomatist was in a position to attain any object he may have had in view.
Russia has always contained statesmen who have guided her destinies along imperial lines; statesmen who have seen beyond many generations and whose grand and far-reaching policy, in spite of grievous errors in local administration, has made the Russian Empire what it was before the war. But their system was entirely opportunist, the method often without scruple. In her
^ The first point will be dealt with at the end of this chapter.
69
yo FOREIGN FINANCIAL CONTROL IN CHINA
descent on Asiatic waters Russia has been impelled neither by the need of extended territory nor by the desire for commercial relations with other countries. Indeed Russia's trade with China was and is insignifi- cant and consists mainly of importing articles of Chinese manufacture into Russia, notably tea, silks and drugs. Her ambitions were political and her absorptions have been prompted partly by a craving for a seaboard, partly by a political instinct of expansion, and partly by the personal ambitions of a few statesmen.
It may be said that the designs of Russia in regard to China first began to take serious shape in 1854, when the celebrated Count Muraviefif seized the Amur River. Al- though this measure of aggression may have long been in the minds of Russian statesmen, it was precipitated by reason of the blockade of the Black Sea during the Crimean War. The severance of communication by sea compelled Russia to secure control over the river as a means of conveying supplies to her distant possessions in the East. It was MuraviefT himself who had first aroused public interest in the Amur, when he defended Kamchatka via this river. To quote Vladimir : " The unexpected news of the gallant defense of Petropav- lofsk, a detached little-known episode of the Crimean War, an event of g^eat importance in the Far East, aroused the greatest enthusiasm." ^ At the same time, 2 See Vladimir, " Russia on the Pacific," page 225.
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as Douglas points out : " The Anglo-French expedition of 1857-60 enabled Russia to pose as the friend of China." ^ The result was the Treaty of Aigun of May 16, 1858, strengthened by another treaty of i860.'* These treaties gave Russia the whole coast of Man- churia to the Korean frontier, the so-called Maritime Provinces, and provided for trade free of all duties and restrictions between Russia on the land frontiers. " This quiet transfer," says Vladimir, " was due more to the internal troubles and foreign wars of China, than to the shadowy nature of the sovereignty in the disputed territory." ^ The new territory thus acquired enabled Russia to found her great eastern seaport, Vladivostok. ^;(/ By the same treaty the right of Russia to retain an envoy at Peking was conceded, and from that time on to the present Russia has retained her most able diplomatists at the Celestial capital for the purpose of developing her aims and extending her interests in China.
The extension of these interests is largely connected with the building of the Siberian Railway. It had be- come indispensably necessary, if the acquisition of the new Far Eastern territory as well as the whole of Siberia was to bear any fruit for Russia, that cheap and rapid means of communication should be established between European Russia and the head waters of the Amur.
8 See Douglas, " Europe and The Far East," page 190. * See Mayers, op. cit., page 105. ' See Vladimir, op. cit., page 317.
^2. FOREIGN FINANCIAL CONTROL IN CHINA
The consequence was the construction of the Siberian Railway which Vladimir calls the " economic concomi- tant of Russian expansion on the Pacific." Although originally, as far as the motives which inspired the scheme of the Siberian Railway were concerned, these may be regarded as primarily economical, there can be no doubt that the strategical advantage began to loom up in large proportions, as soon as the construction of the line through to the Pacific coast was actually under- taken in 1 89 1. While up to this year the preoccupation of Russia in the Balkans and in Central Asia had pre- vented the advance of Russia south of the Amur and west of the Ussuri, she now began to give the problems of the Far East her full and undivided attention. Russia began to realize something of the immense possibilities of China, and last not least she recognized that her ambi- tion was only partially achieved as long as she had not found a harbor entirely free from ice, Vladivostok being icebound for several months in each year. The outcome of such considerations was found in an extension of the Siberian Railway through Eastern Mongolia and Man- churia to the coast of the Yellow Sea. To this end careful surveys were made by Russian experts in Man- churia, and the possibilities of the country studied at the instance of the Russian Government.^
Meanwhile, Russian diplomacy was exceedingly active
« See Kent, op. cit., pages 40 ff.
RUSSIA 73
at Peking in 1890 and 1891, and it was directed towards delaying the construction by China of the Manchurian railways projected by Li Hung Chang, in order that con- cessions for railways in this region should be granted to Russia. What relations between Li Hung Chang and Russia existed at this time, may perhaps never be known. He may or may not have intended from the beginning to concede these lines to Russia for a consid- eration.
It was so much easier for the Russians to reach their ends as Li Hung Chang, that astute Chinese statesman, though alive to Russian antagonism, shared Russia's suspicion of the Japanese and set to work to secure Rus- sia's prospective help in his plans to thwart Japan. The trouble centering around Korea was boding ill for the peace of the Far East.''^ To Russia, China always had looked as the mighty neighbor, for Russia in her con- tact with the Chinese never had failed to impress the celestials with a sense of her power. Li Hung Chang acted towards Russia in a friendly spirit and treated her as a Power which, being geographically and historically quite differently situated to the rest of Europe, was worthy of different treatment.
The result of the Korean War, so disastrous to China, tightened the bonds of sympathy between Russia and China. The alarm experienced in Peking at the spec-
7 See Douglas, op. cit., page 304.
74 FOREIGN FINANCIAL CONTROL IN CHINA
tacle of Japanese troops overrunning Korea and the Liaotung peninsula was shared in St. Petersburg. Japan, as will be shown later, had disclosed her hand, and in doing so had stimulated Russian diplomacy to the exer- cise of the greatest ingenuity in order to deprive her of the substantial fruits of her victory. It was inevitable that Russia should rely on diplomatic action, for military measures were not at that time practicable. The Sibe- rian Railway was not completed, and it would have been impossible for her to throw into Manchuria a force sufficient to effect the seizure of the Liaotung peninsula from Japan. She therefore used the Yellow Peril argu- ment with such effect that Germany and France joined her in insisting upon the withdrawal of Japan from Port Arthur and from Korea.^ Japan had to accept the in- evitable, and to withdraw, for she could not have with- stood a naval attack upon her shores by three allied powers.
It is of great significance that Li Hung Chang had accepted the Japanese conditions without demur. He had apparently previously come to an understanding with the Russian representative at Peking, by which the in- tervention of the Tsar was promised to prevent the per- manent occupation of the Chinese territory by Japan, and he knew that the most important clause in the peace- treaty would not be allowed to be carried out. Natu-
• See Le Roy Beaulieu, " The Awakening of the East," page 247.
RUSSIA 75
rally his gratitude towards Russia was great, and his obligations soon resulted in a large increase of Russian influence at Peking.^ During the latter part of 1895, and the entire year of 1896, Russian diplomacy was very busy in impressing upon the Chinese the fact that it was Russia alone who had saved her from the fate of losing parts of Manchuria, that closer relations with Russia would ensure China's safety, and that a compensation should be given to Russia in some form.
The visit of Li Hung Chang to St. Petersburg in 1895 paved the way for the striking events that were to follow in Manchuria.^" Li Hung Chang was sent as Plenipo- tentiary Extraordinary to be present at the coronation of the Tsar in Moscow, During his visit to Russia there were rumors of the confirmation by him of a secret con- vention which had been entered into between China and Russia in 1895, the so-called Cassini Convention. Count Cassini, the Russian minister to China, was said to have had a series of interviews with the viceroy of Pechili, with whom he negotiated a secret treaty, which was subsequently ratified by Prince Lobanow, the Russian minister of foreign affairs. The alleged text of this agreement was published in the North China Daily
8 The mysteries of Li Hung Chang's relations to Russia have been expounded in almost every important book on the Far East. Reli- able official data are not available and the author has merely pre- sented a brief summary of the situation.
*" See Kent, op. cit., pages 46 fF.
76 FOREIGN FINANCIAL CONTROL IN CHINA
News,^^ but official denials were at once published. Subsequent events, however, have proved that an under- standing had been come to between Russia and China, which for all practical purposes was in the terms of the document published in the Shanghai Journal. " Putting the matter briefly, the arrangement amounted to an exchange of guarantees, Russia undertaking to support China against foreign aggression in return for certain facilities for the extension of Russian interests and the construction of railways in Manchuria." ^^ In the Cas- sini Convention we see according to Mr. Putnam Weale the three main points of view at work, which Russia wanted China to get accustomed to : ^^ " The first was that Russia, being without any convenient bases in the Far East, free from ice all the year round, must be granted some port or ports, which she could share with China. The second point, leading as it were to the third, was, that unless Russia were able to exert her great strength as a land Power her friendship with China could not take the form of material support in case a fresh crisis in the Far East should arise, and Japan attempt to repay China for calling in the help of the West. And the third and concluding point was this: In order to bring her myriads of soldiers to the Far East, Russia had
" See " North China Herald," October 30th, 1896, pages 739-74^- A French text can be found in Cordier, op. cit., Vol. Ill, pages 343 ff. 12 See Kent, op. cit., page 47. " See Putnam Weale, " The Reshaping of the Far East," page 263.
