I had long discarded any narrow interpretation of diplomacy, but even if I had adhered to the principle that the diplomat must busy himself only with political matters, I should have had to admit that in China political matters included commerce, finance, and industry. I did not, of course, intend that the Legation should enter into a scramble for concessions, but it was my purpose that it should maintain sympathetic contact with Americans active in the economic life of China, and should see to it that the desire of the Chinese to give them fair treatment should not be defeated from any other source.
When I thought of American enterprise in China I had less in mind the making of government contracts, than the gaining of the confidence of the Chinese people in the various provincial centres of enterprise by extensive business undertakings, resting on a sound and broad foundation. In China the people are vastly more important than the Government, so that it is necessary to make up one's mind from the start not to regard Peking as the end-all and be-all of one's activity, but to interest one's self deeply in what is going on in all of those important interior centres where the real power of government over the people is exercised, and where the active organizations of the people are located.
The universal knowledge that America has no political aims in China, of itself gives Americans the confidence of the Chinese and predisposes the latter to favour intimate coöperation. Our policy is known to be constructive and not to imply insidious dangers to their national life. It would be discouraging to the Chinese, should Americans fail to take a prominent part in the development of Chinese resources. To Americans the idea of securing preëminence or predominance is foreign, but from the very nature of their purely economic interest they have to resist any attempt on the part of others to get exclusive rights or a position of predominance, which could be utilized to restrict, or entirely to extinguish, American opportunities.
I was therefore resolved to give every legitimate encouragement to constructive enterprise, whether it were in education, finance, commerce, or industry.[1]Fully a year before going to China I had expressed my view of the natureof American policy there, saying that a united China, master of its own land, developing its resources, open to all nations of the world equally for commercial and industrial activity, should be the chief desideratum.
Among the specific American interests already existing in China, that of missionary and educational work had at this time to be given the first rank. There are two factors which have made it possible for this work to achieve a really notable influence. The one is that it is plainly the result of individual impulse on the part of a great many people animated by friendly motives, and not the result of a concerted plan of propaganda. The second factor is the spirit of helpfulness and coöperation which permeates this work. There is no trace of a desire to establish a permanent tutelage. An institution like the Y.M.C.A. acts with the sole thought of helping the Chinese to a better organization of their own social and educational life. The sooner they are able to manage for themselves, the better it seems to please the American teachers, who may remain for a while as friendly counsellors, but who make no effort to set up a permanent hierarchy of supervision. The Chinese have an intense respect for their educators, and it has been the good fortune of many Americans—men like Dr. W.A.P. Martin and Dr. Chas. D. Tenney—to win the devoted loyalty of innumerable Chinese through their activity as teachers.
Among commercial enterprises the Standard Oil Company was carrying petroleum to all parts of China. It had introduced the use of the petroleum lamp, had extended the length of the day to the hundreds of millions of Chinese, and even its emptied tin cans had become ubiquitous in town and country, because of the manifold uses to which these receptacles could be put. For efficiency and close contact with the people, the Chinese organization of this great company was indeed admirable.
A similar result had been obtained by the British-American Tobacco Company, which, although organized in England under British law, is American by majority ownership, business methods, and personnel. The cigarette had been made of universal use, and had been adapted to the taste and purchasing ability of the masses. Though there were several American commission firms of good standing, none had the extensive trade and financial importance of the great British houses. Several American firm names established in China early in the nineteenth century, like that of Frazar & Company, had become British in ownership. The only American bank was the International Banking Corporation, which at this time confined itself to exchange business and did not differ in its policy or operations from the common run of treaty port banks.
If national standing in China were to be determined by the holding of government concessions, America was at this time, indeed, poorly equipped. The Bethlehem Steel Corporation had in 1910 concluded a contract with the Imperial Government for the construction of vessels to the value of $20,000,000. When I came to China, a vice-president of the corporation, Mr. Archibald Johnston, was in Peking, ready to arrange with the republican government for a continuance of the contract. The American banking group was a partner in the Hukuang Railways, in which it shared with the British, French, and German groups. An American engineer was employed at the time in making a survey of a portion of the proposed line along the Yangtse River. The American group also held the concession for the Chinchow-Aigun Railway in Manchuria, the execution of which had been blocked by Russia and Japan. The group further participated with the three other groups above mentioned in the option for a currency loan. The only activity going on at this time in connection with these various contracts, on the part of America, was the survey of the Hukuang railway line west of Ichang.
For some time the practice had grown up, on the part of European powers, to urge the Chinese to employ, as advisers, men reputed to have expert knowledge in certain fields. The most noted adviser at this time was Dr. George Morrison, who had gained a reputation in interpreting Far Eastern affairs as Peking correspondent for the LondonTimesduring and after the critical period of 1900. A fresh group of advisers had just been added under the terms of the Reorganization Loan. Each power therein represented had insisted that the Chinese appoint at least one of its nationals as an adviser. The American Government had never urged China to make such an appointment. But when President Eliot visited China in 1913, Chinese officials expressed to him the wish that a prominent American should be retained as adviser to the Chinese Government. President Eliot suggested that the Carnegie Endowment might propose certain experts from whom the Chinese Government could then make a selection. This method was actually followed, and as a result Prof. F.J. Goodnow of Columbia University, a recognized authority on constitutional law, had been retained by the Chinese Government and was at this time already in residence at Peking. The Ministry of Communications on its part had sought a man familiar with railway accounting, and had called upon the late Prof. Henry C. Adams, the noted economist and railway expert of Michigan University.
The important administrative positions of Inspector General of Customs and of Foreign Inspector of the Salt Revenue were held by two British officials. The salt administration had come within the purview of international supervision through the Reorganization Loan agreement; and, as America was not a party to that loan, the appointment of Americans to any positions in this service was frowned upon by several of the partners. The Inspector, Sir Richard Dane, an official of long experience inIndia, however, adopted the policy of not confining the appointments to subjects of the Consortium Powers. He had retained several Americans, in whom he seemed to place great confidence. In the Customs Service, Americans did not hold the number of positions to which they were relatively entitled. This was undoubtedly due to the fact that very few people in the United States knew that such positions in China are open to Americans; moreover, many of those Americans who were actually appointed had become impatient with the relatively slow advancement in this service and had been attracted by other opportunities. There were, however, a number of highly reputed and efficient American officials in the Customs Service.
FOOTNOTES:[1]The leading British paper of China had this to say concerning the modern functions of diplomacy: "It is characteristic of Doctor Reinsch and his outlook upon China that he should mark a point of progress in the fact that the legations are ceasing to be merely political centres, and that, instead of politics being the one and only object of their existence, they are now establishing relations of all kinds of mutual helpfulness in vital phases of national reorganization. In this connection, we may see an increase in the number of experts who will come, unofficially for the most part, to study conditions and gather data which may be available as a sure foundation for progress." I may say in passing that the British papers in China, throughout the period of my work there, were almost uniformly fair and friendly, and gave credit for honest efforts to improve conditions.
[1]The leading British paper of China had this to say concerning the modern functions of diplomacy: "It is characteristic of Doctor Reinsch and his outlook upon China that he should mark a point of progress in the fact that the legations are ceasing to be merely political centres, and that, instead of politics being the one and only object of their existence, they are now establishing relations of all kinds of mutual helpfulness in vital phases of national reorganization. In this connection, we may see an increase in the number of experts who will come, unofficially for the most part, to study conditions and gather data which may be available as a sure foundation for progress." I may say in passing that the British papers in China, throughout the period of my work there, were almost uniformly fair and friendly, and gave credit for honest efforts to improve conditions.
