It became known in early September that the movement was in the hands

of capable organizers. Notwithstanding Yuan Shih-kai's repeated

disclaimers, he failed to take positive action to suppress the

agitation; he was therefore believed to be at least in a receptive

mood. The high officials in Peking with few exceptions had become

favourable to the movement. The Vice-President, General Li Tuan-hung,

was at first opposed, but even he appeared to be reconciled at last,

being not entirely a free agent. The members of the Anhui faction, now

that the lead had been taken out of their hands, were less enthusiastic

for the change. Several political leaders began to withdraw from

affairs. General Tuan Chi-jui, the Minister of War, and Mr. Liang

Chi-chao, the Minister of Education, resigned, undoubtedly because

of their tacit disapproval of the movement, although other reasons

were alleged.[3] The Premier and Mr. Liang Tung-yen, the Minister

of Communications, though not on principle opposed, considered that

on account of his previous allegiance to the Imperial Family, Yuan

Shih-kai could not with propriety assume the Imperial office. Within

the inner circles of the movement there was no question of the desire

of the President to have it put through. For a time, early in

September, he was even thinking of forcing the matter, but began to be

apprehensive regarding the action of certain foreign powers who might

attach difficult conditions to their recognition of the new régime.

It was suggested that the Legislative Council might simply confer

the title of emperor on the President, and the constitution might

then be amended to make the presidency hereditary. Thus, it was

naïvely believed, legal continuity could be preserved sufficiently

to obviate the necessity of seeking a new recognition. A republic

with a hereditary president seemed to some politicians the key to the

difficulty. This proposal served to direct the minds of those who were

managing the movement to the importance of letting a representative

body participate in it, and of not carrying it through by a _coup

d'état_.

On my return to China Mr. Chow Tsu-chi and other leaders waited on me,

saying that present uncertainties involved such drawbacks to peace

and prosperity that from all the provinces the strongest appeals were

coming, to prevail upon Yuan to sanction the movement. Mr. Chow went

so far as to say: "There is such a strong demand for this step that we

shall have great trouble if it is not taken. There will be military

uprisings." When I looked incredulous, Mr. Chow proceeded: "Yes,

indeed, the people can only understand a personal headship, and they

want it, so that the country may be settled." Though I took this all

with a grain of salt, I was surprised at the apparent unanimity with

which the inevitableness of the change seemed to be accepted. When I

asked how the President would reconcile such a step with the oath he

had taken to support a republican government, I was told that this was,

indeed, the great obstacle; that probably it could not be overcome

unless the whole nation insisted and made it a point of duty that Yuan

Shih-kai continue to govern the state under the new form.

The attempt to reëstablish the monarchy seemed to me a step backward.

I had always felt that, whereas the Chinese had no experience with

elective representative institutions, nevertheless they were locally so

largely self-governed that they were fitted by experience and tradition

to evolve some form of provincial and national representation. Yet I

was strongly convinced that it is under any circumstances injudicious

for one nation or the officials of one nation to assume that they can

determine what is the best form of government for another nation. The

fundamental principle of self-government is that every people shall

work out that problem for itself, usually through many troubles and

with many relapses to less perfect methods.

The Legation had during my absence asked for instructions about a

possible eventual decision to recognize the new form of government.

It had suggested that acceptability to the people, and, consequently,

ability to preserve order, should be among the factors determining our

attitude. This position had been approved by the State Department.

In the many conversations I had with the President and members of

the cabinet, I confined myself to expressing the opinion that the

Government would strengthen itself and gain respect at home and abroad

in such measure as it made real use of representative institutions and

encouraged local self-government.

The Council of State on 6th October passed a law instituting a

national referendum on the question. Each district was to elect one

representative. The delegates from each province were to meet at the

respective provincial capitals and to ballot upon the question. The

election was fixed for the 5th of November, the date for balloting

on the principal issue on November 15th. Those desiring constructive

and progressive action had allied themselves with the monarchical

movement. They hoped to strengthen constitutional practice and

administrative efficiency after the personal ambitions of Yuan Shih-kai

had been realized. With Yuan in the exalted position of Emperor, Mr.

Chow Tsu-chi explained to me, the government itself would be in

the hands of the prime minister and cabinet; they would carry it on

constitutionally and in harmony with the legislative branch. As Mr.

Chow put it: "We shall make Yuan the Buddha in the temple."