RUSSIA ^^
already begun, years before the Japanese War, a grand trunk railway at great expense to herself; but as the railway would have to follow the northern bank of the Amur, it would be indefinitely delayed unless a more convenient route could be granted by generous and mag- nanimous China, who had already bestowed the Pri- morsk."
The Cassini Convention, it was believed, also made some provisions in regard to the acquisition of Kiaochau by Russia, while the Liaotung Peninsula was ear-marked in Russia's favor. ^^ Russia's propositions seem to have appealed to Li Hung Chang, though it is hardly to be doubted that he fathomed the true significance of the convention. He wanted an alliance; and the defensive alliance with Russia was the peg on which he hung the railway concession. " Li Hung Chang, in his communi- cations to the Chinese Government, laid all the stress upon this guarantee, stating that it was of inestimable worth to China, against whom England and Japan were hatch- ing plots. He treated it as the price to be paid for the railway charter, and all the other grants that were super- added to the charter." ^^
. Shortly after his return to China, Li Hung Chang's arrangement with Russia began to bear fruit. The first manifestation took the form of the Manchurian Rail-
^* See Cordier, op. cit., pages 343 ff. 1^ Lawton, op. cit., Vol. II, page 1293.
78 FOREIGN FINANCIAL CONTROL IN CHINA
way agreement between the Chinese Government and the Russo-Chinese Bank. This bank was destined to play a great role in the succeeding events and its estab- lishment marks the beginning of Russian " conquest by railroad and bank." The original inscription bearing imperial sanction was signed, it is important to note, by the " Manager of Affairs of the Committee of the Siberian Railway." ^^ In virtue of the charter, a joint- stock company was founded with a capital, originally fixed at six million roubles — increased later. Accord- ing to Part II, Article 14 : " The object of the Russo- Chinese Bank is exclusively to develop relations with the East-Asiatic countries." Among the usual banking op- erations are : " The collection of duties in the Empire of China, and the transactions relating to the State Treasury of the respective place, the coinage, with the authorization of the Chinese Government, of the coun- try's money, the payment of the interest on loans, con- cluded by the Chinese Government, the acquisition of concessions for the construction of railways within the boundaries of China and the establishment of telegraph lines."
Though the bank appears to be a private corporation under Government protection, its political aspect is quite apparent. " In addition to a banking department it has
1* See Rockhill, op. cit., No. 31. See also Putnam Weale, " Man- chu and Muscovite," page 126.
RUSSIA 79
a political side, to which the former is said to be sub- ordinated." 1^
On Sept. 8, 1896, the Russo-Chinese Bank entered into an agreement with the. Chinese Government for the construction and management of the Chinese Eastern Railway.^* The principal provisions, establishing Rus- sian control, are as follows :
In Article i : " China and Russia establish a Com- pany to be called the Chinese Eastern Railway Co. to construct and manage this Railway. . . . The regula- tions of the Company will be in conformity with those of Russian Railway Companies. Shares may only be bought by Chinese and Russians."
In Article 6: "As regards the land required by the Company for constructing, managing, and protecting the line and adjacent land, for procuring sand, earth, stones and lime, if the land be government land, it will be given the Company without payment. . . . All the Com- pany's land will be exempted from land tax. As soon as the land comes under the management of the Com- pany, they may erect thereon any buildings and carry on all kinds of work, they may establish a telegraph line thereon worked by the Company for the Company's use."
Article 7 : " All materials required by the Company
1^ See Kent, op. cit., page 47. 1' Sec Rockhill, op. cit., No. 32.
8o FOREIGN FINANCIAL CONTROL IN CHINA
for the construction and repair of the line will be exempt from taxation."
In Article 8 : " All Russian troops, naval or military, and munitions of war, moved by the Russian Govern- ment by this Railway, must be conveyed by the Company directly across the border."
In Article lo: "As to goods conveyed by this line from Russia to China or from China to Russia, they will pay duty according to the Treaty Tariff, i.e., an Import or Export duty as the case may be, but subject to a reduction of one-third of the Tariff rate."
On the strength of this agreement the " Chinese Eastern Railway Company " was formed " for the con- struction and working of a railway within the confines of China from one of the points on the western borders of the Provinces of Hei-Lun-Tsian, to one of the points on the eastern borders of the Province of Kirin and for the connection of this railway with those branches which the Imperial Russian Government will construct to the Chinese frontier from Trans-Baikalia and the southern Ussuri lines." ^^ The Company is, furthermore, empow- ered, subject to the sanction of the Chinese Government, to exploit, in connection with the railway or independ- ently of it, coal mines, as also to exploit in China other enterprises — mining, industrial, and commercial. The formation of the Company shall be undertaken by the
1' See Rockhill, op. cit., No. 33.
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Russo-Chinese Bank. With the formation of the Com- pany all rights and obligations are transferred to it in regard to the construction and working of the line ceded in virtue of the above named Agreement of the 8th of September, 1896. In virtue of this Agreement the Com- pany shall retain possession of the Chinese Eastern Rail- way during the course of eighty years from the day of the opening of traffic along the whole line. But on the expiration of thirty-six years the Chinese Government has the right of acquiring the line. The railway is to be conducted subservient to the requirements of the Si- berian Railway. In the event of a difference of opinion arising between the two railways the Chinese Eastern Railway shall submit to the decision of the Russian Min- ister of Finances. The Russian letter and parcels post, as also the officials accompanying the same, shall be car- ried by the Chinese Eastern Railway free of charge. The preservation of law and order on the lands assigned to the railway and its appurtenances shall be confined to police agents appointed by the Company. The capital of the Company shall be formed by the issue of shares and bonds. The shares shall be fixed at 5,000,000 rubles. The remaining portion of the capital of the Company will be formed by the issue of bonds. The nominal amount and value of each issue of bonds shall be subject to the sanction of the Minister of Finances. The Rus- sian Government will guarantee the interest on and
82 FOREIGN FINANCIAL CONTROL IN CHINA
amortization of the bonds. For the realization of these bonds the Company must have recourse to the Russo- Chinese Bank.
The character of " control " established by the fore- going agreements can easily be ascertained. The fact that according to Article i of the last agreement " the Director of the Company will be appointed by China," and that " his duty will be to supervise the task dele- gated to the Company by China, and to ascertain whether his obligations are faithfully performed," does not alter the fact that the Company is a Russian joint stock company, run by Russians, with Russian money, and under Russian rules. One of the points, which is em- phasized by Kent, is that " no person except of Chinese or Russian nationality could become a shareholder, which meant, of course, a purely Russian company, for . . . the Chinese had not reached that stage of education when the idea of joint-stock enterprise either inspires con- fidence or appears attractive." ^^ And Kent continues : " In this company, which was to be known and ulti- mately came into existence as the Chinese Eastern Rail- way Company, the sole control of the line was vested, and also rights, in connection with the railway, and independently of it, of mineral, industrial, and commer- cial exploitation."
But in addition to the fact that this railway company
20 See Kent, op. cit., page 48.
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is of Russian ownership, we have to bear in mind, that the control over the owners is exercised by the Russo- Chinese Bank, a state-controlled institution. To justify this contention it would not even be necessary to ascer- tain who the owners of the shares are. It appears to us, on the strength of all " control " provisions, as self- evident that the road is state-controlled and that Rus- sian control in China is of a political nature. To dis- perse any doubt about the nature of Russian control we shall support our contention by the following considera- tions: Comparing the Russian control provisions with those to be found in the British agreements we find thai no protection is made for the shareholders, who are the nominal owners. There is no mortgage on the railway because there is no loan made to the Chinese Government Only the bondholders are protected, namely, by a Russian] Government guarantee! The management rests perma-1 nently with the company, though nominally under Chi- 1 nese supervision. In fact all control provisions char- acteristic of English agreements are absent. This fact, however, would in itself not be sufficient to prove the political character of Russia's control. Nominally, Rus- sian control remains financial, since the contracts con- taining the respective provisions are on the Russian side concluded by private citizens and since the object of the contracts is a financial proposition, namely the building of a railroad. But what we are interested in, is the
84 FOREIGN FINANCIAL CONTROL IN CHINA
spirit of the control provisions, and not their word- ing. / The poHtical and military character of the railway is manifested in the railroad police, or so-called railroad guards. These were Russian soldiers and they formed a small army. These guards and the so-called railroad " zones," i.e., lands granted to the company upon which settlements were established under Russian administra- tions, will be an object of our investigation at a later occa- sion.
As a further support of our contention we shall quote Kent once more. Referring to the two points between which the railroad was to run, Kent remarks : " In other words, permission was given to continue the Trans- Siberian line across Manchuria to Vladivostok instead of following the more circuitous route along the Amur, which presented almost insurmountable difficulties to railroad construction." ^^ The new railway through Chinese territory is, indeed, nothing else than part and parcel of the Trans-Siberian Railroad, which is owned and controlled by the Russian Government. Its pur- pose is mainly strategical. Such is at least the opinion of the British representative in China, Sir C. MacDon- ald, who wrote in 1898: "The Manchurian Railway
(Concession dates from 1896. As is well known, it was obtained as recompense for help given in securing the 21 See Kent, op. cit., page 48.
