CHAPTER XIX

GUARDING THE "OPEN DOOR"

Negotiations had been proceeding all through the autumn of 1916, between the Corporation and the Chinese Government, concerning the modifications which the former desired to introduce into the Grand Canal contract signed in May. The negotiations on the part of the Chinese were in the hands of the Minister of Agriculture, and of Mr. Pan Fu, a young Shantung capitalist and official of progressive ideas. As the Minister of Agriculture was not well disposed, it was found difficult to get him to agree to the additional advantages which the Corporation desired to secure before finally ratifying the contract. Shortly before Christmas, however, a basis of agreement had been reached. Just at this time there came from America the astonishing news that the American corporation had invited Japanese capitalists to coöperate in this contract, on condition that such coöperation would be acceptable to the Chinese Government.

The representatives of the American corporation in Peking had no thought nor inkling whatsoever of this change in policy. The step had been taken without warning and without consulting either the American Government or the representatives of the company in China. It may be imagined in what position it left the latter, to whom the Chinese had entrusted these important rights solely because of the confidence they had in Americans, both as to their ability to carry through an enterprise of this kind, and as to their complete freedom from all political afterthought. Unmindful of the fiduciary relationship which their representatives had established in China, the American corporation, without first sounding the Chinese and without giving any intimation to the American Government--through whose approval and support they had been able to gain these rights--turned around and made an agreement to bring the subjects of another nation into the contract. It is to be doubted if the nationals of any other country would have acted in this manner.

If the action had been taken out of deference to rights which the Japanese might claim in the future as a part of a sphere of influence to be asserted in Shantung, then indeed it was one of superlative international courtesy. New York bankers, however, were at this time still notoriously the most timid beings known to experience, when it came to matters of foreign investment. To make up for this they did, when they once got started, throw away American money in amazing quantities on reckless foreign enterprises in Europe and South America.

What made this action so inexcusable was not that Japanese coöperation had been invited or accepted, but that the one enterprise selected for such coöperation was the one in which America, through the National Red Cross, had long been interested and which had been committed to Americans as a special mark of confidence. One might have thought that goodwill to the Japanese might have been amply demonstrated had our people declared their complete readiness to coöperate on any one of the numerous unfinished enterprises which the Japanese controlled in Manchuria and elsewhere.

It was no easy task for the representatives of the American corporation to tell the Chinese what had been done in New York. The proviso that the arrangement was conditional upon its being acceptable to the Chinese was of course pathetically ineffectual, because after the arrangement made in New York the Chinese could certainly not refuse to accept any outside partners without giving very serious offence to them. I told the Chinese that we wished them to act with perfect freedom and consult their own best interests in dealing with the American corporation. But the Premier met all my explanations with: "What can we do? The corporation has tied our hands."

The Chinese had shown special favour and bestowed their contracts upon the American nation; by their own act Americans had changed this disposal in such a way as to let in a third party. Personally, I had not the least objection to the Japanese or any other nation; although it seemed that in China coöperation with the Chinese would be the normal method. Yet my experience with the Hukuang railways had made me very doubtful of the practical advantages of international coöperation in industry. It is a cumbersome, expensive way of doing business, full of delay and circumlocution. I felt that the different nations should mutually facilitate each other's enterprises and coöperate in constructive planning from which all might derive advantage; but I felt strongly that individual enterprises should be managed by a particular group or corporation without complicated international machinery.

The railway concessions made to the Siems-Carey Company, which were to be financed by the American International Corporation, were also making trouble. Protests were made by the Russian Legation with regard to the alignment from Tatungfu toward Lanchow; these rested upon an old assurance given by the Chinese to Russia that any line northward or eastward from Peking and Kalgan should first invite Russian capital. But the protests had a weak leg to stand on, for the proposed line led southwestward from Kalgan, away from Russia's dominions. They had the less force in that the European Powers could not at this time furnish money for the construction of the much-needed railways which had been committed to their care; the more need, therefore, that America, which had means, should build other necessary railways to provide China with inter-provincial transit.

But that was the method of diplomacy--to hunt about for some ground of protest to the Chinese Government, in order to obtain from it a few counterbalancing advantages. The American policy of equal opportunity had the verbal agreement of the other important powers, but we had to be vigilant if Americans were to be protected in their right to do business in various parts of China on the basis of this policy. Everywhere we met attempts to solidify the inchoate desires and lusts to secure exclusive rights, until the "spheres of influence" should be firmly outlined.