The original promoters of the movement were not wholly pleased with

the efforts to engraft on it principles of constitutional practice

and popular consent. As certain military leaders might resort to a

_coup d'état_ on October 10th, the anniversary of the outbreak of

the revolution in 1911, the review of troops set for that date was

countermanded.

Mr. Liang Shih-yi and Mr. Chow Tsu-chi afterward explained to me

their preference for the monarchical form. Mr. Liang said: "Chinese

traditions and customs, official and commercial, emphasize personal

relationships. Abstract forms of thinking, in terms of institutions

and general legal principles, are not understood by our people. Under

an emperor, authority would sit more securely, so that it would be

possible to carry through a fundamental financial reform such as that

of the land tax. The element of personal loyalty and responsibility is

necessary to counteract the growth of corruption among officials. The

Chinese cannot conceive of personal duties toward a pure abstraction."

With President Yuan Shih-kai I had a long interview on October 4th.

He assumed complete indifference as to the popular vote soon to be

taken. "If the vote is favourable to the existing system," he said,

"matters will simply remain as they are; a vote for the monarchy would,

on the contrary, bring up many questions of organization. I favour a

representative parliament, with full liberty of discussion but with

limited powers over finance." Education and expert guidance in the

work of the Government were other things about which he was planning.

"There is a general lack of useful employment," he added with some

hilarity, "on the part of the numerous advisers who hover around the

departments. With an administrative reorganization all this will

be changed. These experts will be put to work in helping to develop

administrative activities." And he reverted to his favourite simile of

the infant: "Even if we feel that all their medicine may not be good

for the child, yet we shall let them take it by the hand to help it to

walk."

It was plain that Yuan Shih-kai, while seeming very detached, was

trying to justify the proposed change on the ground of making the

Government more efficient and giving it also a representative character.

Doubtless Yuan Shih-kai had thought originally that the Japanese would

not obstruct the movement, though ever since the time of his service

in Korea he had not been favourably regarded by them. His supporters,

indeed, claimed that the assurances first given to Yuan by the

Japanese were strong enough to warrant him in expecting their support

throughout. By the end of October, however, the Japanese Government

came to the conclusion that the project to put Yuan Shih-kai on the

throne should, if possible, be stopped.

A communication came from Japan to the United States, Great Britain,

France, and Russia, which expressed concern because the monarchical

movement in China was likely to create disturbances and endanger

foreign interests. Japan invited the other powers to join in advising

the Chinese President against continuing this policy. The American

Government declined this invitation, because it did not desire to

interfere in the internal affairs of another country. The other powers,

however, fell in with the Japanese suggestion, and on October 29th the

Japanese Chargé, and the British, French, and Russian ministers, called

at the Foreign Office and individually gave "friendly counsel" to the

effect that it would be desirable to stop the monarchical movement.

The British minister asked whether the Minister for Foreign Affairs

thought disturbances could surely be prevented; whereat the Chinese

rejoiced, believing it a friendly hint that everything would be

well, provided no disturbances should take place. As the machinery

for holding the elections had been set in motion, the Chinese leaders

believed that any action to stop them would bring discredit and loss of

prestige.

The final voting in the convention of district delegates at Peking,

on December 9th, registered a unanimous desire from the elections of

November 5th to have Yuan Shih-kai assume the imperial dignity. Mr.

Chow Tsu-chi remarked to me: "We tried to get some people to vote in

the negative just for appearance's sake, but they would not do it."

Prince Pu-Lun made the speech nominating Yuan as emperor, which earned

him the resentment of the Manchus. On the basis of these elections, the

acting Parliament passed a resolution bestowing on Yuan Shih-kai the

imperial title, and calling upon him to take up the duties therewith

connected. He twice rejected the proposal, but when it was sent to him

the third time he submitted, having exhausted the traditional forms of

polite refusal.

When Yuan was actually elected Emperor, the Entente Powers were

puzzled. They announced that they would await developments. The

Chinese Minister for Foreign Affairs informed them that there would

be some delay, as many preparations were still required before the

promulgation of the empire could be made. But it was generally believed

that the movement had reached fruition. The Russian and French

ministers had already expressed themselves privately as favourable

to recognition. The German and Austrian ministers hastened to offer

Yuan their felicitations, which embarrassed the Chinese not a little.