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retrocession of Liaotung. . . . The concession is purely- strategical. " ^*
The agreement enabled Russia to dispense with the originally projected line along the north bank of the Amur, gave the Russians the permission of continuing the Trans-Siberian line across Manchuria to Vladivos- tok, and also prepared the way for further extensions southwards. In other words, the Manchurian Railway enabled Russia to dominate the whole of North Man- churia,
The construction of the Chinese Eastern Railway was begun in 1897. Meanwhile diplomacy appears to have been active in preparing for the southern extension of the line towards the Gulf of Chili in order to secure a post which should be free from the disadvantage which attached to Vladivostok of being annually icebound for several months. Events again facilitated and hastened Russian movements. Germany had compelled the Chi- nese Government to give a lease of the region around Kiaochau Bay for ninety-nine years. It has been sug- gested that China was under promise to grant Russia a concession in the Kiaochau region,^^ and that Russia embraced the opportunity of the grant to Germany to insist upon a lease of the Liaotung peninsula, including the harbor and fortress of Port Arthur, for twenty-five
22 See " China," No. i, 1899, Vol. CIX, No. 459, Enclosure 2.
23 See below, page 86.
86 FOREIGN FINANCIAL CONTROL IN CHINA
years, and upon the right to construct a railway to con- nect Port Arthur with the Chinese Eastern Railway. The lease of the Liaotung peninsula was granted on the 27th of March, 1898, including the right to build a rail- way connecting Port Arthur with Harbin, and another connecting Talienwan (later Dalny and now called Dairen by the Japanese) with Newchwang.^^ The eighth clause provided for a branch of the railway southward: " The Chinese Government agree that the principle of the permission given in the twenty-second year of Kuang Hsu (1896) to the Manchurian Railway Company for the construction of a railway shall now, from the date of signature, be extended to the construction of a branch line from a certain station on the aforesaid main line to Talienwan, or, if necessity requires, the same prin- ciple shall be extended to the construction of a branch line from the main line to a convenient point on the sea- coast in the Liaotung Peninsula, between Yingtzu (Nuo- chwang) and the Yalu River. The provisions of the agreement of the 8th of September, 1896, between the Chinese Government and the Russo-Chinese Bank shall be strictly observed with regard to the branch line above mentioned. The direction of the line and the places it is to pass shall be arranged by Hsu-Ta-jen and the Manchurian Railway Company." The article ends with the important proviso that " this railway concession is
2* See Rockhill, op. cit., Nos. 9 and 10.
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never to be used as a pretext for encroachment on Chi- nese territory, nor to be allowed to interfere with Chinese authority, or interests." Article III of the Additional Agreement, signed at St. Petersburg on the 7th of May, 1898, provides that the terminus of the line should be at Port Arthur and Talienwan. It is further agreed in common that railway privileges in districts traversed by this branch line shall not be given to the subjects of other Powers.
" Russia having gained her points, the Russification of the country proceeded fast. Port Arthur was forti- fied, a modern town built at Dalny, and railway con- struction pushed .on. The line v^^as now divided into three sections : the Western, from the Siberian frontier to Harbin; the Eastern, from Harbin to Vladivostok; and the Southern, consisting of the branch from Harbin to Port Arthur. The paramount importance of the last- named, in Russian eyes, was soon made manifest, for though the eastern and western section received merely ordinary attention, the Port Arthur branch was pushed \ on with the utmost dispatch. . . . The gauge adopted for the line was five feet, the Russian standard, which was especially stipulated for in the agreement in order that it might be uniform with the Trans-Siberian Road. So rapidly was the work pushed on, that by the time of the Boxer outbreak the line was almost through." *' t>
2' See Kent, op. cit., page 50.
88 FOREIGN FINANCIAL CONTROL IN CHINA
The railway could be opened to traffic in 1901. " Con- trol" over the road is absolutely identical to that over the North Manchurian line. For the railway is merely a branch line of the Chinese Eastern Railway, and is thus subject to all the agreements referring to the latter, as explicitly stipulated in Article 8 of the convention of March t.j, 1898. The whole Manchurian Railway places Russia in the possession of a direct route to Peking and at once gives her a predominance in North- em China, which places other powers at a marked dis- advantage.
It was especially the British colony in China that was worried about Russia's activity in the north. The China Association wrote on April 14, 1898, to Lord Salisbury: " The Association feels no confidence that the door of Manchuria will be left open by the Great Power which has obtained possession of lock, bolt, and bar. An ice- free port was a necessary concession to its commercial needs. The fact that that port has taken the form of a fortress, which can be rendered practically impreg- nable, violently changes the situation." 2®
But it is also important to notice the Russian point of view. In an Official Communication of the Russian Of- ficial Messenger of March, 1898, we read in reference to the lease of Port Arthur and the Russian railway rights in Manchuria : " This Agreement is a direct and
2» See " China," No. i, 1899, Vol. CIX, No. 25.
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natural outcome of the friendly relations between great neighboring Empires, all of whose endeavors should be directed towards the preservation of tranquillity along the vast extent of their neighboring possessions for the common benefit of the people of both of them. . . . Securing the inviolability of the sovereign rights of China, and satisfying the daily requirements of Russia in her capacity of a great and neighboring naval Power, this Agreement can in no way injure the interests of any other Power; on the contrary, it gives to all nations of the world the possibility in the near future of entering into communication with this hitherto closed-up country on the coast of the Yellow Sea." ^^
English objections to Russia's Manchurian enterprises were severely criticized by the Russian Press, to judge from extracts given in the British Blue Books. ^^ The Novosti says for instance that " Russia's recent action in the Far East meets with the sympathy of all countries excepting England. This shows how thoroughly the majority of foreign Powers believes in the sincerity of Russia's desire for peace. England, who always op- posed Russia's lawful aspirations, would obstruct her now were she not happily isolated. ... At present Eng- land is helpless before Russia, because the latter is supn ported by France and Germany. There is no formal
27 See " China," No. i, 1899, Vol. CIX, No. i.
28 See " China," No. 1, 1899, Vol. CIX, No. 14, Enclosures.
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agreement between these three Powers, but there is a complete solidarity between them."
England's isolation mentioned here, led eventually to the conclusion of the Anglo-Japanese alliance. But meantime the Russian and English Governments had long discussions in reference to railway enterprises in Manchuria.^^ The British and Chinese Corporation had entered into a preliminary agreement with the Chinese Government on the 7th of June, 1898, for a sterling loan of 16,000,000 taels " for the construction of a rail- way-line from Chunghowsou to Hsinmintung, and a branch line to Ying-tzu, and for the redemption of ex- isting loans to the Tientsin-Shanhaikwan and Tientsin- Lukouchiao lines. The security for the loan shall be the permanent way, rolling-stock, and entire property. . . . In the event of default or arrears in payment of interest or repayments of principal, the said railway lines . . . shall be handed over to representatives deputed by the Syndicate, to manage them on their behalf, until prin- cipal and interest of the loan are redeemed in full, when the management will revert to the Railway Administra- tion." ^" Whereupon the Russian Representative in China protested against the arrangement, and especially against the provision of British control in case of de- fault. A long series of negotiations followed, until
2» A detailed account of these is given by Kent, op. cit., pages 51 flf. 80 See Rockhill, op. cit., No. 42.
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finally a compromise was reached, which is expressed in Article 4 of the final agreement of Oct. 10, 1898.^^ " This arrangement, which differs from other contracts in that the Administrator-General retains control of the railway lines so long as the principal and interest of this loan are regularly paid, has been agreed to in consequence of the friendly relations which have long existed between the Contracting Parties." Sic !
The ultimate outcome of the Russo-British negotia- tions was the official recognition of the respective " spheres of interest " as quoted in Chapter II. A sup- plementary note recorded the understanding arrived at in respect to the Shanhaikuan Newchwang section of the Imperial Railways of North China.
While Russia thus excluded England from railway participation in her sphere, England was not able to exclude Russia entirely from hers. It had been Russia's great desire to secure control of a railway from the north which would join with a line from Indo-China, and to establish a through trunk route bisecting China and under control of Russia and her ally France. But bound by the agreement with England, she could only accomplish her ends through the medium of a third party. This Russia apparently did by entrusting her interests to oth- ers. She retired into the background, and confided the
31 The correspondence between the British and Russian Govern- ments with regard to Railway interests in Manchuria are contained in " China," No. 2, 1899, Vol. CIX.
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active work of advancing her interests to her alHes and financial agents, France and Belgium.
In 1897 a Belgian syndicate obtained a concession for a line from Peking to Hankow. The hand of Rus- sia in the negotiations was clearly seen. In Article 18 ^^ it was stipulated that the Russo-Chinese Bank would be the agent for the bonds, and Article 20 provided that the Russo-Chinese Bank should be the bank of deposit and the medium for monthly payments. The British Government soon realized the significance of the Belgian venture and did not entertain any illusions as to the real character of the Belgian concessions. At the time the agreement was ready to be signed. Sir Claude Mac- Donald raised the strongest objection.^^ His principal criticism of the contract was that there was no security against the railway's transfer to a bank or syndicate of another nationality (namely Russian), that there is withdrawn from Chinese control all concern with the con- struction of the line, and all power of interference with the selection of the employees and the fixing of the rates and that the Russian Minister, together with the French and Belgian, was to be the judge in certain disputes; while his principal objection was directed against any participation of the Russo-Chinese Bank.^* Any British objection, however, proved to be without avail, for China
" See Rockhill, op. cit., No. 34.