I always took the position with the Russian minister that the American concession in this case did not conflict with any promise given to Russia. He spoke to me about the wish of Russia to use Mongolia as a protective barrier. If Mongolia were to be developed through railways and colonization, he felt that friction between Russia and China might come about through this mutual approach of large populations. To keep so vast a territory barren and unproductive just to serve as frontier marches seemed to me unjustifiable. But I did not dispute the policy, rather insisting that a railway that connected one of the eighteen provinces of China with another could have but remote bearing on the fears expressed by my Russian colleague. I told him the survey would go on, but whether the road would be built would depend upon the judgment of the engineers as to whether it would be commercially profitable. The conversations were very leisurely. He did not say so, but I could see that the minister fully expected the Americans to go ahead, while he would use his protests as a means of getting some "compensation" out of the Chinese.

I was therefore not a little surprised when on one of my visits to him the Russian minister met me with a quizzical smile, and handed me a telegram which he had just received from Washington. The dispatch was from the Russian ambassador, and read in substance as follows:

A representative of the American International Corporation has just called on me. He stated that the corporation regretted beyond measure that the impression had been given that it might contemplate undertakings in China which would be unwelcome to the Russian Government, and to which the latter would object. He stated that it was far from the intention of the corporation to do anything in China that would thus be objectionable to the Russian Government.

Never was the ground cut from under any one exerting himself to safeguard the interests of others as was done in this case. There was nothing to do but to say: "They are very courteous, and wish to save your susceptibility. They would probably not ask for any branches in the direction of Urga, and confine themselves just to building the main line to Kansu." The Russian minister did not take an undue advantage of me.

The next protest came from the French Legation. They had dug up a note sent them on September 26, 1914, by the Minister for Foreign Affairs of that time. This note, conveying an entirely unnecessary gift by that good-natured minister, had been kept secret; it acknowledged the handsome manner assumed by the French minister during the negotiations about a small frontier incident. Just to show absence of ill feeling, the Foreign Minister assured the French minister that in case in future any mining or railway enterprises were to be undertaken in the Province of Kwangsi, French capital would be consulted first. It was a grim joke that an official should thus light-heartedly and without _quid pro quo_ sign away important rights in contravention to all the announced policies of his and other governments, including that to which the grant was made. The French protest related to the southern part of the line from Chuchow in Honan, to Chinchow, on the coast of Kwangsi.

I took the stand that the note which had turned up was contrary to the expressed policy of the various governments concerned, and could have no bearing on the relations of American citizens with China; moreover, it had been secret, and neither the public nor any other government knew about it. As the French minister whom the Chinese had asked the French Government to withdraw because of his domineering attitude was not at this time complacent in this or any other matter, I suggested that the Department of State take up this question directly with the French Minister for Foreign Affairs. I expressed the hope that the French, our military and diplomatic associates, would wish particularly to adhere "to the letter and the spirit of the declarations of equal commercial opportunities."

The Continental Commercial Bank Loan had been announced in November, 1916. I was happy that this result had been achieved. An advance of only $5,000,000 was made, but even that small sum was an important aid to the Chinese Government. The fact that a big Western financial institution had taken up relations with China was promising. What foreign banking there was in New York was tangled up with European interests, followed the lead of London, and had not manifested much readiness to exert itself for the development of American interests abroad.

The French protested this loan because it carried the security of the tobacco and wine tax which had been assigned to some previous French loans. I saw Doctor Chen, and Count Martel called on me. I took the position that as the French loan--which was small in amount and would require only a very minor portion of the proceeds of the tax--remained entitled to be the first lien, the French interests were in no way prejudiced. I imagine, what they really objected to was the eventual appointment of an American auditor or co-inspector for this revenue. As this, however, would go to strengthen the security for their loan, I do not see that they had any reason for complaint. The representative of the French bank which was interested saw me and made a tentative suggestion that if adviserships were established the French might take the wine tax, and the Americans the tobacco tax. I felt, however, that the hands of the Chinese were perfectly free when the loan was made; there could be no objection, except on the supposition that wherever the Chinese do business, no matter how small, with respect to any subject matter, they impliedly give a lien on all future dealings. To the general suggestion of American-French coöperation in matters for which both parties could find capital, I was by no means averse.