[1]The leading British paper of China had this to say concerning the modern functions of diplomacy: "It is characteristic of Doctor Reinsch and his outlook upon China that he should mark a point of progress in the fact that the legations are ceasing to be merely political centres, and that, instead of politics being the one and only object of their existence, they are now establishing relations of all kinds of mutual helpfulness in vital phases of national reorganization. In this connection, we may see an increase in the number of experts who will come, unofficially for the most part, to study conditions and gather data which may be available as a sure foundation for progress." I may say in passing that the British papers in China, throughout the period of my work there, were almost uniformly fair and friendly, and gave credit for honest efforts to improve conditions.
CHAPTER VII
PROMPT PROPOSALS FOR AMERICAN ACTION
The Chinese were not slow in showing what conclusions they deduced from the withdrawal of the American Government from the Six-Power Consortium. On November 27th, two cabinet ministers called on me for a private conversation. Following this interview Mr. Chang Chien, recognized master of antique Chinese learning, but also Minister of Industries and Commerce, came to me. I will relate the substance of what passed on these two occasions, beginning with Mr. Chang.
Chang Chien carried off first honours in the great metropolitan examinations of Peking under the old régime in 1899. He is a scholarpar excellenceof the Chinese classics, and his chirography is so famous that he has been able to support a college out of the proceeds of a sale of examples of his writing. But he has not rested satisfied with the ancient learning. In the region of his home, Nan Tung-chow, on the banks of the Yangtse, he has established schools, factories, and experiment stations for the improvement of agriculture and industry. He had financial reverses. People at this time still doubted whether he would be permanently successful, although they admitted that he had given impetus to many improvements. Since then his enterprises have flourished and multiplied. He has become a great national figure, whose words, spoken from an honest desire for right public action, have decisive weight with the nation. While he still represents the old belief that the superior man of perfect literary training should be able successfully to undertake any enterprise and to solve any practical difficulty—which belief is contrary to the demands of our complex modern life for specialization—yet he has succeeded in bending his intelligence to thoroughly modern tasks.
As would be expected from his high culture as a Chinese scholar, Mr. Chang Chien is a man of refinement and distinction of manners, than which nothing could be more considerate and more dignified. The Chinese are exceedingly sensitive to the thought and feeling of any one in whose company they happen to be; if their host is busy or preoccupied, no matter how politely he may receive them, they will nevertheless sense his difficulty and will cut their visit short. They also have great tact in turning a conversation or avoiding discussions they are not ready for, and they can do this in a manner which makes it impossible to force a discussion without impolite insistence. The smoothness and velvetiness of Chinese manners, together with the absence of all servile assent and the maintenance of complete independence of discussion, are marvellous and bear evidence to thousands of years of social training.
Mr. Chang Chien was particularly interested in river and harbour development, and in plans for the drainage of those regions of China which are subject to periodical floods. It was contemplated to establish a special conservancy bureau under whose care surveys for important projects were to be undertaken. I questioned Mr. Chang concerning the status of the Hwai River conservancy scheme for the prevention of floods in the northern portion of the provinces of Kiangsu and Anhui, the region from which he came.
"I have already established a special engineering school," he replied, "in order to train men for this work. A large part of the survey has been made, and it can be entirely completed by a further expenditure of 35,000 taels.
"Besides the enormous benefit of such a work to all the adjoining agricultural lands," he continued, "there would bereclaimed nearly 3,000,000 acres which could now not be used at all, although their soil is inexhaustibly fertile. The land thus reclaimed would be salable immediately for at least $40 an acre. Would not this alone be ample security for a large conservancy loan? $25,000,000 would do the work."
Mr. Chang was also interested in the establishment of a commercial and industrial bank, in copartnership with American capitalists. "Such a bank," he said, "would assist in furnishing the capital for the works of internal improvement."
It was quite plain that Mr. Chang looked upon a bank as an institution which would invest its capital in such enterprises—a conception which was then quite current among the Chinese. They had not yet fully realized that in the modern organization of credit a bank may act as a depository and may make temporary loans, but more permanent investments must ultimately be placed with individual capitalists, with banks acting only as underwriting and selling agencies.
As we talked about the execution of these large and useful projects, Mr. Chang repeatedly made expressions such as this: "I prefer American coöperation. I am ready to employ American experts to work out the plans and to act as supervisors. But please to bear in mind, these works may not be undertaken without raising a large part of the needed funds in the United States or in other countries."
When the two cabinet ministers called they brought no interpreter. "The matters about which we wish to talk," they said, "are so important that we wish to keep the discussion confined to as few persons as possible. We bring the ideas of President Yuan Shih-kai and his government with respect to what Americans might do in China."
They first gave me a review of the recent development of the Russo-Japanese entente with respect to Manchuria and Mongolia. They expressed their belief that an understanding existed between these powers to treat outer Mongoliaas a region within which Russian control should not be obstructed, and,vice versa, to allow a free hand to Japan, not only in southern Manchuria, but also in eastern Mongolia. Continuous activity of the Japanese in south China, in stirring up opposition to the Central Government, indicated a desire to weaken China, and, if possible, to divide it against itself. The extraordinary efforts made by Japan to increase her naval establishment were also particularly mentioned. The impression their discourse conveyed was that Japan was engaged in a strong forward policy in China, and that in this she had the countenance and support of Russia.
My visitors then passed on to the reasons why the Chinese entertained the hope that America would give them its moral support to the extent of opposing the inroads made by Japan and Russia, and of coöperating with Great Britain and other powers favourable to the Open Door policy in preventing attempts to break up the Chinese Republic. They fully realized the improbability of an alliance between China and the United States, but laid stress on the parallel interests of the two countries, and particularly on the sympathy engendered through following the principles of democratic government. Having become a republic, the Chinese Government is brought into peculiarly close relationship to the United States; it sees in the United States its most sincere and unselfish friend, and realizes the importance of American moral support.
Descending to particulars, the ministers pointed out that while China appreciated and valued the friendly interest and counsel of the United States, it was disappointing that so very little had been done by America, while the European Powers and Japan should have taken such a very important part in the development of the resources of China. They said that the Chinese Government and people were desirous of affording the Americans unusual opportunities, should they be ready to coöperate.
Taking up specific enterprises, they stated that the Government was quite willing to ratify and carry out the contract made in 1910 by the Imperial Government with the Bethlehem Steel Corporation. Under this contract they intended to build vessels adapted for commercial purposes, but convertible into warships somewhat like the vessels of the Russian Volunteer Fleet. The establishment of a steamship line to the United States, directly or by way of the Panama Canal, was greatly desired by the Government.
It was recalled that at the time the naval mission of Prince Tsao visited the United States, the matter of lending American experts as instructors for the Chinese navy came up for discussion, and such assistance was promised by the American Administration under President Taft. The assistance contemplated was to be instructional and technical, not involving matters of policy or suggesting a political alliance, and of a nature such as had been in the past given by other nations, particularly Great Britain. The ministers stated that the Chinese Government still intended to avail itself of this assistance should the need for it arise, and that American coöperation in a matter like this was preferred because of the political disinterestedness of the American Government.