The majority of foreign representatives at Peking were favourable to

recognizing the new order on January 1st, when the promulgation was

to be made. Messages of devotion and sometimes of fulsome praise came

to the Emperor-elect (already called Ta Huang Ti) from foreigners.

Foreign advisers, including the Japanese but not the Americans, set

forth their devotion in glowing phrases. Doctor Ariga, the Japanese

adviser, expressed his feelings in the traditional language of imperial

ceremony. It was even announced that the new emperor had been prayed

for in foreign Christian churches. I could not, however, verify any

such case.

Suddenly, on Christmas Day, came the report that an opposition movement

had been started in Yunnan Province.

A young general, Tsai Ao, who had for a time lived in Peking where he

held an administrative post, had left the capital during the summer

and had coöperated with Liang Chi-chao, after the latter resigned

his position as Minister of Education. Liang Chi-chao attacked the

monarchical movement in the press, writing from the foreign concession

at Tientsin. General Tsai Ao returned to his native Yunnan, and from

that mountain fastness launched a military expedition which was opposed

to the Emperor-elect.

So the dead unanimity was suddenly disrupted. Now voices of opposition

came from all sides. The Chinese are fatalists. The movement to

carry Yuan into imperial power had seemed to them irresistible; many

had therefore suppressed their doubts and fears. But when an open

opposition was started they flocked to the new standard and everywhere

there appeared dissenters.

A small mutiny took place in Shantung early in December. In the

Japanese papers it was called "premature."

A night attack was executed near Shanghai on the settlement boundary,

which was participated in by several Japanese. Being easily suppressed,

it was not thought important.

Yuan Shih-kai had long been in training for the emperorship, he loved

to use the methods of thought and expression of legendary monarchs.

Keeping close to national traditions in the days of his power he always

took care to use words indicative of self-deprecation and consideration

for his subordinates. The members of the cabinet repaired on December

13th to the President's house to offer their congratulations.

Replying, the Emperor-elect said: "I should rather be condoled with

than congratulated; for I am giving up my personal freedom and that

of my descendants for the public service. I would find far greater

satisfaction in leisurely farming and fishing on my Honan estate than

in this constant tussling with problems of state."

When one of the ministers suggested that there should be a great

celebration of the new departure, Yuan Shih-kai replied: "It would be

better not to think of celebrating and of glory at the present time,

but only of work, and work, and work. My government should be improved

and soundly established. In that case, glory will ultimately come, but

otherwise, if artificially enacted, it is bound to be shortlived."

These sayings were reported by his faithful ministers as being quite in

keeping with the character of a self-sacrificing, benevolent monarch.

The empire to be established was to be quite _comme il faut_; it

was to have a complete ornamentation of newly made nobility. The

Vice-President was to have the title of prince, and there were to be

innumerable marquises, counts, and barons. The military governors

and members of cabinet were to become dukes and marquises, while

the barons would be as many as the sands of the sea. The attitude

of Vice-President Li Yuan-hung was not quite plain. Aside from the

princedom he was also offered the marriage of one of his sons to one

of Yuan's daughters. One of his wives seemed especially fascinated by

these glittering honours; she was said to have virtually prevailed upon

General Li to resign himself to the situation. The President was very

kind to him and had supplied him with a bodyguard which watched his

every movement--for Yuan Shih-kai's information.

New styles of robes for the Emperor and for his high officials and

attendants were designed under direction of Mr. Chu Chi-chien. They

were fashioned after the ceremonial robes of the Japanese Imperial

House. The great coronation halls in the Imperial City were thoroughly

cleansed and repainted. New carpets were ordered; the making of

a nicely upholstered throne was entrusted to Talati's, a general

merchandise house in Peking, which fact greatly amused Countess

Ahlefeldt.

Meanwhile, with foresight and astuteness, General Tsai Ao and Liang

Chi-chao were planning their movement against Yuan. By establishing the

first independent government in the remote province of Yunnan they made

sure that Yuan Shih-kai would be unable to vindicate his authority over

all China at an early time. With Yunnan as starting point, it was hoped

that the provinces of Kweichow, Kuangsi, and Szechuan could be induced

to associate themselves with the anti-monarchist movement. Though

Canton had a large garrison of Yuan's troops, it was hoped that inroads

would be made even there.