*' See Chapter II.
** See " China," No. i, 1899, Vol. CIX, No. 347-
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seemed to have been determined and Russian pressure seemed to have been stronger than British demonstra- tions.
The arrangement was embodied in two documents, a loan contract and an operating contract.^^ The latter confers wide powers of management upon the syndicate, and gives them complete financial control of the line. Article I provides as follows : " The Chinese Railway Company (represented by the Viceroys of Chili and Hupeh) in accord with the Imperial Chinese Govern- ment, entrusts the Societe d'fitude de Chemins de Fer en Chine (the Belgian syndicate) which shall appoint rep- resentatives for that purpose, with the direction, adminis- tration, and operating of the line from Hankow to Pe- king." According to Article II, " The Societe d'fitude- or the representatives of it shall appoint . . . shall or- ganize the various services, shall have the right to hire the personnel, which it shall have absolute right to dis- miss, or disband, and to fix its salaries according to a fixed schedule previously communicated to the Director General of the Chinese Railway Company. It shall make all purchases necessary for operating, maintaining or repairing the road, it shall fix the schedule of rates in the terms of concession contracts, collect revenues of all kinds and pay the operating and management expenses of the Company."
3"^ See Rockhill, op. cit., No. 34.
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The loan itself is secured by a mortgage on the railway, rolling stock, etc. In short, the control provisions are in substance identical to those embodied in the English contracts ; for we have to remember that the English control provisions were explicitly shaped after the Belgian contract.^® In other words, the Belgian control pro- visions are financial in nature. Yet their ultimate po- litical purpose can hardly be denied.
Later railways contracted or earmarked by the Bel- gian syndicate tended further to strengthen England's suspicions of Russia's political aims. " The significant point is," says the Far Eastern Review, " that the last performance of this Company brings into effect the iden- tical scheme which the Russians long ago cherished to obtain railway domination in certain spheres in China." ^^ The lines referred to as secured by the Belgian company are a continuation of the Trans^Caspian System of Rus- sia through Sinkiang (Chinese Turkestan) and Kansu, and leading from Lanchow to Sian, Honan, Kaifeng to the sea. The other Belgian project is a line longitud- inally through the province of Shansi and is to connect the above mentioned line with the Peking-Kalgan exten- sion, a Russian venture, at Tatungfu. The company has the option to extend this railway in the south to Chengtu, the capital of Szechuan.
3« See Chapter II.
»T See " Far Eastern Review," Vol. lo, pages 92 and 290.
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To this the Far Eastern Review remarks : " No rail- ways in China are likely to have such an important bear- ing, however, upon the political future of the country as these two routes which have now come under the dom- inance of the Belgian financial organization. Apart from its political bearing, however, the projected rail- way will place in the hands of the Belgian syndicate the greatest amount of mileage held by any individual nation in China, and the two routes will embrace an area of country of tremendous importance to Russia, whose financiers are alleged to be interested in the Com- pagnie Generale de Chemins de Fer et de Tramways en Chine. Considered from a purely economic standpoint the proposed line is likely to have a tremendous influ- ence upon the development of one of the richest mineral- bearing provinces of China." ^^
Our discourse on the Belgian schemes, though ap- parently a diversion from our theme, was to illustrate Russian political designs in the Far East. Aside from the improbability of an early construction of these rail- ways as a result of the war, and a consequent lack of practical value, the fact that the text of the agreements was not available to the author makes it inadvisable, if not impossible, to go into further details.
The political character of Russian railways in China, at least previous to the Russo-Japanese War, is most ap-
3' See " Far Eastern Review," Vol. lo, page 89.
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parent in Manchuria. Here events were favorable for further attempts at advance. In 1900 the Boxer dis- turbances threw the whole of North China into chaos; and Russia immediately occupied Manchuria, osten- sibly to secure the maintenance of order. Newchwang and Mukden were occupied and a military occupation was regularly instituted along the whole Russian railway in Manchuria.^ ^ Any intentions of a Russian occupation however were repeatedly denied by the Russian minis- ter to China .^** Nevertheless Europe continued to be alarmed at Russian activities and the Anglo-German con- vention of Oct. 16, 1900, was a direct outcome of the Manchurian situation.*^ Its main object was to restrain any power which might be disposed to violate the prin- ciple of equal opportunity in China or her territorial integrity.
Meanwhile the Powers were occupied with settling the questions arising out of the Boxer rebellion. After the legations had been relieved by the international ex- peditionary force, the Powers proceeded to negotiate with China upon the terms imder which they would evac- uate Peking. Until a general treaty was concluded be- tween China and the cooperating Powers, it was obvious that it would be at least inappropriate for any individual power to seek to negotiate a separate treaty with China.
89 See " China," No. i, 1901, Vol. XO, No. 391-
*o See " China," No. i, 1901, XCI, Nos. 234, 256, and others.
*i See Rockhill, op. cit, No. 14.
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But early in 1901 the news came out, of a draft of an agreement into which China was supposed to have en- tered with Russia respecting Manchuria. At the inquiry by Japan and England of the Russian and Chinese Gov- ernments as to the existence of the alleged convention, both governments kept a strict silence. Whereupon China was warned by Great Britain, Germany, Japan and the United States against entering into a separate agreement with one power while it was negotiating for peace with all powers collectively.^^ Strongly pressed by the powers, China finally communicated the text of the agreement and asked immediately thereafter the re- spective Foreign Offices to mediate between her and Russia.^^
The principal terms of the Agreement were: ** Man- churia to be restored; Assistance to be given to China by Russia in keeping order; No army to be maintained by China until the completion of the Manchurian rail- way. The strength of the police is to be settled with Russia; they are not to possess artillery, and no for- eigners other than Russians are to be employed in it; Abolition of Chinese administration in the town of Chin- chou. China is not to grant any mining, railway or other rights without the permission of Russia in the ter- ritory upon the Russian border, i.e., Manchuria, Mon-
** See " China," No. 6, 1901, Vol. CXI, Nos. 79 and 106. " See " China," No. 6, 1901, Vol. CXI, No. 137. ** See " China," No. 6, 1901, Vol. CXI, No. 130.
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golia, Hi, Yarkand, etc., and Russia's permission is to be obtained before China builds railways in these. With reference to the damages suffered by the Manchurian Railway these shall be made good. . . . Instead of this, concessions may be accepted or existing contracts modi- fied. Until the last provisions are carried out, Russia will maintain an additional force for the protection of the Manchurian Railway!
This agreement shows better than anything else the true ambitions of Russia in the Far East and the kind of control she desired to exercise — if it had not been for Japan. Russia's duplicity during and after the Boxer troubles may be illustrated by a quotation from Putnam Weale: "During 1901, Russia had three distinct and separate roles to play in China: the part of ally to all Europe; the part of China's dear and secret friend in Peking; and the part of Manchuria's real master in the •invaded provinces; whilst over and above in Europe she had to quiet the secret fears of numerous Chancelleries busily inquiring as to her real plans in the future." ^'^
Backed by the support of the Powers, China refused to sign and Russia withdrew temporarily.*^ Then fol- lowed the Anglo-Japanese alliance; whereupon Russia modified her demands in respect to Manchuria. On April 8, 1902, an agreement was concluded between Rus-
*^ See Putnam Weale, " Reshaping of the Far East," page 263. *• See " China," No. 6, 1901, Vol. CXI, No. 238.
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sia and China containing the following principal terms.* '^ Manchuria was to be restored to the Chinese Govern- ment; but China was to observe strictly the stipulations of the contract concluded with the Russo-Chinese Bank in 1896. Russia was to withdraw her troops gradually from Manchuria. Russia agrees to restore to the own- ers the Railway Shanhaikuan-Newchwang-Sinmintung. No other Power shall be allowed to participate in this railroad in any form nor to occupy the territory evacu- ated. Should extension of the line be contemplated, the Russian Government was to be consulted first; ex- penses for repair and working of said line were to be paid by China.
The Russians did not observe these terms faithfully; on the contrary, they established themselves more firmly at the mouth of the Liao River.*® The diplomacy of Russia was accompanied by hurried exploitation on the part of Russian speculators of the valuable timber re- gion of the Yalu River, by encroachments upon Korea, and by enormous expenditures at Dalny, which the Rus- sians destined for a great port. In these adventures and in the neglect of military precautions, Russia was simply playing the game of Japan and hastening the mo- ment when this Power was to take over Russia's railway rights in South Manchuria.