The ministers then took up more purely industrial enterprises, and dwelt particularly on plans for river and harbour improvement, mentioning the Hwai River region and other districts where agricultural pursuits are interrupted by destructive floods. As the Central Government contemplated the establishment of a national bureau to provide for these matters, the ministers suggested that the American Government would be invited to give its assistance by lending experts to plan and conduct the proposed works. They expressed their belief that the experience of Americans in such enterprises had qualified them above any other nation for coping with these problems of China.
Other matters were taken up, such as the possible creationof a tobacco monopoly, from which the ministers expected both increased revenue and a more effective organization of tobacco production throughout China. It was not their desire to oust the British-American Tobacco Company, but they suggested that an arrangement would be made whereby this company might act as the selling agent of the Chinese Government.
Another subject was the exploration of China for petroleum. They stated that the Government wished that the development of oil fields should be undertaken. On account of the manner in which some other nations were wont to extend the scope of any concessions of this kind so as to establish general claims of preference, particularly as to railway rights, the Government much preferred to take up this matter with Americans.
It was apparent that these men entertained high hopes of American activity in China, and that they were ready to do their part in making the conditions favourable. Their minds were alive with plans of development. Both because of American experience with similar problems and of the American spirit of fairness, they believed that great benefit would result if Americans were to become prominently active in the vast industrial transformation which they anticipated in the immediate future.
As this conversation passed from topic to topic, touching on proposals of moment, I could not but feel that a new spirit had surely arisen in China. It would have been inconceivable under the old régime for high officials, trained in the traditional formalism and reticent with inherited distrust of the foreigner, to approach a foreign representative thus frankly, laying before him concrete proposals for joint action. In the past, as we know, it was the foreigners who had desired changes and new enterprises and who had in and out of season pressed them upon the reluctant and inert Chinese officials. But here were men who realized that it isthe function of the Government to plan and to initiate; and they were ready to go to any length in making advances to a country in whose motives they had full confidence.
It was impossible not to be fascinated by the prospects that were here unfolded. A country of vast resources in natural wealth, labour, power, and even in capital, was turning toward a new form of organization in which all these forces were to be made to work in larger units, over greater areas and with more intensive methods than ever before. The merely local point of view was giving way to the national outlook. National resources and industries were looked at not from the point of view alone of any local group interested but of the unity of national life and effort. To know that in this great task of reorganization, Americans would be most welcome as associates and directors; that they were spontaneously and sincerely desired in order that all these materials and resources might the more readily be built into a great and effective unity of national life—that, indeed, could not fail to be a cause for pride and gratification to an American. The only disturbing thought was the question whether Americans were ready to appreciate the importance of the opportunity here offered. Yet there could be no doubt that every energy must be applied in order to make them realize the unprecedented nature of the opportunities and the importance to America herself of the manner in which these materials were to be organized so as to promote general human welfare rather than selfish exploitation and political ambition.
The Russian efforts to strengthen their position in Mongolia, to which these two visitors had alluded, had at this time brought fruit in the form of an agreement with China to have the "autonomy" of Mongolia recognized. A result and byplay of these negotiations came to the notice of the foreign representatives in Peking at a meeting of the diplomatic corps on December 11th. The meeting was atthe British Legation, to which Sir John Jordan had by this time returned.
The head of the large establishment of the Russian Legation was a young man, Mr. Krupenski. Trained under some of the ablest diplomats of Russia and having spent many years in Peking as secretary, he had manifestly not been selected by chance. With his English secretary he occupied his vast house alone, being unmarried. He entertained brilliantly, ably seconded therein by the Russo-Asiatic Bank across the way. Besides his thorough understanding of the Chinese, Mr. Krupenski had a valuable quality in his ability to shed all the odium that might attach to the policy of his government, as a duck sheds water. He appeared at times greatly to enjoy mystifying his colleagues, to judge by his amused and unconcerned expression when he knew they were guessing as to what his last move might mean. Mr. Krupenski is tall, florid, unmistakably Russian. During my first visit with him he plungedin medias resconcerning China. Though he probably wondered what move I might contemplate after the Manchurian proposals of Mr. Knox and America's withdrawal from the Six-Power Group, he gave no hint of his feelings, which undoubtedly did not contemplate me as likely to become an intimate associate in policies. When I left him I knew that here was a man, surrounded by competent experts in finance, language, and law, who could play with the intricacies of Chinese affairs and take advantage of opportunities and situations of which others would not even have an inkling.
At the meeting of December 11th the Russian minister stated that he desired to make an announcement, and proceeded to tell his colleagues quite blandly that his government had decided to withdraw the legation guards and other Russian troops from north China, and that they suggested to the other governments to take similar action.
This announcement caused surprise all around the table.Questions came from all directions: "Is this action to be immediate?" "What is the purpose of your government?" "What substitute for this protection do you suggest?" These and many more. The Russian minister seemed amused by the excitement he had caused. He allowed none of the questioners to worry him in the least, or to draw him out. With a quizzical and non-committal smile he let the anxious surmises of his colleagues run off his back. He shrugged his shoulders and said: "These are the instructions of my government. Their purpose—I do not know." When the meeting adjourned, small groups walked off in different directions, all still intently discussing the meaning of this move. So, the legation guards were really very important! The first question put to me in Shanghai had related to them, and here I found the diplomatic corps thrown into excitement by the announcement that Russia was withdrawing her guard.
When I arrived at the Legation, where Mrs. Reinsch was receiving and where visitors in large numbers were taking tea and dancing to the music of the marine band, the news had evidently already preceded me, for several people asked me what had happened; and Putnam Weale and W.C. Donald, the British press representatives, were full of surmises. The interpretation generally accepted was that the Russians, and possibly the Japanese, were trying to put the other powers in a hole; if they did not withdraw their legation guards they might displease the Chinese Government, after what Russia had done; if they did withdraw them, they would give an advantage to Russia and Japan, powers who, on account of their proximity to China, could send large bodies of troops upon short notice.
From the attitude of the diplomats it had been apparent that the proposal of the Russians would not prove acceptable. For weeks the press was filled with attempts to gauge the true bearing of the Russian proposal. Looked at from thisdistance after the Great War, it is hard to imagine how so relatively unimportant a matter could cause excitement. Of course, the removal of the legation guard was not considered so important in itself, but it was of moment as an indication of what Russia might plan with respect to the further advance of her influence in China.
Probably Russia's action did not really contemplate any far-reaching consequences. The Russians were urging the Chinese Government to make an arrangement for Mongolian "autonomy," which could not but be intensely distasteful to the Chinese. The Russians had to offer something in return; with thorough knowledge of the old type of the Chinese official mind, they selected something which would not cost them anything, but which would be most gratifying to the Chinese Government. The Government looked upon the presence of foreign troops in Peking and in Chihli Province as incompatible with its dignity. Therefore, the Russian Government knew that through withdrawing its troops and calling upon the other governments to do likewise, an opportunity would be given the Chinese Government to claim an important victory, and the bitterness of renunciation with respect to Mongolia would thus be somewhat tempered. Yuan Shih-kai and the Government as such would probably take that view; but the Chinese as individuals were not likely thus to consider the presence of foreign troops an unmixed evil. These guards tended to stabilize the situation, also to prevent unconscionable acts or high-handed inroads by any individual powers. So far as the people of China were concerned, Russia might not gather much credit through this move.