FOOTNOTES:

[Footnote 3: Mr. Liang Chi-chao wrote a characteristic letter of

resignation to the President:

"On a previous occasion, I had the honour to apply to Your Excellency

for leave to resign and in answer to my request, Your Excellency

granted me two months' sick leave. This shows the magnanimity and

kindness of Your Excellency toward me.

"The recent state of my health is by no means improved. The 'pulses'

in my body have become swollen and I am often attacked by fits of

dizziness. My appearance looks healthy, but my energy and spirit have

become exhausted. Different medicines have been prescribed by the

doctors, but none has proved effective. My ill-health has been chiefly

caused by my doctors' 'misuse of medicine.' I have lately been often

attacked by fits of cold, which cause me sleepless nights. I am quite

aware of the gravity of my disease and unless I give up all worldly

affairs, I am afraid that my illness will be beyond hope of cure.

"In different places in America, the climate is mild and good for

invalids. I have now made up my mind to sail for the new continent to

recuperate my health. There I shall consult the best physicians for the

care of my health. I am longing to spend a vacation in perfect ease

and freedom from worldly cares in order to recuperate my health. I am

sailing immediately. I hereby respectfully bring this to the notice of

Your Excellency."

He did not, however, proceed to America.]

CHAPTER XVI

DOWNFALL AND DEATH OF YUAN SHIH-KAI

Everybody thought that the monarchy was to be proclaimed on New Year's

Day, 1916. Disaffection, it was realized, though hitherto confined to

a remote province, might spread; delay was dangerous. Business in the

Yangtse Valley and elsewhere was dull. Merchants blamed the Central

Government, and murmurings were heard. General Feng Kuo-chang, who had

at first encouraged Yuan Shih-kai, now reserved his independence of

action.

The revolt remained localized in Yunnan throughout January. With

the rise of an opposition, Yuan was now more ready to accentuate

the constitutional character of the new monarchy. His Minister of

Finance, Mr. Chow Tsu-chi, told me that a constitutional convention

would be convoked when the monarchy was proclaimed. This would provide

a representative assembly and a responsible cabinet. Constructive

reforms were to be announced. No further patents of nobility were to be

awarded, the titles already granted would be treated as purely military

honours.

If Yuan and his advisers had acted boldly at this time in promulgating

the monarchy, recognition by a number of powers would probably

have followed, especially as the continuity of the personnel of

the Government made recognition easier. But hesitation and delay

strengthened the opposition. Yunnanese troops had by the end of January

penetrated into the neighbouring provinces of Szechuan and Kuangsi. To

learn what was going on in these provinces I sent the military attaché,

Major Newell, up the Yangtse River to Szechuan, and the naval attaché,

Lieut.-Commander Hutchins, to Canton. Efforts of the generals loyal to

Yuan to expel the Yunnanese from Szechuan Province were unsuccessful.

After the peculiarly complex manner of Chinese political relationships,

Yunnan began to exercise an influence in Szechuan Province which was

to last for years. The Yunnanese were protected by natural barriers

of mountains; to make headway against them was difficult, even had

the troops of the President shown greater energy. How hollow was

the unanimity which had been proclaimed in the November elections

now became thoroughly apparent. Encouraged by the open opposition,

ill-will against Yuan Shih-kai began to be shown in other localities,

particularly in Hunan and in the southernmost provinces, Kuangsi and

Kuangtung. Rivalries hitherto held in check by Yuan's strong hand also

came to the fore. In central China the two men holding the greatest

military power, Generals Feng Kuo-chang and Chang Hsun, began to

cherish resentment against the President; for, in exchanging notes upon

meeting, they discovered that Yuan had set each of them to watch the

other.

Even now the monarchical movement might have gained strength from

the moderates, who feared the Japanese. They did not wish to see the

national unity disrupted. "Get a constitution and a representative

legislature," they advised Yuan Shih-kai; "put in play a constructive

programme of state action; reform the finances and the audit, simplify

the taxes, extend works of public use, build roads, reclaim lands,

develop agriculture and industry, and all might yet be well." Mr. Liang

Shih-yi and Mr. Chow Tsu-chi hoped, once the question of succession was

definitely settled, to "put in commission" the dictatorial power of

Yuan. As Mr. Chow this time put it: "Yuan will have the seat of honour

but others will order the meal."

Toward the end of January the formal proclamation of the empire was

further postponed. Mr. Chow Tsu-chi was to go on a special mission to

Japan, probably to induce the Japanese Government to be more favourable

to the new monarchy, and to bear handsome concessions to the Japanese.