<7 See " China," No. 2, 1904, Vol. CX, page 36 flf. See also Rock- hill, op. cit., No. 17. ** See " China," No. 2, 1904, Vol. CX, page 63.
lOO FOREIGN FINANCIAL CONTROL IN CHINA
The Treaty of Portsmouth of Aug. 23rd, 1905, de- prived Russia of the southern part of the Manchurian Railway.'*® Article VI says : " The Imperial Russian Government engages to transfer and assign to the Im- perial Government of Japan, without compensation and with the assent of the Chinese Government, the railway between Changchun (Kuanchengtzu) and Port Arthur and all its branches together with all rights, privileges, and properties appertaining thereto in that region, as well as all coal mines in the said region belonging to or worked for the benefit of the railway." — The consent of the Chinese Government was, of course, forthcoming. — According to article VII Japan and Russia engage to ex- ploit their respective railways in Manchuria " exclusively for commercial and industrial purposes and in no wise for strategic purposes." Article III stipulates: "Japan and Russia mutually engage, ( i ) To evacuate completely and simultaneously Manchuria except the territory af- fected by the lease of the Liaotung Peninsula, in con- formity with the provisions of additional Article I an- nexed to this Treaty; and (2) To restore entirely and completely to the exclusive administration of China all portions of Manchuria now in the occupation or imder the control of the Japanese or Russian troops, with the exception of the territory above mentioned. The Impe- rial Government of Russia declares that they have not *• See " British and Foreign State Papers," Vol. 98, page 735.
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in Manchuria any territorial advantages or preferential or exclusive concessions in impairment of Chinese sover- eignty or inconsistent with the principle of equal oppor- tunity." And in Article V : " The Imperial Russian Government transfers and assigns to the Imperial Governmment of Japan, v^ith the consent of the Gov- ernment of China, the lease of Port Arthur, Talien, and adjacent territory and territorial waters and all rights, privileges, and concessions connected with or forming part of such lease, and they also transfer and assign to the Imperial Government of Japan all public works and properties in the territory affected by the above- mentioned lease."
In other words, the Treaty of Portsmouth deprived Russia of her strategical stronghold in South Manchuria, of her railway rights in said region, and checked any possible Russian ambitions at political control of all Manchuria. Russian control in the Russian " sphere " i.e., in North Manchuria, could therefore — legally — be based exclusively upon the railway agreements be- tween the Russo-Chinese Bank, respectively the Chinese Eastern Railway Company and the Chinese Government. The control provisions have been analyzed above and the character and degree of control been stated. Two as- pects of Russian control in Manchuria, however, re- main to be investigated : the railway guards and the railway zones. As to the first point the writer has to
I02 FOREIGN FINANCIAL CONTROL IN CHINA
acknowledge his inability to secure accurate figures as to the number of soldiers employed. The amount has been constantly varying and the figures found in the liter- ature appear most unreliable. The figure is large or small according to the sympathies or antipathies of the writers. The supplementary agreement to the Treaty of Portsmouth provides, that " within a period of eighteen months from that date (i.e., immediately after the Treaty of Peace comes into operation) the armies of the two countries shall be completely withdrawn from Manchuria except from the leased territory of the Liaotung Penin- sula."
The Russian title to railway " zones " in North Man- churia is based upon Article VI of the Russo-Chinese Bank's treaty with China of Sept. 8, iSpd^^^ The re- spective phrases read as follows : "As regards the land required by the Company for constructing, managing, and protecting the line and adjacent land, ... it will be given the Company without payment. ... As soon as the land comes under the management of the Company, they may erect thereon any buildings and carry on all kinds of work." . . . Lawton, however, informs us that the French text reads quite differently : " La Societe aura le droit absolu et exclusif de I'administration de les terrains." '^ On the strength of these clauses, Russia
'5*' See Rockhill, op. cit., No. 32.
51 See Lawton, " Empires of the Far East," Vol. I, page 1303.
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founded townships such as Harbin and Tsitsihar, which were under Russian administration, together with all other settlements and all the extensive tracts of lands held by the Company. China objected to the extensive ad- ministrative powers exercised by Russia, until the dispute was finally settled by an agreement of May loth, 1909.
According to Harrison, " The last agreement between the Russian and Chinese Governments arose out of the protest of the Chinese Government against that part of the 1896 Treaty which bears upon the introduction of public administration in Harbin and other settlements of the railway zone. In a strictly legal sense, China had a very weak case, and Russia's consent to the new arrange- ment was in the nature of a concession, but one which is to be welcomed as creating a wholesome precedent in the direction of a wider recognition of China's sovereign rights within her own territory, the true reason for the original grant of special privileges being plain enough." "^
The agreement is simply an appendix to the railway agreement of 1896. To use the text,^^ " In view of the mutual misunderstandings which have arisen in the interpretation of the contract for the construction and working of the Chinese Eastern Railway, dated 27th of August, 1896, on consideration of the question of the organization and introduction of public administra-
'^^ See Harrison, " Peace or War East of Baikal ? " page 199. '3 See " British and Foreign State Papers," Vol. 102, page 396.
I04 FOREIGN FINANCIAL CONTROL IN CHINA
tion on the lands of the Railway, the Governments of Russia and China have established the following general rules :
1. On the lands of the Chinese Eastern Railway, as a fundamental principle, are recognized the sovereign rights of China, which must not be prejudiced in any way.
2. All sovereign rights of China on the lands of the Chinese Eastern Railway are exercised by China, and neither the administration of the Railway nor public administrations shall under any pretext obstruct the ex- ercise of these rights, if such do not infringe any of the treaties which have been concluded by the Chinese East- ern Railway Company.
3. All the treaties of the Chinese Eastern Railway at present in operation remain as before in full force.
6. On the lands of the Chinese Eastern Railway Com- pany in settlements which possess commercial import- ance public administration shall be formed. The inhab- itants of these settlements, in conformity with the com- mercial importance of a given settlement and the number of its population, shall elect delegates who, in their turn, shall choose an Executive Committee, or the inhabitants themselves shall directly superintend public affairs and elect from their number one representative who shall carry into effect the resolutions of the general assembly.
7. On the lands of the Chinese Eastern Railway Com-
RUSSIA 105
pany, both the Chinese and foreign population enjoy the same rights and assume the same obligations, without the slightest difference between them.
8. All inhabitants who own a certain amount of im- movable property or pay a certain annual rental and established taxes enjoy the right of participation in the election of delegates.
9. The President is elected by the Assembly of Dele- gates from their midst, irrespective of nationality.
10. All matters which concern the management and good order of the settlements are subject to the jurisdic- tion of the Assembly of Delegates, etc., etc.
11. The Assembly of Delegates elects from its midst, irrespective of nationality, members of the Executive Committee. Their number must not be more than three. Besides this, the President of the Tsiao-she-tsui (Chi- nese Railway Bureau) and the President of the Railway appoint one delegate each. The members of election and the delegates together with their President constitute the Executive Committee.
12. The President of the Assembly of Delegates is at the same time President of the Executive Commit- tee.
13. The President of the Tsiao-she-tsui and the Pres- ident of the Railway, occupying a position higher than that of the President of the Assembly of Delegates and Executive Committee, are invested with the power of
lo6 FOREIGN FINANCIAL CONTROL IN CHINA
control and the right of personal revision, which they exercise when this is deemed to be indispensable, etc.,. etc.
14. In the event of the disagreement of the President of the Tsiao-she-tsui or the President of the Railway with the resolutions of the Assembly of Delegates, these must be transferred to the Assembly for additional inves- tigation. Its resolution shall be deemed binding if it is passed by three-fourths of the votes of members present at the sitting of the Assembly.
15. Important pubHc and financial questions arising in the settlements of the expropriated Zone of the Railway, on consideration by the Assembly of Delegates, are trans- ferred to the President of the Tsiao-she-tsui and to the administration of the Chinese Eastern Railway for joint consideration and confirmation.
16. Lands which have been allotted specially for the needs of the Railway are subject to the independent con- trol of the Chinese Eastern Railway, i.e., for stations, workshops, and so forth, etc.
In commenting in a very favorable way upon the provisions of this agreement as not establishing special privileges for Russia and as not being materially different from the privileges enjoyed in any other international settlements such as Tientsin, Shanghai and others, Har- rison says : " The Russian position is made all the more impregnable in the light of the perfect freedom which
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every other Power enjoys to establish, if it so wishes, its own settlements at Harbin. Hitherto, however, no effort has apparently been made to take advantage of this right, and all foreigners, with singular unanimity, prefer to live in the Russian settlement." ^^ And further : " Happily, it now seems probable that the Powers will yield on the point of municipal adminis- tration, it being clearly stipulated on Russia's part that she does not claim any right of legal jurisdiction over the persons of foreign subjects resident in the Russian set- tlement of Harbin or elsewhere within the railway zone. Extraterritoriality obtains at Harbin, as it does else- where throughout China, and though the Russian police may arrest a foreigner caught in flagrante delicto, they must at once surrender him to his consul for trial." ^^
Extraterritoriality and the legal status of interna- tional settlements however are not the object of our investigation. We have given a lengthy quotation from the latest Russo-Chinese railway zone agreement to prove our contention that the post-bellum control exercised by Russia in China is — legally — non-political. Though Russia may or may not have had an ultimate absorption of North Manchuria in view, the Russian control exer- cised in North Manchuria is strictly based upon the rail- way agreements including the supplementary interpreta-
^* See Harrison, op. cit., page 201. 55 See Harrison, op. cit., page 204.
