CHAPTER XXV

THE CHINESE GO A-BORROWING

The time was come for China to put money in her purse. She was sure she could do it, and sure that the United States, her great, rich sponsor and friend, would help her to the means commensurate with her needs of development for war. A suggestion to this effect had been made to the Chinese minister at Washington by the Department of State. It was undreamt of that no assistance whatever could be given to China.

During the fall of 1917 all my powers were devoted to securing for our Far Eastern associate in the war the best form of American assistance. I wished to avoid, if possible, a loss of the chance for giving Chinese financial affairs a sound basis. Above all, it was essential to aid in steering China beyond earshot of the financial sirens that were luring her upon the Japanese rocks. China invited American leadership, relied upon it. No other nation in the circumstances could justly take exception to it. It involved no vast enterprise of immediately raising a huge army in China, but of preparing the way for such mobilization, if need should arise. This could be done by facilitating works which would endure and which would contribute to the welfare of China and the world, war or no war. It meant building means of communication and improving the food supply. It meant reconstruction after the war. It meant an expenditure of money that would be infinitesimal compared with the sums spent in Europe. America had lent billions to the Entente Allies; the hundred millions that would have served to make China fit were a mere trifle. Nor was it necessary to insist upon independent American action in this matter. America's leadership in behalf of the common interest and in coöperation with her associates could produce the results desired of putting the situation in the Far East on a sound basis. I had always desired American independent enterprise in individual cases, free from all entanglements and semi-political arrangements with other nations, whose favour, fortunately, we did not require. But in the great task of the World War joint action with others was natural, and action in China, given only positive American leadership, could have produced fine results. The war powers did get together for some action. They suspended the Boxer indemnity payments for China, and she got the benefit of the twentieth of _ad valorem_ duty which the treaties provided; on the basis of reckonings two decades back, the 5 per cent. had really shrunk to 3. To restore the rate fixed by the treaties was hardly a beginning of justice.

Here was China, ready, willing to take her part in the war. What should she do? In America the slogan: "Food Will Win the War" was in vogue, and China could furnish food. She could supply coolies, millions if necessary, as workmen and as soldiers. The war had proved that the training of men as soldiers could be a matter, not of years, but of months. Plans were drawn up, at first for hundreds of thousands of Chinese soldiers, then for half a million.

I urged my proposals on the State Department. The Canton-Hankow Railway needed finishing. The Chinese arsenals and shipyards could be refitted. I asked the consular officers and attachés for a rapid survey of China's food resources; their returns showed that a large surplus could be produced, if steps were taken at once to assure a market. The Chinese have a genius for growing food; among them they have the world's most skilful gardeners. But they needed added credit if they were to put in more seed and harvest bigger crops. In these estimates Professor Tuck of Cornell, who was up in Manchuria, and Professor Bailey, in Nanking, gave their expert aid.

England and her European allies, it was determined, had "gone broke"; if there was to be a Consortium of lenders to China, would America lead the way? Liang Chi-chao, Minister of Finance, proposed it. There was China's public credit, with such vast human and material resources as to stagger belief, waiting to be organized. There was the supreme opportunity to send scattering all of the promoters of the unseemly scramble to get special advantages through Chinese financial deals. I spared no pains--for four years, indeed, I had laboured for this very thing--to impress upon America the new vision of a developed China. Two things halted action. Outside influences working in America itself were aimed to stop the free play of financial enterprise in China; next, there was the provincialism of the New York financiers. They would only follow where other nations led.

Then there was the alternative--coöperation between the war powers. By hoops and barrages of steel we were bound to our brothers of Britain, France, and Italy; Japan was an allied and associated power; at every point our gold and war bonds were mingled with theirs. We were powerful enough to hold our associates to a policy of developing China for the benefit of all participants; an end might be put there to "special interests." I suggested a new consortium on this basis.

I went to the Chinese President. "I know," he declared, "that America will spare no means whereby China may carry out her purpose to stand by the side of the Allies on the battlefields of Europe."

