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 help develop 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 that Japan 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 was to 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 of Chinese 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 against men 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 or inchoate 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 the _North China Daily News_ repeated the judgment of its Peking correspondent: "The Americans deserve their success, for they have worked for it steadily and consistently."

The _Daily News_ attributed 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, the _Journal 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 up by 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 feared it 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 the Group, 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 and which, 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, but I 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.