In this same month the affairs relating to the Standard Oil Company's exploration were finally wound up. The geological experts they sent over had not "struck" oil enough to pay. Drilling expeditions had come over, which by the spring of 1915 had found traces of oil, and the Chinese were considering giving them further areas for investigation. But as they wished to modify their contract relating to production and refining activities, Mr. E.W. Bemis, vice-president of the company, came on and negotiated for a whole summer with the officials. He left without concluding an agreement. Not only had he received the support of the Legation at Peking and of the American Government, but the Chinese were anxious to extend the privileges of exploration; his decision to abandon the negotiations must therefore have been based on a total change of policy. The company had apparently decided not to develop production in China, but to continue merely its marketing business. It was to be expected that competitors would be discouraged from undertaking similar explorations. Mr. Hsiung Hsi-ling, ex-Premier and chief of the National Oil Administration, called on me at this time and gave me an account of his final negotiations with the company. He had offered to establish a joint Chinese and American enterprise if more extensive search should reveal oil deposits of great value.

The mineral situation in China was being surveyed during this time by representatives of the New York Orient Mines Company, Mr. John W. Finch, Dr. F. Bain, and Mr. Joseph E. Johnson, Jr. The attitude of these men, whose training as observers and clean-cut scientific methods gave their conclusions a particular cogency and definiteness, interested me. They had found that the iron deposits of China were not so extensive as is usually supposed. They believed, also, that the market for iron products could only gradually be developed with the growth of the general industry. They had analyzed the organization of the Hanyehping Iron Works, and learned that its lack of success was due to faulty planning, which necessitated the bringing of both the coal and iron ore from a distance to the central point of manufacture. They believed that for the time there was room for only one first-class iron and steel enterprise in China. As smaller enterprises would hardly pay, they favoured a national industrial plant, to be equipped on a scale to assure every advantage of short transport and economic production. The Premier gave them permission to investigate China's ore deposits, with a view to suggesting a basis upon which a national industry could be founded with temporary American financial assistance.

The Chinese Government had fully decided to adhere to its policy of nationalizing the iron deposits, and the decree already issued by Yuan Shih-kai was to be reënacted by parliament. The Chinese were eager to establish a national steel industry. It should help supply the national needs for iron products, with the aid, if necessary, of foreign capital. They would not take the sole assistance of the Japanese, because they knew that in that case the Chinese industry would be confined to the production of pig-iron and would become the slave of the steel industry of Japan. China would furnish raw materials; Japan, the finished products.

Another secret agreement, this time with Japan, came to light. A loan of 3,000,000 yen had been concluded with Japanese banks in the latter part of 1916, and the secret agreement attached thereto gave Japanese interests the right to meet the lowest price of any competitor in bidding on any materials for the Chinese telephone and telegraph service. Of course, this would have destroyed the equal opportunity for other nationals in this business. The contract had been signed by a notoriously corrupt official, who was completely under Japanese influence and had since fled to escape prosecution for corruption.

I protested strongly. I told the Minister of Communications that the provision was monopolistic, therefore in conflict with the treaties. His answer disavowed the existence of the provision. But I knew it did exist among the original agreements; nevertheless, the awards actually made at this time, after my protest, were in accordance with the bids submitted, and with the recommendations of the experts.

In a talk I had with the Premier during the spring of 1917 I advised him to take up quickly the offer of the American International Corporation to float the first bond issue of $6,000,000 on the railway to be constructed by the Siems-Carey Company. The Ministry of Communications was obstructing it, acting under Japanese influences. I told the Premier that Mr. Carey's authority to conclude the loan might be revoked at any time, whereupon he promised to instruct the acting Vice-Minister of Communications to complete the transaction forthwith.

The Ministry of Communications was then in charge of one Chuan Liang, who had, in fact, long been considered as representing the Japanese element. He had married a Japanese woman. Chuan refused obstinately, first, to take up the negotiations, then, to advance them when they were begun. The rate of interest and terms of issue offered were fair, considering existing market values; but the American company agreed to make a concession and raise the issue price.

Chuan continued to be stubborn. I spoke to the Premier, General Tuan, about it; President Li himself gave his support, and the orders to make the loan were thus reënforced. Still delay. After General Tuan's retirement, Dr. Wu Ting-fang as acting Premier again issued orders, which were repeated for the third time by General Chiang when he, in turn, displaced Doctor Wu. All these high officials concurred. Yet, in an astounding manner, the acting vice-minister, together with a ring of petty officials in his ministry and in the cabinet office, blocked the carrying out of the orders issued by the President, the Premier, and the whole cabinet.