From the President I went to the Premier. By this time he was not so friendly. Time had elapsed; the glitter of Japanese money had been made to catch his eye. I inquired concerning the Japanese loan of 20,000,000 yen, and incidental arrangements connected therewith. "Does not China need to keep a credit balance in a foreign country," he asked; "and would not the same arrangements be made with the United States if a loan were made there?" Curiously, he added, "There is no need, yet, of convoking parliament; no time has been set for it." A militarist leader, he was being comforted by hopes of Japanese backing. But he was quite willing to send a big army to Europe.

The Japanese were alive to this situation. Professor Hori was sent to lecture on finance before an association which Liang Chi-chao had helped form. The theme of his opening lecture was the bankruptcy of the Western powers. China must rely on Japan for money. Following Hori came a commission of ten officials from Tokyo to study Chinese financial administration. Then came Doctor Kobayashi to act as Japan's expert in China. Prominent posts, it was freely said, were to be created for "currency reform," posts which would be held by Japanese. Later on Baron Sakatani came, to study Chinese finance.

From Japan came loans and offers of loans. They lent 10,000,000 yen through the Yokohama Specie Bank. This was merely an advance on a future reorganization loan. Then a loan, labelled "Industrial," of 20,000,000 yen, was made through the Bank of Communications. Two Japanese financial cliques sprang up and flourished. Liang sat at the receipt of customs at the Ministry of Finance, dealing with the Yokohama Specie Bank; the other clique, headed by Tsao Ju-lin and Lu Tsung-yu, played in with the tri-fold group of the Industrial Bank of Japan, the Bank of Chosen, and the Bank of Taiwan (Formosa). With the loan dubbed "Industrial"--this to evade the provisions of the reorganization loan--came Japanese advisorships in the Chinese Bank of Communications. Not by the remotest chance would the loan be used by the bank to strengthen its depreciated notes. It went for politics and the military.

The Japanese financiers coolly calculated that the British and French banks would fail to take up their option on the currency reform loan, which they had held since 1911. That would leave the field clear for Japan. The French and British legations got busy about this, and so did we. As a consequence the American Government resumed its interest in currency reform in China, and the sigh of relief was almost audible. I called on Minister Liang. Did he not remember the Treaty of 1903 and America's long-continued interest in Chinese currency betterment? There was the Jenks-Conant Monetary Commission; there were the long negotiations conducted by Willard Straight, and the resultant Currency Loan Agreement of 1911. "I remember all these things," Liang responded; "America should lead in this matter. Our banknote issues are being shot to pieces by local issuance of worthless paper. The Tuchuns have bent the national banks to their purposes. The books of the banks must be kept and made public. I suggest appointing three principal foreign experts on a reform of the entire currency. Let them be an American, a European, and a Japanese."

The currency loan option was extended until the following April.

But Japan had other shots in her locker. Suddenly the Japanese press bristled with news of a projected "arms alliance" with China. It sounded almost menacing. The Tai Hei Company, originally organized by the Japanese Government to supply arms to Russia, was going to furnish China with her armament. General Tuan said that he had long been urged to buy a "limited amount" of war material from Japan. The Japanese minister chimed in with the statement that, inasmuch as the United States refused to sell steel to Japan--under the war trade restriction--the time was come for Japan to control China's ore deposits. "Japan is to sell China arms. Why may she not have the raw materials for them?" he asked.

The disproportion involved in this demand served to amuse the Chinese. The deposits on which Japan's eyes were fixed amounted to from forty to fifty million tons of ore--enough to make several guns.

Along with these negotiations came proposals to establish Japanese military and arsenal advisorships.

I asked the Premier about these reports. I told him we could not object to the purchase of arms by China from any source whatever. But in negotiations for loans and concessions the United States had held unswervingly to the principle of the "open door" and no special privileges. As it sought no control of this kind, it was equally interested that none should be given to any other power.

"Have you not," the Premier asked me, "found me always candid and true?" Most sincerely I assured him I had.

"Then," he replied, "we have bought of Japan 40,000 rifles, 160 machine guns, and 80 field guns. There will be no incidental commitments. I can rely implicitly on my military associates [General Hsu Shu-cheng, the Vice-Minister of War; Ching Yun-peng, Acting Chief of Staff; and Fu Liang-tso, Tuchun of Hunan]. They would not sanction such a thing."