But the Japanese Government declared that for personal reasons the

Emperor of Japan could not receive a Chinese embassy at that time.

Possibly various other concessionaire governments intimated to Japan

that they did not expect her to entertain any special proposals at this

time. Nevertheless, the Japanese must have made strong representations

to cause Yuan Shih-kai, who was a decisive and determined man, to risk

all by hesitating at this critical moment.

To present some Americans I called on Yuan Shih-kai on February 16th.

Mr. and Mrs. Ulysses S. Grant were visiting Peking, and Yuan was

glad to have me present the son of the famous American President who

had himself visited China and established cordial relations with Li

Hung-chang, Yuan's great master. Significantly the President said to

Mr. Grant: "Your honoured father had great power, but he could safely

resign it to others when the time came. You have great political

experience in the West." It was quite a little party, including

the newly appointed commercial attaché, Mr. Julean H. Arnold; the

commandant of the guard, Colonel Wendell C. Neville; and two young

writers, Miss Emerson and Miss Weil, who have since devoted themselves

to Far Eastern studies and literary work. While the Emperor-elect

betrayed traces of strain and worry, he had his accustomed genial

manners. Apropos of the commercial attaché and the commandant he made

a little pleasantry about commerce and war coming hand in hand. After

a brief interview the visitors were taken by the master of ceremonies

to see the gardens, while I remained with Yuan Shih-kai for a long

conversation. This was interpreted by Doctor Tenney and by Dr. Hawkling

L. Yen, of the Foreign Office; it was understood by us all that the

conversation was personal and unofficial.

"I have not sought new honours and responsibilities, but now that a

course of action has been formally decided upon, it is my duty to carry

it out," Yuan said. "The people coöperated in this, I desire that they

shall coöperate at all times."

I asked how soon he would announce definitely his constitutional

policy. I had some doubt as to how far he intended to apply any,

and his answer was evasive. "It is hard," he replied, "to make a

constitution before the monarchy is actually reëstablished. Then,

too, if the Emperor heads the Government, the powers of departments

under him would need to be more restricted than under a republic." His

advisers, it seemed, were unduly optimistic in expecting Yuan to stand

squarely for constitutional government, with power devolving on the

parliament and the different departments. I reminded him of the British

monarchy in its various historic forms to refute his idea.

"Well," he responded, "the new constitution must wait for a People's

Convention. This is soon to be called; its action must not be in any

way anticipated."

He then fell back on his record, stating that he had pressed the Manchu

Government to adopt a constitution. He also referred to the title

chosen for his reign, "Hung Hsien," which means "great constitutional

era."

A mandate of February 22nd announced the postponement of formal

accession to the throne. Mr. C.C. Wu, who brought me information

concerning certain state plans of Yuan Shih-kai, said that this mandate

would put an end to the innumerable petitions sent to accelerate the

formal coronation. He added that essentially the Government, so far as

domestic matters were concerned, was already a monarchy, that only in

its international aspects had it failed to assume this character.

Suddenly, on March 18th, the Province of Kuangsi demanded the

cancellation of the monarchy; events were moving more rapidly.

At this juncture I had to decide whether to allow the Lee Higginson

loan to be completed without a caution or warning, or to assume

responsibility of virtually stopping that transaction. As soon as it

became clear that open opposition to Yuan Shih-kai's government was no

longer confined to one province and its immediate sphere of influence,

it seemed no longer proper for any American institution to furnish

money to the Chinese Government. Many appeals had been made by the

Opposition based on the demand that, since the country was divided, no

loans should be made to the Government. In ordinary circumstances the

protests of factions would not have weight, but when several provinces

expressed their disapproval of a basic governmental policy the case was

different. To have to counsel delay in execution of the loan agreement

was intensely disappointing to me, fervently as I had wished the

American financiers to participate in Chinese finance, in order that

credit and resources might be organized and developed for the benefit

of all. Unfortunately, in the lull after the disposal of the twenty-one

demands the Chinese had immediately embarked on this doubtful political

enterprise, consuming precious energies and money. The sums spent on

military expeditions, in favourably attuning doubtful military leaders,

and in the creation of the alleged unanimous consent through a popular

vote, had been thrown away. They merely added to the burdens carried by

the Chinese people.