CHAPTER VIII
A LITTLE VISION FOR CHINA
I have said that a little vision and the application of American scientific methods would transform China. Chang Chien had instanced the Hwai River valley, and the ease with which it might be made to bloom as the most fertile tract on the globe. China boasts the most skilled horticulturists and truck-farmers of any nation, and they breed its thousands of species of vegetables and flowering plants and shrubs. It is said of the Chinese gardener, that if there is a sick or weakened plant, he "listens and hears its cry," and nurses it into health like a mother. But now the multitudes in the flood-ridden districts must periodically expect the scarification of their gorgeous acres, the bearing away of their dwellings and loved ones on the remorseless floods.
Americans had for some time been aware of the possibilities of delivering from their curse these garden spots of earth. The American Red Cross, after giving $400,000 for relief of the severe famine in 1911, was advised by its representatives how such calamities might be prevented, and it set an American engineer at making surveys in the Hwai regions and suggesting suitable engineering works. Chang Chien, with his native school of engineers, was also investigating the flood conditions, just about the time the American group of financiers left the Six-Power Consortium. It might be expected that this American group would be reluctant immediately to start further enterprises in China; indeed, that it might even discourage others from starting. Hence I thought it essential to propose only such undertakings as would come naturally from past relationships or would helpdevelop some American interest already established in China. I was attracted by this plan, sound, useful, and meritorious, to redeem the Hwai River region.
I found that the Chinese did not wish to take up this matter with any other nation than the United States, for they feared the territorial ambitions of the other powers and their desire to establish "spheres of influence" in China. To send in engineers, to drain and irrigate, meant close contacts; it might mean control over internal resources within the regions affected, for by way of security the foreign creditor would demand a mortgage upon the lands to be improved. Then there was the Grand Canal, a navigable watercourse, which would come within the scope of such works, and would give the foreign engineers and capitalists a direct means of penetrating the interior. Jealous of foreign political control in their domestic affairs, the Chinese were guarding their rights. But the American policy was traditionally non-aggressive, and I found that to fair-minded Americans the Chinese would grant concessions which no other nation might hope to secure.
I therefore asked through the Department of State what the American Red Cross might continue to do. Would it take steps toward the choosing of a reputable and efficient American engineering firm and have this firm supported by American capitalists, who might lend the Chinese Government the funds needed to reclaim the rich Hwai River region? The Red Cross responded favourably. I thereupon sought out Mr. Chang Chien, the scholar and minister, and got from him a definite agreement to entrust to the American Red Cross the selection of engineers and capitalists to carry out this great reform upon conditions laid down.
The minister and I had frequent conferences. We discussed carefully the engineering contracts, the conditions of the loan, the security. Every sentence in the proposed agreement had been weighed, every word carefully chosen;finally, on January 27, 1914, it was signed by Chang Chien as minister, and by myself in behalf of the American Red Cross. The J.G. White Corporation was chosen to finance the preliminary survey. Thus there were sent to China during the next summer three experts: Colonel (later Major General) Sibert, of the Panama Canal Commission; Mr. Arthur P. Davis, director of the United States Reclamation Service; and Prof. D.W. Mead, of the University of Wisconsin, an expert in hydraulic engineering.
Here was a beginning of great promise, and in a new direction.
But American enterprise had already affected the daily life of the Chinese in the field opened up by the Standard Oil Company. In fact, the lamp of Standard Oil had lighted China.
Now enter Mr. Yamaza, the Japanese minister. Japan, who had no oil in her lamp, wished to explore for it in China; so did other nations. But the American oil company, in a way which I shall detail, had gotten the concession. Moreover, the Bethlehem Steel Corporation had agreed for $20,000,000 to build a merchant fleet for China, convertible into cruisers—this to take the place of an old imperial contract for warships. At China's express request, and not at all because they were in that business, the Bethlehem people also consented to apply three millions of the whole sum to improve a Chinese port. Together with the Hwai River enterprise these American activities had put Japan on the alert. The Japanese press had distorted their significance, and now in the small Bethlehem contract Mr. Yamaza began to see things—a future Chinese mistress of the Asian seas, perhaps, and the Chinese littoral all besprinkled with naval ports. One evening Mr. Yamaza spoke to me about it, and at length; it was plain that his government meant some move.
Now Mr. Yamaza and his first secretary, Mr. Midzuno,were both unusually clever men. They drank a great deal. The minister explained that he did this for reasons of health, because, unless there were something he could give up if he should be taken sick, it might be very bad for him. I recall how Mr. Midzuno entertained a party at dinner by detailing his notable collection of expressions in various languages, of equivalents to the German term "Katzenjammer." Both of these men had previous Chinese experience and were intimately familiar with Chinese affairs. Yamaza was a man of great shrewdness; being under the influence of liquor seemed rather to sharpen his understanding. Taciturn and speaking in hesitating sentences, he would never commit himself to anything, but would deploy the conversation with great skill, in order to give his interlocutor every chance to do that very thing.
On the evening of this conversation we were guests of the manager of the Russo-Asiatic Bank. An amateur theatrical performance was in progress—three French "one-acters," the chief being "The Man Who Married a Dumb Wife," by Anatole France. Peking foreign society was there in force; the majority were gathered in the large salon where the stage was set, others promenading or conversing in small groups. In the intermission between two plays I encountered the Japanese minister, and, finding that he desired to talk, wandered with him to the smoking room, where we pre-empted a corner, whence during a long conversation we would catch now and then the echoes from the salon as the action on the stage rose to a more excited pitch.
Mr. Yamaza was more talkative than I had ever seen him. As was his custom, he had consumed ardent waters quite freely, but, as always, his mind was clear and alert. "In Shensi and Chihli provinces," he opened up, "the exertions of Japanese nationals in the matter of the concession to the Standard Oil Company have given them a right to be considered. I have been contending to the Chinese thatJapan has a prior interest in the oil field of Shensi Province. Do you not know that Japanese engineers were formerly employed there?"
On my part, I expressed surprise that the Japanese papers should make so much noise about the American oil concession, whereas it was quite natural that Americans, who had done business in China for over a century, should occasionally go into new lines of enterprise.
But it soon became manifest that Mr. Yamaza was thinking of the Bethlehem Steel contract. "I must tell you," he said, "of the strategical importance of Fukien Province to my country." Then followed a long exposition. "China," he concluded, "has promised not to alienate this province to any other power, and Japan has repeatedly asserted an interest in that region."
He then repeated various surmises and reports concerning the nature of the Bethlehem contract. I told him quite specifically the nature of the agreement and about its long previous existence. Mr. Johnston, vice-president of the Bethlehem company, at the request of the Chinese Government had viewed various naval ports with the purpose of making an estimate of improvements which were most needed. I could not admit any sinister significance in this visit nor concede that Americans were not free to engage in port construction in any part of China.
While I had not been unguarded in my statements, I had assuredly not looked upon a conversation in such circumstances as a formal one. Yet I soon found out that a memorandum upon it was presented to the Department of State by the Japanese Ambassador in Washington, during an interview with Secretary Bryan on the question of harbour works in Fukien. I shall revert to this matter later.