But Dr. Wu Ting-fang was anxious to see the contract carried out. He suggested that I write a note demanding its execution, which I did on June 6th. Wu intended to have the successive orders published in the _Government Gazette_, and, thus published, to be communicated to me officially by the Foreign Office in response to my note. But the petty ring delayed the publication. Meanwhile, the answer of the acting vice-minister was prepared and inserted in the _Government Gazette_ on the 27th, before the Foreign Office could communicate it to me. It presented unfairly the proposals of the American company, its language was almost insulting.

During all this time the high Chinese officials, who were my friends, were at a loss to explain to me how this subordinate's defiance of their orders could be successful. They intimated that the obstruction must be due to Japanese influence exercised in opposition to American enterprise in China. We noted that immediately upon publication of the vice-minister's answer and before we knew about it ourselves, a secretary of the Japanese Legation quite officiously expressed to one of the American secretaries his surprise at such a publication.

But by this act the vice-minister had overstepped the mark. The leaders of the Communications party, who were holding aloof from politics with General Tuan, strongly condemned Chuan, who had always been dependent on them. He showed a remarkable change. He even sent emissaries to me, pleading for forgiveness and stating that he was in no way animated by hostility to American interests, but had acted on an honest though mistaken view of the transaction.

Calling on me on July 2nd, he repeated his apology. On the 30th of June the Ministry of Communications had formally accepted the offer of funds by the American company. Thereafter negotiations were again interrupted by political changes and disturbances.

This incident will serve to illustrate the complexity of Chinese affairs, and the condition of disorganization in which the Chinese Government was at this time.

The creation of a Chino-American Industrial Bank was the subject of many discussions I had with Chinese officials and financiers. This occupied a good deal of my attention during 1918, while Mr. Hsu Un-yuen, after his retirement from the presidency of the Bank of China, was devoting his time to working out a plan and securing the support of prominent Chinese for this undertaking. Mr. Hsu Sing-loh was also working on it independently; Mr. Hsu was secretary of the Minister of Finance, educated in England, and exceptionally well informed. In December of 1918 I accompanied Mr. Hsu to the house of Mr. Yang, a capitalist interested in the China Merchants Steamship Company, where we met with the Premier, Mr. Chien Neng-hsun, and Mr. Chou Hsueh-hsi, who had recently been Minister of Finance. Here we talked over matters of banking and finance, with Mr. Chou leading the conversation. He was sure the Government would give a favourable charter that would enlist the necessary capital. Chinese ideas about an industrial bank were vague; in some mysterious way it was thought that it could produce capital for developing industries, or, rather, could manifold its capital for such uses. Three industries were ready--cotton, steel, and scientific agriculture--for an extensive development. He did not know how bad it is for a bank to lock up its capital in long-time commitments. I asked those present as to how ready the Chinese public would be to absorb the long-term bonds. Mr. Chou thought they would take them, if strongly backed, at a relatively low interest. All desired to go ahead. Ultimately the bank was founded, but by another group.

Before parting on that day our wealthy host brought forth from the strong-boxes many great treasures of Chinese art, including paintings of the Sung and Ming periods. China boasts only one museum. Only through seeing such private collections can one form an estimate of the richness and extent of Chinese art treasures. For an hour I looked on delightedly while one after another of these precious works of Chinese painting were unrolled before us. Chinese pictures are very modest. They come out when called, but retire again readily to the quiet of the storeroom. Also, darkness has not the dulling effect on the water-colours used by Chinese painters that it exercises upon pictures done in oils.

Incidentally, Minister Chow and other prominent officials had been interested in a savings bank combined with a lottery, which announced the sale of so-called premium bonds. There were to be quarterly drawings, at which a certain number of the bonds would receive prizes, ranging as high as $100,000. Mr. Chow explained to me that it would be futile for a Chinese savings bank to offer a matter of 5 or 6 per cent. interest for funds. Nobody would heed it, because of the profitableness of commercial enterprise. In order to strike public attention and to cause people to bring their money for deposit, the inducement of winning a large amount must be provided. The assurance that the original deposit itself would not be lost, but would ultimately be repaid, would be the second attraction.

The minister said that it was the plan of the bank to reduce the amount of prizes and to increase their number so that gradually the payment of a reasonable interest would be approached, as the people got accustomed to the idea of placing their funds in such an institution. The fact that this country, whose people are so frugal and parsimonious and where there is so much accumulated capital, should hitherto have been without savings banks appears remarkable to a stranger. But the high return on commercial loans, and the ever-present gambling instinct of the Chinese, account to some extent for this absence.