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.