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tion of the agreements to be found in the agreement of 1909.
" The spirit which animated the Russian side of the negotiations for the agreement concluded with China on the loth of May, 1909, was indeed so conciliatory that the Chinese at first suspected therein some deep-laid and sinister designs. The high-handed methods of the auto- cratic Russian Railway Company were replaced by a sweet reasonableness which the Peking Government were quite unable to understand, but of which they soon pro- ceeded to take every advantage. No sooner had they realized that Russia was prepared to allow the exercise of their sovereign rights in the Manchurian Railway set- tlements, than they proceeded to encourage American and German ambitions, sedulously fomenting differences at Harbin, Khailar, and other places, by which means they hoped to obtain full administrative control of the municipalities," Such are the words of Mr. Bland, when commenting on Russia's post-bellum attitude.^^ Harri- son uses a similar language : " Russia was inclined to be too self-assertive before the war, and the inevitable nemesis overtook her: to-day, on the other hand, her representatives appear to have gone to the other extreme, with the result that Russian vested interests are in dan- ger of being seriously jeopardized." ^"^
"• See Bland, op. cit., page 336. " Se€ Harrison, op. cit., page 209.
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Of course during the evacuation period, Russia was rather slow in handing the sovereign rights over North Manchuria back to China. " Russians seem to have watched the Japanese and followed their lead in political matters. As the Japanese armies were withdrawn, so also, in about the same ratio, were the Russian armies removed from China's provinces." ^® The same writer continues : " In one important matter, however, Rus- sia's post-bellum policy in Manchuria differed from that of Japan. This is in commercial affairs. The Rus- sians never have pursued a niggardly policy in regard to the trade of other nations in Manchuria. On the con- trary, during the Russian regime before the war foreign trade in the country greatly increased, especially that of the United States, owing to the fact that a condition of comparative order prevailed, and that the Russians interposed no obstacles to commerce. The present in- dustrial situation of Russia does not require special ex- ploitation in her favor of eastern markets. . . . After the war, Russia resumed this policy which was more sharply thrown into relief because of Japan's opposite attitude in the south. Russia made no attempt to pre- vent foreigners from entering the country after peace was established. Instead of interposing obstacles, to the im- portation of products, as Japan did in her sphere, Rus-
'* See Millard, " America and the Far Eastern Question," page 276.
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sian officials smoothed their way by providing routes of access."
But while the control exercised by Russia in Man- churia, of late, was very moderate, she nevertheless strengthened her position considerably by new railway enterprises in these regions. In the agreements of July 30th, 1907, July 4th, 1910, and July 3rd, 19 16, Japan and Russia mutually guarantee their vested and future interests in their respective spheres and promise each other support in case of foreign interference.*^® The agreements suggest that Japan and Russia have made up their minds, eventually to divide Manchuria between them, and the first fruits of these agreements are to be seen in several new railroad contracts as well as in the effective exclusion of other powers.
Russia had, immediately after the war, begun calmly to conduct surveys in the provinces of Amur and Baikalia with a view to providing for the regeneration of Rus- sian policy in the Far East by means of a colossal rail- way undertaking — the Amur Railway. A provision for connection of the Amur Railway at Blagoveshchensk was made in 19 14 by means of a new Manchurian rail- way contract. A detailed account of this contract can- not be given for the same reasons which hindered us from investigating any other railway agreements con-
"• The agreements will be analyzed in Chapter VI, since they are of greater importance to Japan than to Russia.
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eluded within the last three years. We take our infor- mation on the project from the Far Eastern Reviczv, which says : ®® " An important agreement was signed in Peking on March 27th last between the Russo-Asiatic Bank, represented by Mr. L. de Hoyer, and the Chinese Government, represented by Mr. Liang Tung-yen, the Minister of Communications, and Mr. Chou Hsu-shih, Minister of Finance, for the construction of a railway connecting the cities of Harbin, Mergen, Aigun, and Tsitsihar, in Northern Manchuria. Harbin is at the junction of the Siberian Railway and the line running south to Changchun and thence to Dalny, while Tsit- sihar is connected with the Siberian Railway by a light line which will be taken over under the agreement just signed. Mergen is a little more than half way between Tsitsihar and Aigun, which is on the Amur River. North of Aigun, on the opposite side of the Amur, is the city of Blagoveshchensk, which the new railway is des- tined to serve. Connection will be made by means of ferry boats with what is now the village of Heiheifu, opposite Blagoveshchensk, where the railway will termi- nate. The total length of the proposed railway is ap- proximately 1,000 kilometers. It will link up the Sibe- rian Railway with the Amur River, and will consolidate Russian interests, and incidentally develop great areas of valuable territory, in North Manchuria. An inter- «° Sec " Far Eastern Review," Vol. 11, pages 150 and 385.
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esting point is that it will cover the northern section of what is known as the Chinchow-Aigun project, the agreement for which is held by the American group of bankers, but which was rendered void by the energetic protests of Japan that the proposed line would parallel the South Manchuria Railroad.
" The agreement is for a loan of 50 million roubles, and an additional amount which might be required to complete the project. The loan is to be floated when financial conditions may permit after the war, and in whatever markets the Russo-Asiatic Bank may deem money to be available. The agreement is regarded as an improvement on other railway agreements in China where the interest of the financiers are concerned with control of expenditure, etc., while the Chinese Govern- ment gains a distinct pecuniary advantage owing to an arrangement being made whereby the working of ex- change cannot be so disastrous as in the case of other railroad lines. . . . The bondholders receive ample pro- tection in the usual way by having the line, etc., as secur- ity, by the employment of qualified engineers and ac- countants, etc., and in addition by the arrangement that the earnings of the railway shall be deposited in branches of the Russo-Asiatic Bank."
Furthermore Russia demands from China a concession for a railway from Kiakhta to Urga and through Mon- golia to Kalgan, which is to connect the Siberian system
RUSSIA 113
with Peking via the Peking-Kalgan line. But this pro- ject is of the future.®^ Another project, namely, for a railway from Kokand, the terminus of the Central Asian line, through Kashgar, Hami, Soochow, to Lanchow-fu, in China, has also been set aside for Russia to finance and construct.®^ These lines would be purely for the advancement of Russia's strategical position in Mongolia and China, and would bring the northwest and western provinces within the Russian sphere.
The first steps towards the establishment of a Russian sphere, if not a Russian protectorate, have been taken under the Russo-Mongolian agreement and Protocol of the 2ist of October, 3rd of November, 1912, respec- tively.®^ The agreement provides for the exclusion of Chinese influence in Mongolia. According to Article I, Mongolia is " to admit neither the presence of Chi- nese troops on her territory nor the colonization of her land by Chinese." The main provisions of the pro- tocol are as follows: Russian subjects shall enjoy the right to trade freely without payment of any duties, taxes or other dues and to open financial institutions and fac- tories wherever they choose. Russian subjects shall be empowered to enter into agreements with the Mongolian
«^ See U. S. Consular Reports, No. 245, Oct. 20, 1913, page 354.
'2 See " Far Eastern Review," Vol. 10, page 290.
•3 The text of all Mongolian agreements, etc., is found in the American Journal of Intertiational Law, Vol. 10, No. 4, supple- ment, pages 239 ff.
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Government respecting the working of minerals and tim- ber, fisheries, etc. Russians shall retain the right to institute a postal service for the dispatch of letters and the transit of wares between all points of Mongolia and Russian consuls in case of need shall avail themselves of Mongolian Government postal establishments.
China had to acknowledge this state of affairs and in the Peking agreement of Nov. 5th, 1913, agreed not to deal with the Mongols without consent or assistance of the Russian Government, though she remains suzerain over Mongolia.
On Sept. 30th, 1914, Russia entered into another agree- ment with Mongolia which strengthened Russia's influ- ence in that country as far as railways are concerned.** By this agreement Russia obtained the right to advise Outer Mongolia in deciding what railway lines to build and the method of procedure. Russia recognizes Mon- golia's right to build the railways within its own boun- daries if the funds can be raised there, but Mongolia is pledged to consult Russia before making concessions for railway construction to other nations. Since Mongolia is notoriously poor, it is evident that Russia has the ex- clusive right to build railways in this country.
The tripartite agreement of June 7th, 191 5, is the final acknowledgment of the existing state of affairs.*' Both
** See Am. J I. of Int. Law, Vol. 10, No. 4, page 249. 8" See Am. Jl. of Int. Law, Vol. 10, No. 4, page 251.
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China and Russia agree to abstain from all interference with the internal administration of Outer Mongolia. Russian right to free trade is confirmed, while China is nominally acknowledged as suzerain. Practically, how- ever. Outer Mongolia is under joint Russian and Chi- nese protection.