A peculiarity of Chinese psychology was evinced after the Standard Oil contract had been signed. One year was given to select specific areas within which oil production wasto be carried on as a joint enterprise of the Chinese Government and the American company, the ratio of property interest of the two partners being 45 to 55. The contract undoubtedly offered an opportunity for securing the major share in the development of any petroleum resources which might be discovered in China; for, once such a partnership has been established and the work under it carried out in an acceptable manner, an extension of the privileges obtained may confidently be looked for. But in itself the contract signed in February, 1914, was only a beginning. It denoted the securing of a bare legal right; and in China a government decree or concession is not in itself all-powerful. If its motives are suspected, if it has been obtained by pressure or in secrecy, if its terms are not understood or are believed to imply unjust burdens to certain provinces or to the people at large, then popular opposition will arise. This may not affect the legal character of the grant or the responsibility of the Government, but it will seriously obstruct the ready and profitable carrying out of the business. The obverse of this situation—the getting of a contract "on the square" and the demonstration that it is fair and just—finds every influence willing to coöperate.
But when the Standard Oil Company's contract had been signed, not much was publicly known about it save in general terms. Rival interests began to portray it as involving inroads upon the rights of the Chinese people, especially of the provinces of Shensi and Chihli. Stories of bribery were circulated in the papers. In the negotiations concluded at Peking no particular attention had been paid to local opinion, the suspicions of provincials were stirred, and an outcry speedily arose.
The representatives of the Standard Oil Company had left Peking. I informed the company that its interests were endangered. Its response was to send to Peking Mr. Roy S. Anderson, the American whose intimate knowledge ofChinese affairs has been referred to. Mr. Anderson held sessions with those who had objected, especially with the provincials of Shensi who were resident in Peking. He discussed with them the terms of the contract, pointing out the benefit to the provinces through the development of a large industry there. The Chinese always respond to reasonable discussion, and not many days later the very associations which had protested most vigorously against the agreement waited upon the Minister of Agriculture and Commerce with their congratulations. They promised the aid of the province in carrying out the contract. Had the contract not been straightforward and fair in its terms and free of undue influence in its making, such active support could not have been had.
It was then that the Chinese Government created an Oil Development Bureau, together with a River Conservancy Bureau for drainage works, including those projected in the Hwai River region. Of the new Oil Development Bureau the Prime Minister, Mr. Hsiung Hsi-ling, on his resignation from the cabinet in March, accepted the position as chief. He had been both Premier and concurrently Minister of Finance. Tall, good-looking, with full face and shining black hair, Mr. Hsiung speaks with great fluency in a high-pitched voice. Though he was a member of the Chin Pu Tang, or progressive party, he had been selected Premier by Yuan Shih-kai, who was fighting the democratic party (Kuo Min Tang), probably because he believed that parliament would reject him and he could then blame that body for obstructive tactics. It accepted him, and Yuan took another path to overthrow parliament. In his career Mr. Hsiung had been aided by the counsel and coöperation of his wife, who is exceptionally capable. Well-intentioned, broad-minded, given to Western methods, the Premier was handicapped during his term through relative inexperience in administrative and financial matters. He was pitted againstmen of shrewdness as politicians and of deep immersion in financial manipulations.
As chief of the Oil Development Bureau, Mr. Hsiung's first task was that of pointing out to the Japanese minister, Mr. Yamaza, whom the Japanese interests immediately pressed forward, that no monopoly of exploitation had been granted to the Standard Oil Company, for within a year the company would have to select specific and limited areas within the two provinces where production was to be carried on.
"The grant to Americans," the Japanese minister thereupon remarked, "seems to indicate that China does not care much about the international friendship of Japan."
Mr. Hsiung's reply was that this was a business arrangement, and the nationals of other countries as well—Great Britain, France, and Germany—had sought such concessions in the recent past. To the inquiry whether a similar agreement would be concluded with Japan for other provinces, the director replied that it would not at this time be convenient.
"Then I hereby notify you," Mr. Yamaza rejoined, "that in all likelihood I shall take up this matter with the Minister for Foreign Affairs."
Mr. Yamaza referred to the Japanese engineers who at one time worked in the oil fields of Shensi Province; whereupon Mr. Hsiung recalled that American and German engineers had formerly been employed in the Hanyehping iron enterprise; yet when that company made a loan agreement with Japanese interests, no objections had been made either by America or Germany.
This conversation illustrates the manner in which attempts are often made to establish prior claims with regard to enterprises in China by alleging a prior desire or the prior employment of individuals—considerations which would nowhere else be considered as establishing a preference orinchoate option. It is as much as to say that by merely expressing a wish for a thing one has already established a prior right to it should it be given out.
The making of two important contracts with the Chinese Government naturally attracted attention. Of the British press theNorth China Daily Newsrepeated the judgment of its Peking correspondent: "The Americans deserve their success, for they have worked for it steadily and consistently."
TheDaily Newsattributed this success primarily to the fact that since the days of Secretary Hay, American enterprise in China had been consistently pacific and benevolent. "In no country in the world," it declared, "can more be done through friendship and for friendship's sake than in China."
The German press, while inclined to be critical, still admitted the fairness of the contracts and the probable benefit to be derived therefrom by China, and spoke in disapproval of the Japanese attitude assumed toward the new oil enterprise. Later a long article appeared in the chief German paper in China (Ostasiatische Lloyd), in which the existence of a very far-reaching policy of economic penetration by America was surmised. The writer imagined that all the factors—educational, financial, and industrial—were being guided according to a complicated but harmonious plan to achieve the actual predominance of American interests in China.
The German minister, Von Haxthausen, spoke to me about this article. "I hope," he said, "that you will not conclude that its views are those of myself and my legation."
I assured him that I felt highly flattered that anybody should have conceived that American action proceeded with such careful planning and such cunning grasp of all details.
The Franco-Russian semi-official sheet, theJournal de Pekin, continued its carping attitude against all American enterprise. It lumped together the Y.M.C.A., missionaries, Standard Oil, and the British-American Tobacco Company as engaged in a nefarious effort to gain ascendency for American influence in China. It failed, however, to surmise the subtle plan suggested in the German paper, but presupposed an instinctive coöperation of all these American agencies. This paper was occasionally stirred to great waves of indignation, as when it discovered that the Y.M.C.A. was undermining Chinese religious morale and destroying the sanctity of holy places by establishing a bathing pool in one of the temples. This deplorable desecration, which wrung from the breast of the Belgian editor of the Franco-Russian sheet moans of outraged virtue, had for its substance the fact that in the large monastery of Wo Fu Ssu—in the foothills fifteen miles from Peking, where the Y.M.C.A. had summer quarters—a large pool in the residential part of the enclosures was actually used for a dip on hot mornings. But no Chinese had ever hinted that his feelings were lacerated.
The American papers and Americans generally were somewhat encouraged by this constructive action. In the Chinese Press the veteran American lawyer, T.R. Jernigan, said: "It is clear that the Wilson Administration will use its influence to further the extension of the business of American merchants whether they act in a corporate capacity or otherwise."
On the side of finance as well as industry the Chinese courted American interest. The Minister of Finance and Mr. Liang Shih-yi were frequently my guests; and we conversed particularly on the financial situation. Both took a view quite different from the traditional Chinese official attitude. They desired to have the Government make itself useful and take the lead in organizing both national credit and industry. They considered it possible to develop Chinese domestic credit to an extent that would materially supply the financial needs of the Government. Unfortunately, the great system of banking which had been built upby the Shansi Bankers' Guild was very inadequate to modern needs. Banking had rested wholly on personal knowledge of the character and credit of borrowers; no collateral was used, there was no dealing in corporate securities.