But the next day I got positive evidence that they had. The negotiations were in full blast for Japanese military advisorships, control of the Nanking Arsenal, and rights to specific iron deposits. I saw General Hsu, telling him everything before giving him a chance to answer. I was not then solely concerned about the encroachment on Chinese independence. American and European interests had been told: "Hands off the national iron ore reserve; all remaining iron deposits are to be held for the nation." Respecting this decision, we had told our people that concessions for iron ores could not be obtained. We could not in justice to them now consent to a change of policy, without protecting our interests. Japan had already one half of China's iron ore deposits. Was she to get the rest? Also, were Chinese armaments to be standardized without consulting the experts of the Allied Governments, so that the arms might be used in the present war?

"We have been hard pressed," General Hsu explained. "The Japanese wished us to do something for them and we need the arms. They will be of the larger calibre, such as China's armament now has. The Japanese did demand the assignment of new ore deposits; they needed security for the contract. They compromised by reducing the amount of ore we are to furnish. But we must supply it under a contract of 1916, between the Japanese and a company formed by Chow Tsu-chi, whereby a million dollars was paid in advance on iron ores from deposits near Nanking. This is the best we can do. They demanded at first the grant of new ore deposits."

"I should like to visit you more often," General Hsu remarked later; "but my movements are closely watched." I stated I hoped he entertained no fear that would keep him from seeing the minister of a friendly power at any time he wished.

The real trouble lay in the rivalries between the north and south. The Premier and General Hsu were willing to barter the nation's birthright in the form of concessions in order to impose an internal unity of their own making. For China was torn. The situation in October, 1917--how different from that of April and May, 1915, when the twenty-one demands came to their climax! Then the Chinese people and Government were united as one man. The sentiment of the nation was now the same; nearly all the members of the Government were unchanged, yet a small pro-Japanese minority were in the saddle. The men who had Japanese funds under their control had the advantage over the mass of officials. They succeeded in muzzling the Chinese press. By Japanese insistence, aided in this case by the French minister--some of the Chinese papers had criticized his attitude--news of diplomatic negotiations had been absolutely suppressed. Without information, the public was disturbed and confused. The editor of the Japanese _Kokumin_, Mr. Tokutomi, in an interview in Peking, advocated still more stringent press control. Japan was using the war to displace the influence of her associates in China and to make her own power predominant.

Bad as the situation was it might have been saved by an adequate loan from America. Liang's first proposal was for a reorganization loan of $200,000,000, which was vetoed by Europe; this shrivelled to the mess of pottage of 10,000,000 yen offered by the Yokohama Specie Bank. General Hsu had unfolded to me in September a comprehensive scheme of equipping 500,000 soldiers, and providing for the immediate transport of at least 500,000 to Europe, further detachments were to go as fast as ships could be had. Later came more specific plans for 1,000,000 men, out of which the best contingents were to be sent to France. It was planned ultimately to send the whole million, if needed. Then came a modified proposal for outfitting 500,000 men and the completion of the industrial plants needed for war materials and ships. The European ministers were all anxious to secure China's active participation; the French Legation, through its military attaché, was coöperating with special energy in planning for the eventual use of Chinese forces. From my conversations with the President, the Premier, and his most active assistant, there was no doubt that the Chinese were in earnest. Now it was all simmering down to a few millions of Japanese money, supplied for politics and internal dissension, with Japan seeking special advantages.

Work was to be done. The United States could still bring relief and a strong call for united action into this troubled situation without giving just cause for complaint or for taking offence. The French were especially desirous of bringing the Chinese actually into the war. The Belgians wished the mobilization of Chinese material resources, particularly foodstuffs. The British were in general accord, though they doubted whether Chinese troops could be soon transported to the theatre of war. Dr. George Morrison who had just gone over the whole situation with the President and cabinet, came to me saying: "The Chinese will apply to you for advice. You have a freer hand than the British minister."

But an event of profound significance was impending, and it interrupted my efforts along these constructive lines. It was at this time that the results of Japan's efforts to reach an agreement with the State Department in Washington became known to China.