Mr. E. T. Williams sums up Russia's position in Mon- golia : " These agreements, then, have considerably in- creased the political and commercial rights of Russia in Mongolia, and they thus tend to restore, if not to en- hance, Russian prestige in the Far East which had been somewhat lessened by the result of the Russo-Japanese War." ««
To the beneficent effects to be expected from Russia's position in Mongolia, Mr. M. D. Carruthers bears wit- ness in his splendid work on " Unknown Mongolia." ®'^ " Taking for granted an autonomous Mongolia under the protection of Russia, we can prophesy far-reaching and fundamental changes in the lives of the people and in the future of the Mongol race. Mongolia will become — indeed, probably has already become — a land of ac- tivity and progress instead of, as formerly, a land of stag- nation and suppression." And again : " The Russian influence has obviously an advantage over that of the Chinese. The Russians fraternize with the Mongol
•8 See Am. Jl. of Int. Law, Vol. 10, No. 4, page 808. •^ See Carruthers, " Unknown Mongolia," pages 315, 317, and In- troduction, page IV.
Il6 FOREIGN FINANCIAL CONTROL IN CHINA
races, the race-barrier between them being much less marked than that between the Chinese and the Mongols." While Lord Curzon says in an introduction to the book : " We see the Mongolian tribesmen, heirs of a mighty past, long withered under the blighting influence of de- generate Lamaism, but now turning to the risen sun of Russia to find a warmth and a protection which Chinese suzerainty has failed to give them."
These quotations lead us to a few concluding remarks about the secret of Russian success in Eastern Asia, based as it is on a national character and a disposition, different from the rest of Europe. We began, our chap- ter by contrasting English and Russian governmental methods and shall now conclude with a few words about the differences in attitude. The attitude of Russia to- wards Asiatic peoples and the rule of her of subject races in Asia, may have been less humane, conscientious, and educative than the attitude of England and the rule by her of Asiatic subject races; but the Russians who exercise the administrative functions in the East are naturally more affable than the English, and are more indifferent to moral and religious propagandas. From origin, temperament, and personal habits, and through intimate contact with Asiatics from the dawn of history, the Russian is nearer to the Asiatic point of view than the Englishman. Says Wirt Gerrare : " Rus- sia's . . . occupation of Northern and Central Asia has
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been of benefit to the inhabitants. It was only her methods of conquest which were unnecessarily severe. . . . Generally the Russian treatment of the native and subdued races if not perfect, or ethically correct, is not worse than that of other civilized Christian nations." ®^ Vladimir maintains that " Russian annexation in Eastern Asia has been favorable to the Chinese people, opening new fields for their trading enterprise. The Russians have had the greatest toleration for the customs of the Chinese and for their local self-government, even when it was prejudiced to their legal sovereignty." ®^ Even Lord Curzon in his book " Russia in Central Asia " ad- mits that Russia has in her career of Asiatic conquest achieved a successful and a salutary end, and that Rus- sia's dominion is " loyally accepted by the conquered races." '«
Finally the relations between Russia and China cannot be understood without taking into account the fact that in spite of encroachments upon China by Russia, the two countries have never actually been in a state of war, excepting a few minor boundary disturbances. While European powers in general were not permitted to send diplomatic representatives to Peking until 1858, Russia had maintained a semi-official embassy there from 1692,"^^
^' See Wirt Gerrare, op. cit., page 317.
8^ See Vladimir, op. cit, page 317.
"° See Curzon, " Russia in Central Asia," Chapter X.
^^ See Ravenstein, " The Russians on the Amur," page 71.
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and the expenses of the embassy even were partially sustained by China, The Russian representative has always been persona grata at the Court of China and has thus been able to enjoy a confidence denied to others.
Apparently nothing could shake Russia's faith in her Far Eastern policy. Russian policy in Asia has never changed; it may have been checked at times, but Russia quietly awaited her opportunity and at the right moment pressed forward and regained lost ground.
It is the absence of a definite or at least ulterior aim which distinguishes the Chinese policy of England from that of Russia; for in regard to Russia we have a clear and declared Asiatic policy, which during centuries has remained fixed.
No wonder then, that even in 191 5, a Russian writer having in mind Manchuria and Mongolia, could write: "* We find ourselves on the eve of new colonial adven- tures. In a word, the historical phase which was passed through before the Revolution, is about to be renewed." ''^
In brief, Russia's chances to reach her aims were greater than those of all other Powers and she would have been able to carry out her plans, if it had not been for two factors that were a curb to her expansion : Japan and the unrest within the Russian Empire.
^2 See Alexinsky, " Russia and the Great War," page 22.
CHAPTER IV
FRANCE
Of all Western countries, it has been the intercourse of France with China which, apart from trade, has been considerable. Both the earlier knowledge of the West acquired by China and that of China acquired by the West were mainly achieved by French missionaries, who also have played an important part politically. The acci- dent of the dispatch of an envoy by the King of Annam to the court of Louis XIV turned the eyes of that mon- arch and of the ecclesiastics eastward to the possibility of obtaining political influence in Indo-China. In 1787 Bishop Pigneaux de Bretaine tried — though in vain — to bring Tonkin under French rule. His designs were frustrated by the French Revolution and only in 1858 another French force was dispatched to Indo-China. This time French attempts were successful, culminating in the final annexation of Cochin-China in 1862.
A protectorate over Cambodia was established in 1863. In the treaty of 1874, France acknowledged the inde- pendence of Annam ; but Annam ceded — in Article V
"9
I20 FOREIGN FINANCIAL CONTROL IN CHINA
— to France all territory already taken by France in the south. ^
J In 1884 the " Convention Fournier " was signed by which France bound herself to protect against all aggres- sion by any nation whatever, and in all circumstances the southern frontiers of China and Tongking. This con- vention was confirmed by China in the treaty of 1885 under which France engaged herself to " re-establish and maintain order in those provinces of Annam which bor- der upon the Chinese Empire." ^ In Article VII China j agreed that in case she should decide on constructing ^ railways, she would have recourse to French industries. This protectorate then formed the basis for further advance on China proper, the first and most important means of which was to be a railway into Yunnan. And the first step towards a railway policy was marked by the convention of 1895, the fifth clause of which says: " It is understood that China, for the exploitation of its mines in the provinces of Yunnan, Kwangsi, and Kwang- tung may call upon, in the first instance, French manu- ^facturers and engineers, the exploitation remaining nevertheless subject to the rules proclaimed by the Im- perial Government as regarding national industries. It is agreed that railways either those already in existence
1 See " British and Foreign State Papers," Vol. 6$, page 375.
2 See " Documents diplomatiques. Affaires de Chine et du Ton- kin, 1884-1885," page 283 ff.
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or those projected in Annam may, after mutual agree- ment and under conditions to be defined, be continued on Chinese territory." '
On the strength of this agreement French railway en- terprise in the south of China was seriously thought of and proposed to China in the years 1897 and 1898, when the construction of a comprehensive system of railways in Indo-China was mooted.
The growth of French influence and railway enterprise in Southern China marks the commencement of the realization of certain French ambitions for the further- ance of which Tongking was occupied. The most remark- able utterance in reference to France's policy is to be found in a most valuable work by M. Doumer, the late Governor-General of Indo-China, entitled, " LTndo- Chine Frangaise." He writes : ** Le chemin de fer de penetration au Yunnan, par la vallee du Fleuve Rouge, avait une importance politique qui n'etait pas moindre que son importance commerciale indeniable. Long- temps, le Tonkin ne nous avait paru valoir que par I'acces qu'il donnait au Yunnan. On a tres justement reconnu par la suite qu'il avait une valeur propre; mais
3 See Rockhill, op. cit., No. 3.
The French text is to be found in " Documents diplomatiques, Chine, 1894-1898," pages 16-19, and reads: "La Chine pourra s'adresser a des ingenieurs et a des industries frangais pour I'ex- ploitation des mines . . . les voies ferrees pourront etre prolongees sur le territoire Chinois," etc.
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ce n'etait pas une raison pour oublier le but de notre pirse de possession." *
In other words, Tongking was occupied in order to pro- vide a convenient means for the penetration of South- ern China by a railway. But what were the motives for penetration ? This question may in part be answered by going back to the motives behind the acquisition of the rest of French-China. They are thus summarized by Dubois et Ferrier in their work " Colonies Frangaises." ^ " L'acquisition de la Cochinchine, le protectorat du Cam- bodge, sont dus, en effet, comme nos progres en Afrique occidentale, a la tenacite des officiers. . . . Sans la guerre anglo-frangaise de Chine qui, vite achevee, laissa disponibles des forces militaires en Extreme-Orient, nos amiraux n'auraient point sans doute obtenu les resources indispensables au succe's. Au reste une politique essen- tiellement commerciale et dont I'espoir principal reposait sur la conquete de nouveaux marches en pays peuples devait tenir a prendre position a proximite de I'Empire Chinois. D'autres mobiles, en particulier le desir d'appuyer la propagande religieuse, renforcerent cette premiere conviction. L'intelligence de nos d'escadre, le point d'honneur de ne pas lacher prise, une fois engages,
* See Doumer, " L'Indo-Chine Franqaise," page 330. See also P. Leroy Beaulieu, " De la Colonisation," Vol. II, Chap. XI, Table de Matieres, page 695 : " Le but priraitif de notre etablissement an Tonkin : I'utilisation du ' fleuve Rouge ' pour la penetration en Chine."