When China came into contact with the business methods of Western nations, this system could not help in developing new enterprises. That task fell largely to the foreign banks established in the treaty ports, who had no vision of the possibilities of internal development in China. The Shansi bankers, on their part, unable to adapt themselves to new conditions, saw their field of action gradually limited, their business falling off. These banks lost their grip on affairs. They felt themselves in need of financial assistance from the Government. The Minister of Finance was considering whether these old institutions might not be transformed into modern and adequate agencies of Chinese domestic credit. He and other native financiers became interested in the national banking system through which, in the United States, quantities of public debentures had been absorbed to furnish a sound basis for a currency.
It seemed impossible to utilize the Shansi banks as the main prop of a modern system. A new organization, such as the Bank of China, planned on modern lines, might be strengthened by American financial support and technical assistance. Mr. Liang Shih-yi was willing to give to American interests an important share in the management of the Bank of China in return for a strengthening loan. A New York contractor, Mr. G.M. Gest, was at this time in Peking on a pleasure tour with his family. Impressed with the need for the launching of new financial and industrial enterprises in China, his first thought had been to secure a concession to build a system of tramways in Peking. Chinese officials had previously told me of an existing Chinese contract which might be turned over to Americans. I was not very enthusiastic about this particular enterprise, because I fearedit might destroy the unique character of Peking street life, without great business success or much benefit to anybody.
On inquiring further we found that French interests had just signed a loan contract which covered, among other things, the Peking tramways.
The financing was curious; the proceeds were presumably to be used to complete the port works at Pukow, on the Yangtse River, and to establish the tramways of Peking. However, it was plain that the loan had been made really for administrative or political purposes, its industrial character being secondary, as the work was indefinitely postponed. This subterfuge of so-called "industrial loans," of which the proceeds were to be used for politics, was later very extensively resorted to, particularly in the Japanese loans of 1918.
Learning of this state of affairs, Mr. Gest turned his attention to the problem of Chinese domestic financing, and at the close of his short residence in Peking he had obtained an option for the Bank of China loan contract, which he followed up with energy upon his return to the United States.
American attention had been drawn to the contracts for the Hwai River conservancy and for petroleum exploration, and American commercial journals and bankers were again giving thought to the financing of projects in China. To show the attitude of New York bankers at this time, of their difficulties, doubts, and inclinations, I shall cite portions of a letter written me by Mr. Willard Straight, dated April 29, 1914. While I did not agree with Mr. Straight on several matters of detail, especially the withdrawal from the Consortium, we were both agreed as to the importance of continued American participation in Chinese finance and industry. The letter follows:
As regards the Hwai River conservancy, you have doubtless already been advised that the Red Cross has made an arrangement with J.G. White & Company, whereby an engineering board will be despatched to China to make a detailed survey. The matter of financing was brought to theGroup, who felt it impossible satisfactorily to discuss this question without more definite information regarding actual conditions and the probable cost of the work contemplated.When, upon receipt of the report of the engineering board, we take up the discussion of the financial problem, the suggestions contained in your letter of the 24th of March will be very valuable. It might, as you say, be comparatively easy to issue a loan of ten million dollars at almost any time. That would depend, however, not on the size but on the nature of the loan. There is no market for Chinese securities in this country at this time, and it would be difficult if not impossible for the bankers to create one within any reasonable time without the active and intelligent support or at least the declared approval of the Government....When the American Group first entered upon negotiations for the Hukuang loan, conditions in this country were good. Business men were looking abroad for new trade openings, the Taft Administration was anxious to encourage the extension of foreign trade and the Chinese Governmental Bubble had not been pricked. During our four years of experience a not inconsiderable public interest in China and her development was aroused, and had we issued the Reorganization Loan, as we had hoped to do, in February, 1913, we probably could have sold our twenty-million-dollar share to investors throughout the country. This we would have been able to do despite the revolution and uncertain governmental conditions in China, because of public confidence due to the support of our own and the other interested governments.Neither Mr. Taft nor Mr. Knox ever promised to send American battleships to threaten China, or to land marines to occupy Chinese territory, in case of default in interest payments. The public was misled by no false statements, but there was, nevertheless, a general belief that our Government was actively interested in the preservation of China's credit and in the development of that country.This, as I told you in our conversation at the Century Club, was changed by the President's declaration of March 19, 1913. The fact that the President and the State Department felt that China, as a young republic, was entitled to extraordinary consideration and sympathy; the fact that our Government recognized Yuan Shih-kai's political machine, and the fact that the Administration subsequently gave out some general expressions regarding the Government's interest in the development of American trade, did not in any way restore in the mind of the investor the confidence which had been destroyed by the specific condemnation of the activities of the only American banking group which had had the enterprise, the courage, and the patience to enter and remain in the Chinese field andwhich, despite its unpopularity among certain yellow journals and a number of Western Congressmen, stood for integrity, fair dealing, and sound business in the minds of the bond-purchasing public, upon whose readiness to buy the success of any bond issue must depend.This confidence which would have enabled us to sell Chinese bonds had been created by four years of hard work on the part of the bankers and the Government. Once destroyed, it can be restored only by general governmental declarations, which will probably have to be stronger than any of those made by the Taft Administration, or, in the absence thereof, by effective, consistent, and repeated specific proof of the Government's willingness to assist and encourage our merchants, contractors, and bankers. As you know, it is more difficult to correct a bad impression than it is originally to create a good one.I quite appreciate that it will be difficult for the President to take any action which would seem to be a reversal of his former position, but I hope that the last paragraph of his declaration of last March, in which he stated that he would urge "all the legislative measures necessary to assure to contractors, engineers, etc., the banking and other financial facilities which they now lack" may be interpreted and developed along lines which will permit him actively to support the Red Cross plan.If the Administration will publicly evidence its interest in and its support of this project during the next few months, so that when the matter is finally brought up to the bankers for decision they may be able to feel that the public has become interested and assured that our Government is behind the plan, it may prove to be the means by which we can again enter China. This I have pointed out to Miss Boardman who, I feel sure, fully understands the situation.I sincerely trust that your great interest and your energy in endeavouring to extend our interests in China may have an effect upon our own Administration. I believe the bankers will always be willing to help if they are able to do so, but we are not, like our Continental friends, anxiously looking for chances to invest abroad, especially at the present time when we have so many troubles of our own, and instead of being merely shown the opportunity, we must be persuaded in the first place that it is sound business and in the second place that it is our patriotic duty to undertake it. And we must feel, in addition, that if we should undertake it our enterprise and energy will not serve merely to rouse a storm of jealousy on the part of those who will not assume any risks themselves, but who cry "monopoly" as soon as an interest capable of handling foreign business is given the active support of our Government.I am sorry that it is impossible to give a more optimistic picture, butI assure you that I shall do all in my power to support you and your efforts, which I sincerely trust may be attended with the success they deserve.
As regards the Hwai River conservancy, you have doubtless already been advised that the Red Cross has made an arrangement with J.G. White & Company, whereby an engineering board will be despatched to China to make a detailed survey. The matter of financing was brought to theGroup, who felt it impossible satisfactorily to discuss this question without more definite information regarding actual conditions and the probable cost of the work contemplated.
When, upon receipt of the report of the engineering board, we take up the discussion of the financial problem, the suggestions contained in your letter of the 24th of March will be very valuable. It might, as you say, be comparatively easy to issue a loan of ten million dollars at almost any time. That would depend, however, not on the size but on the nature of the loan. There is no market for Chinese securities in this country at this time, and it would be difficult if not impossible for the bankers to create one within any reasonable time without the active and intelligent support or at least the declared approval of the Government....
When the American Group first entered upon negotiations for the Hukuang loan, conditions in this country were good. Business men were looking abroad for new trade openings, the Taft Administration was anxious to encourage the extension of foreign trade and the Chinese Governmental Bubble had not been pricked. During our four years of experience a not inconsiderable public interest in China and her development was aroused, and had we issued the Reorganization Loan, as we had hoped to do, in February, 1913, we probably could have sold our twenty-million-dollar share to investors throughout the country. This we would have been able to do despite the revolution and uncertain governmental conditions in China, because of public confidence due to the support of our own and the other interested governments.
Neither Mr. Taft nor Mr. Knox ever promised to send American battleships to threaten China, or to land marines to occupy Chinese territory, in case of default in interest payments. The public was misled by no false statements, but there was, nevertheless, a general belief that our Government was actively interested in the preservation of China's credit and in the development of that country.
This, as I told you in our conversation at the Century Club, was changed by the President's declaration of March 19, 1913. The fact that the President and the State Department felt that China, as a young republic, was entitled to extraordinary consideration and sympathy; the fact that our Government recognized Yuan Shih-kai's political machine, and the fact that the Administration subsequently gave out some general expressions regarding the Government's interest in the development of American trade, did not in any way restore in the mind of the investor the confidence which had been destroyed by the specific condemnation of the activities of the only American banking group which had had the enterprise, the courage, and the patience to enter and remain in the Chinese field andwhich, despite its unpopularity among certain yellow journals and a number of Western Congressmen, stood for integrity, fair dealing, and sound business in the minds of the bond-purchasing public, upon whose readiness to buy the success of any bond issue must depend.
This confidence which would have enabled us to sell Chinese bonds had been created by four years of hard work on the part of the bankers and the Government. Once destroyed, it can be restored only by general governmental declarations, which will probably have to be stronger than any of those made by the Taft Administration, or, in the absence thereof, by effective, consistent, and repeated specific proof of the Government's willingness to assist and encourage our merchants, contractors, and bankers. As you know, it is more difficult to correct a bad impression than it is originally to create a good one.
I quite appreciate that it will be difficult for the President to take any action which would seem to be a reversal of his former position, but I hope that the last paragraph of his declaration of last March, in which he stated that he would urge "all the legislative measures necessary to assure to contractors, engineers, etc., the banking and other financial facilities which they now lack" may be interpreted and developed along lines which will permit him actively to support the Red Cross plan.
If the Administration will publicly evidence its interest in and its support of this project during the next few months, so that when the matter is finally brought up to the bankers for decision they may be able to feel that the public has become interested and assured that our Government is behind the plan, it may prove to be the means by which we can again enter China. This I have pointed out to Miss Boardman who, I feel sure, fully understands the situation.
I sincerely trust that your great interest and your energy in endeavouring to extend our interests in China may have an effect upon our own Administration. I believe the bankers will always be willing to help if they are able to do so, but we are not, like our Continental friends, anxiously looking for chances to invest abroad, especially at the present time when we have so many troubles of our own, and instead of being merely shown the opportunity, we must be persuaded in the first place that it is sound business and in the second place that it is our patriotic duty to undertake it. And we must feel, in addition, that if we should undertake it our enterprise and energy will not serve merely to rouse a storm of jealousy on the part of those who will not assume any risks themselves, but who cry "monopoly" as soon as an interest capable of handling foreign business is given the active support of our Government.
I am sorry that it is impossible to give a more optimistic picture, butI assure you that I shall do all in my power to support you and your efforts, which I sincerely trust may be attended with the success they deserve.
The intelligent support promised in this letter continued until the untimely death of Mr. Straight in Paris, while he was with the American Peace Commission.
CHAPTER IX
"SLOW AMERICANS"
"The Americans are altogether too slow!"
This exclamation from a Chinese seemed amusing. It came on the evening of the red dust-storm that enveloped Peking, during one of the long after-dinner conversations with Liang Shih-yi and Chow Tsu-chi; and it was the latter who thus gave vent to his impatience.
Liang Shih-yi, the "Pierpont Morgan of China," Chief Secretary to the President, was credited as being, next to Yuan Shih-kai, the ablest and most influential man in Peking. Mr. Liang is highly educated according to Chinese literary standards, and while he has not studied Western science, he has a keen, incisive mind which enables him readily to understand Western conditions and methods. His outstanding quality is a faculty for organization. He built up the Chinese Communications Service on the administrative and financial side. He declined taking office as a minister, but usually controlled the action of the cabinet through his influence over important subordinates, and managed all financial affairs for Yuan Shih-kai. Cantonese, short of stature and thickset, with a massive Napoleonic head, he speaks little, but his side remarks indicate that he is always ahead of the discussion, which is also shown by his searching questions. When directly questioned himself, he will always give a lucid and consecutive account of any matter. He did not rise above the level of Chinese official practice in the matter of using money to obtain political ends. To some he was the father of deceit and corruption, to others the god of wealth, while still others revered in him his great genius fororganization. While by no means a romantic figure, he thoroughly stimulated a romantic interest among others, who attributed to him almost superhuman cunning and ability.
When the noted Sheng Hsuan-huai became Minister of Communications in 1911, he used his influence and cunning to thwart Liang and throw him out of the mastery of the Board of Communications, known as the fattest organ of the Government. Mr. Liang stood his ground, and his influence greatly increased because of his ability to withstand so strong an attack. During the revolution Liang Shih-yi was also very influential in the Grand Council, attaching himself more and more strongly to Yuan Shih-kai. Always satisfied with the substance of power without its outward show, he steadfastly declined to become a responsible minister, and worked from the vantage ground of the Secretariat of the President. His life has frequently been endangered. He gained the hatred of the democratic party, with which he was once associated, because he aided Yuan in playing his complicated game of first confusing, then destroying, parliament. Nor were the Progressives (Chin Pu Tang) enamoured of him. Of great personal courage, he was indifferent to the blame and ridicule which for a while almost all newspapers heaped upon him. As he was still in a comparatively inferior position when these attacks began, they rather helped him by calling attention to his abilities and his personal importance. Thus his opponents advertised him. In possession of all the intricacies of the situation, when the parliamentarians first came to Peking, he sat back inconspicuously, and, supplied with influence and money, moulded the political situation as if it had been wax.
Of all the cabinet, Mr. Chow Tsu-chi, Minister of Communications, was personally most familiar with American affairs, having lived for several years in Washington and New York in an official capacity. He speaks English fluently and prefers American methods. He hates unnecessary ceremony. Whenever he called upon me I had almost to engage in personal combat with him to be permitted to accompany him to the outer door, as is due to a high dignitary in China. He believes in learning improved methods from reliable foreigners, and will go as far as any Chinese in giving foreigners whom he trusts a free hand, though he would not yield to any one a power of supreme control. On this occasion he talked about the reorganization of the Bank of China, and the possibility of floating domestic bonds among Chinese capitalists. Mr. Chow was chanting a jeremiad about how the Chinese had been led to give valuable concessions to Americans, which had not been developed, and how this had brought only embarrassment and trouble to China.
We spoke, also, of the original Hankow-Canton railway concession which the Americans tried to sell to King Leopold; of the Knox neutralization plan, and of the Chinchow-Aigun railway concession, the only effect of which had been to strengthen the grip of Russia and Japan on Manchuria. When the Americans, as a mark of special confidence and trust, had received the option on a currency loan with the chance to reorganize Chinese currency, they had straight-way invited Great Britain, Germany, and France into the game. "Thus they saddled China with the International Consortium," Chow Tsu-chi moaned. And so on went the recital, through many lesser and larger enterprises that had proved abortive.