' See Dubois et Ferrier, " Colonies Frangaises." pages 287 and 810.
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firent le reste "... and again : " C'etait aussi la revelation de la richesse miniere du Yun-nan, nouvel attrait, et nouvelle raison pour les Frangais de s'interesser aux provinces septentrionales de Tempire d'Annam. Occupation d'un pays plus salubre d'un debouche et d'une voie d'acces de I'empire chinois, d'un fleuve plus maniable que le Mekong, tels se presentaient aux esprits les avan- tages d'une entreprise conseillee par Jean Dupuis et que I'amiral Dupre esperait mener a bonne fin, grace a I'ex- perience particuliere de Francis Garnier."
Mr. Hazen, the American historian, writes in his book " Europe Since 1815 " : under the masterful influence of Jules Ferry, prime minister in 1881, and again from 1883 to 1885, the Republic embarked upon an aggressive foreign policy. She established a protectorate over Tunis; sent an expedition to Tonkin, to Madagascar; founded the French Congo. This policy aroused bitter opposition from the beginning, and entailed large ex- penditures, but Ferry, regardless of growing opposition, forced it through, in the end to his own undoing. His motives in throwing France into these ventures were various. One reason was economic. France was feel- ing the rivalry of Germany and Italy, and Ferry believed that she must gain new markets as compensation for / those she was gradually losing. Again, France would*' gain in prestige abroad, and in her own feeling of con- tentment, if she turned her attention to empire building
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and ceased to think morbidly of her losses in the Ger- man war. Her outlook would be broader. Moreover, she could not afford to be passive when other nations about her were reaching out for Africa and Asia. The era of imperialism had begun. France must participate in the movement or be left hopelessly behind in the rivalry of nations. Under Ferry's resolute leadership the policy of expansion was carried out, and the colonial possessions of France were greatly increased, but at the expense of political peace at home." ®
France had to fall in line with the race for Empire and economic expansion. She was feeling the economic competition of all other nations. Furthermore France had retained her position as a great money-lending coun- try; and she naturally preferred to invest her money in colonies and spheres of interest of her own.
Therefore, when in 1897, the era of spheres of in- terest, and the battle of concessions in China began, France lost no time in asserting herself. The greatest instrumentality of French ambitions in South China was M. Doumer. This energetic and ambitious statesman urged the adoption of a considerable railway program upon the French Government. In his speech to the Conseil Superieur de I'lndo-Chine he referred to the aggressive attitude of other Powers, and emphasized the necessity of outbidding France's rivals in the South of ' See Hazen, " Europe Since 1815," page 353.
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China. To use his own words : " La question des chemins de fer dans tout 1' Extreme-Orient est aujourd'- hui a I'ordre du jour, comme en temoignent les efforts des rivaux de la France et les missions officielles en- voyees en Chine. . . . L'Angleterre, avec une har- diesse que, de notre cote, nous n'avons pas montree jusqu'ici, se met en marche par la Birmanie vers le Yun- nan et le Ssetchouen qui semblaient reserves a notre penetration commerciale. Pourtant, si nous savons vouloir, nous devons triompher dans cette lutte pacifique. Nous nous trouvons favorises grace aux facilites que nous donne la vallee du Fleuve Rouge pour atteindre le Yunnan. Mais il faut profiter de cette situation et join- dre aux efforts faits par le Gouvernement de la Metropole Taction de la Colonic pour construire le reseau indo- chinois qui servira de base a notre penetration en Chine." "^
A similar view is expressed by Dubois et Ferrier: " L'intervention directe de plusieurs puissances europeen- nes en Chine fait a nos hommes d'etat un devoir pressant d'assurer cette nouvelle expansion de notre colonic, con- stituee d'hier, vers un pays libre de quatre cent millions d'habitants. ... It faut done pour rendre efficace le bienfait de ce voisinage, prendre I'initiative d'une penetration qui nous rapproche le plus tot possible des regions les mieux dotees. Aussi I'oeuvre de notre
'' See Doumer, op. cit., page 326.
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diplomatic commerciale des dix dernieres annees en Chine, est-elle une oeuvre profondement solidaire de notre expansion indo-chinoise." ®
In 1897 and early in 1898, France used a policy of pressure upon China, similar to that exercised by other Powers. On April lOth the Chinese Government ac- quiesced in the following demands of France : ®
1 . The Chinese Government grants to the French Gov- ernment, or to the French Company, which the latter may designate, the right to make a railway from the frontier of Tonking to Yunnanfu: the Chinese Gov- ernment having no other responsibility but to furnish land for the road and its dependencies. The route of this line is actually surveyed, and will be fixed later on in agreement with the two Governments. Regulations will be jointly made.
2. The Chinese Government, in consideration of its friendship for France, leases the bay of Kuangchouwan, for 99 years, to the French Government, which may establish a naval station and coal depot there. The boundaries of the Concession will be fixed hereafter by agreement between the two Governments, after examina- tion on the spot. The question of rental will be arranged later on.
■ See Dubois, op. cit., page 824.
^ See " Documents diplomatiques, Chine, 1894-1898," pages 49 to 51. English texts given by Rockhill, op. cit., Nos. 36 and 24. See also "British Blue Book, China," No. i, 1899, Vol. CIX, No. 17.
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3. When the Chinese Government organizes a definite Postal Service and places a high functionary at its head, it proposes to call for the help of foreign officers, and declares itself willing to take account of the recommenda- tions of the French Government in respect to the selec- tion of the staff.
4. With the purpose of assuring the relations of neighborliness and friendship between China and France ; with the purpose, equally, of seeing the territorial in- tegrity of the Chinese Empire maintained and, further, because of the necessity of taking care that no change be introduced in the existing situation as regards the provinces bordering on Tongking,^^ the Government of the Republic would attach particular value to receiving from the Chinese Government an assurance that it will not cede to any other Power all or a part of the territory of those provinces, either definitely or temporarily, or on lease, or by any title whatsoever.
A declaration concerning the non-alienation of the Island of Hainan had been given by the Chinese as early as March 15th, 1897.^^
Having gained their points the French began railway construction. M. Doumer proposed to the Conseil Superieur a comprehensive railway scheme for the
1° The French text reads here : " Par suite de la necessite ne comte de veiller a ce que dans les provinces limitrophes du Tonkin, il ne soit apporte aucune modification aletat de fait et de droit existant."
^^ See " Documents diplomatiques, Chine, 1894-1898," page 33.
128 FOREIGN FINANCIAL CONTROL IN CHINA
French colonies, including a line from Haiphong to Hanoi with an extension to Yunnan. After the author- ization of the scheme by this body M. Doumer proceeded to Paris to obtain the sanction of the French Chamber. The law authorizing the Government of Indo-China to borrow 200,000,000 francs for exclusive use of a rail- road system was promulgated on the 25th of Dec, 1898.^^ In Article HI the Government of Indo-China is author- ized to grant a guarantee of interest to the Company which was to become the " concessionaire " of this line. The money which the colonial government might be called on to furnish is, in turn, guaranteed by the French Republic.
Owing to the Boxer troubles, little was done towards commencing railroad building in Yunnan and only the construction of the French colonial line from Haiphong to Hanoi and thence to Laokay was undertaken. ^^ But in 1 90 1, M. Doumer succeeded in constituting a syndi- cate composed of the principal financial houses of Paris, and in concluding with this syndicate a convention for the building of the railway from Laokay to Yunnan- hsien and for the working of the whole line from Haip- hong to Yunnanhsien.^^ The syndicate is the exclusive
12 See Doumer, op. cit., page 329 ; and " Documents diploma- tiques, Chine, Juin-Octobre, 1900."
^3 See Kent, op. cit., page 162.
1* See Doumer, op, cit., pages 343 ff. and " Documei:ts Diploma- tiques." See also Rockhill, op. cit., page 405.
FRANCE 129
concessionaire and is to build the railway from Laokay to Yunnan, with a total length of 468 kilometers at its own expense and risk, while it receives from the govern- ment of Indo-China, entirely constructed and ready for exploitation, the road from Haiphong to Laokay, being 385 kilometers long. The total line is conceded to the syndicate for 75 years, and is to be exploited at the ex- pense and risk of the concessionaire with eventual share in the profits by the colonial government (avec partage eventuel des benefices entre celui-ci et le Gouvernement general ) .
The capital required for construction of the railway to Yunnan and for exploitation of the entire line from Haiphong to Yunnan was 101,000,000 francs and was constituted as follows: The stock capital of the syn- dicate, 12,500,000 francs; a subvention from the Gov- ernment of Indo-China, another 12,500,000 francs; the rest, or 76,000,000 francs, in bonds guaranteed by the home government to the limit of an annuity of 3,000,000 francs yearly.
This convention was signed on the 15th of June, 1901, was presented three days later for ratification to the Chamber of Deputies by the Minister of the Colonies and the Minister of Finance, and was finally ratified by law of July 5, 1901.