One had to confess that in China we certainly had not taken Fortune by the forelock, nor even had we clung to her skirts. Mr. Chow Tsu-chi was especially grieved at the circuitous and dilatory methods of the Four-Power Group which held the contract to build the Hukuang railways. "The thirty millions of dollars originally provided has been almost entirely spent," he complained, "without producing more than two hundred miles of actual construction; andthere is constant wrangling among the partners concerning engineering standards. Moreover, everything has to be referred from Peking to London, thence to New York, Paris, Berlin, and back and forth among them all, until it is necessary to look up reams of files to know what it is all about. And it may all have been about the purchase of a flat car."
I knew well enough that Americans, too, were much discouraged at the cumbersome progress of the Hukuang railway enterprise. The engineering rights on the section west from Ichang up into Szechuan Province had been assigned to America, and Mr. W. Randolph was at this time making a survey. He had great energy and unlimited belief in the future importance and profitableness of this line. But beyond the initial survey the available funds would not go, and no new financing could be obtained—this for a railway to gain access to an inland empire of forty millions of people!
In the American enterprises which had been launched recently, however, there was no little activity. The Standard Oil Company with commendable expedition, if perhaps with undue lavishness of men and supplies, sent to China geological experts of the first order, together with large staffs of engineers, drilling experts, and all needed machinery. The geologists were soon off toward the prospective oil regions in Chihli and Shensi provinces. In Mr. Hsiung Hsi-ling's bureau and in the Standard Oil offices the outfitting of expeditions, the purchase of supplies, and the selection of a large Chinese personnel proceeded apace. Everyone was hopeful.
With the Hwai River conservancy matter, also, negotiations had gone rapidly in the United States. The American National Red Cross and the engineering firm of J.G. White & Company had agreed to finance the preliminary survey. The American Congress in May passed an act lending the services of an army engineer for the preliminary survey.Colonel Sibert of the Panama Canal Commission was designated as chairman of the engineering board. The outlook was favourable, action had been taken promptly.
The excitement stirred up among the Japanese by the sojourn in China of the Bethlehem Steel Company's vice-president, Mr. Archibald Johnston, now had a further sequel. The text of an alleged contract between the Chinese Government and the Bethlehem Steel Company was circulated early in May—by interested persons—which included among other provisions arrangements for construction of a naval base in Fukien Province. The bogus quality of the report was at once manifest. Through some influence, however, it was assiduously pushed forward in the press; it became the basis of a legend, which even got into the books of otherwise well-informed writers as authentic. It was on the subject of this spurious paper that the Japanese ambassador at Washington called on Secretary Bryan for information. Thus the matter of the possible building of a naval base in Fukien for the Chinese Government by American contractors became a matter of State Department note. I was informed that the Japanese ambassador at Washington had left a summary of the conversation, of March 12th, between the Japanese minister at Peking and myself. Apparently the Japanese were attempting to get around my refusal to acknowledge that American enterprise in China could in any way be limited by the declarations or agreements of other powers than the United States.
The State Department inquired whether the newly reported contract for a loan of $30,000,000 was identical with the older contract of the Bethlehem Steel Company. I was informed that the Japanese Government did not object to the loan, but to the construction of any new naval base in Fukien, and that the Department had been told that the Chinese Government itself did not wish to construct there because of the Japanese objection. It was intimated tome that I might encourage the Chinese in the idea that such building, while legitimate, would be unwise.
I reported to the Department that the original Bethlehem contract had no connection with the spurious document recently circulated; that only a very small sum was to be devoted to harbour work in China, the location of which had not been fixed; and that the execution of the entire contract had been postponed because of financial conditions. While the Chinese Government was not contemplating any construction at this time, I stated that the attempt of any other government to establish a claim of special rights of supervision must be considered derogatory to Chinese sovereignty and to American rights of equal opportunity; I urged, therefore, that we avoid any action or statement which would admit such a claim, or which would in any way encourage the making of it. The Chinese Government has never admitted that its right to plan the defence of its coastline is subject to veto by any other government. Such admission on our part that Japan has the right to claim special interests in Fukien would shake the confidence of the Chinese in our seriousness and consistency, and in our determination to protect our legitimate interests in an undivided China, freely open to the commerce of all nations, where Americans can do business without asking permission of any other outsiders.
Dr. Chen Chin-tao was then acting as Financial Commissioner of the Chinese Government in Europe and America. The danger of a further growth of the idea of spheres of influence in China had been accentuated. Railway concessions had been allocated to different nations according to territorial areas where the respective countries claimed certain priorities; if concessions were made otherwise, the combined influence of the powers seeking special spheres was used to defeat them. To meet this danger a plan was developed for granting a large construction contract toan international syndicate made up of British, American, French, and German companies, who would divide the construction on some basis other than localized national spheres of influence. Doctor Chen, with an American assistant, was charged to take up this proposal with various companies. On the part of France and Germany, contractors and governments seemed favourable to the idea. In Great Britain the firm approached was Paulding & Company, who had already in the preceding year received a railway concession in China extending through the Province of Hunan and to the south thereof. This firm would readily coöperate, but the British Government objected. It would accept the principle of the international company only on condition that all lines traversing the Yangtse Valley should be constructed by the British participant in the syndicate.
This suggests the extent to which the sphere-of-influence doctrine dominated at this time the thought and action of the British Foreign Office.
The American Government, on its part, took exception to the size and duration of the concession, which it feared might gain a monopolistic character. Probably the difficulty would have been cleared up, since, after all, a specific and limited, though considerable grant, was intended. But the preliminary discussion had not resulted in agreement before the Great War supervened.
When Mr. Gest returned to the United States, he took up the matter of a loan to China with American financial interests, but they hesitated to act until the American Government expressed its approval and willingness to give support. Mr. Gest thereupon laid siege to the Department of State. He succeeded on the 3rd of June in securing from the Secretary a letter to the effect that the Department would be gratified to have China receive any substantial assistance from Americans in the nature of a loan upon terms similar to the present agreement. "This Government," the letter stated, "will, in accordance with its usual policy, give all proper diplomatic support to any legitimate enterprise of that character."
There had been much talk about the supposed determination of the Department of State to let American interests abroad shift for themselves, quite without encouragement or special protection. The letter, though moderate in language, nevertheless attracted great attention and was taken to indicate a change of heart in the Administration. I may say at this point that the Department of State never at any time failed to back me in efforts to develop and protect American interests in China. But it was not always able, especially later on, when overburdened with the work of the war, to follow up matters which it had approved, when the opposition or indifference of other departments put other claims in the forefront.
I had for a season observed and worked with American commercial interests in China. I had definite conclusions as to what was needed in the way of organization to encourage American trade. The great defect lay in the absence of financial institutions for handling foreign loans, and for assisting in foreign industrial development, helpful to American commerce. The only American bank in China, the International Banking Corporation, then confined itself strictly to exchange business and to dealing in commercial paper; it had developed no policy of responding to local industrial needs and helping in the inner development of China. All the foreign banks had wholly the treaty-port point of view. They thought not at all of developing the interior regions upon which the commerce of the treaty ports after all depends. They were satisfied with scooping off the cream of international commercial transactions and exchange operations.