With the disaffection of yet more provinces the Government on March

22nd promulgated a decree cancelling the monarchy, and announcing that

Yuan Shih-kai would retain the Presidency of the Republic.

This sudden and unilateral concession, without a guaranteed _quid pro

quo_ by way of submission to the Central Government by the revolting

forces, came as a surprise. Doubtless the step was taken because

the President feared that the Province of Kuangtung, whose military

governor had urged him to compromise, would join the revolutionaries.

Moreover, the former Secretary of State, Hsu Shih-chang, who had been

in retirement, advised it. The Anhui Party in Peking saw an opportunity

to regain control and oust the Cantonese leaders, in whose hands the

monarchical movement had been since August. The President believed

that the return of such men as Hsu Shih-chang and Tuan Chi-jui would

strengthen him in the eyes of the revolutionists. Hsu Shih-chang

personally had lived up to the canons of Confucian morality in failing

to approve the action of Yuan Shih-kai when he tried to assume the rank

of his former master, the Emperor. This gained him universal respect

in China. But his impelling motive was personal loyalty to the old

Imperial Family rather than attachment to its government.

Of course, the cancellation of the monarchy failed to satisfy the

revolutionists. They interpreted it as a confession of weakness and

defeat. Nor was it more welcome to the adherents of the President

in the provinces, especially the military, who felt that he was

surrendering without getting anything in return. Thus the President

lost his friends and failed to placate his enemies. Had the southern

leaders been content, the chastened Yuan might have been satisfied to

be formal head of a constitutional government. But they were not. His

authority and prestige had been too gravely compromised; revolutionists

were appearing in various parts of China; Tsingtau was being used as

a base for revolutionary activities in the Province of Shantung with

connivance of the Japanese authorities. The Peking Government was

thrown into confusion. The official world was apprehensive as to what

the President would do, while the foreign community feared military

riots.

The leaders of the so-called Anhui Party had evidently expected that

it would be easy to proscribe the Cantonese leaders, Liang Shih-yi,

Chow Tsu-chi, lately Minister of Agriculture and Commerce, and Chu

Chi-chien, Minister of the Interior, and have them banished or

executed. But contrary to their expectations these men did not at

that critical time take to the woods. To the amusement of everyone,

the leaders of the other party then became frightened and began to

remove their families from Peking and to plan for places of safety

for themselves. With somewhat grim humour, Minister Chu Chi-chien

declared that as conditions in Peking were perfectly normal, and as any

unwarranted show of nervousness by officials would tend unnecessarily

to disturb the populace, officials would no longer be permitted to

remove their families from the city.

It now became a question whether Yuan Shih-kai could remain even as

President. I had a conversation with Mr. Hioki, the Japanese minister,

who spoke at length about the shortcomings of Yuan, and his tendency to

use all the functions of state, including particularly the financial,

to satisfy his personal ambitions. Mr. Hioki did not believe that Yuan

Shih-kai could possibly restore his authority. The month of April was

a period of great depression in Peking. All constructive work, and

even planning therefor, had been entirely suspended. The new ministry

came in on April 24th, under General Tuan Chi-jui as Minister of War.

This fact indicated shiftings of power, as General Tuan had never

supported the President in his imperialist ambitions. The Cantonese

leaders stepped out of the Government, maintaining their influence

thereafter by the familiar methods of Liang Shih-yi. Mr. Tsao Ju-lin,

who belonged to the Communications Party, but had been specializing

in establishing closer relations with the Japanese, became Minister

of Communications. The President agreed to turn over to the cabinet

full governmental powers, and to make the ministers responsible to the

national parliament, which was to be summoned forthwith. Yuan ceased

his personal control over all important branches of the Administration.

The control of the army was transferred from the President to the

Board of War. He was stripped of all military forces but his Honanese

bodyguard, which numbered about twenty thousand.

The name of Yuan Shih-kai, however, was retained as a symbol of

authority, for all the military leaders owed him allegiance. Mr. Liang

Shih-yi, as president of the Bank of Communications, still controlled

the finances, and his associate, Mr. Chow Tsu-chi, was placed in charge

of the Bank of China.

The Government was driven to such extremes by its financial needs that

in May the cabinet declared a moratorium suspending specie payments

on notes of the government banks. The term "moratorium," which had

just then come into prominence in Europe, was greeted by the Chinese

financiers as the password to save them--a respectable name for

what was otherwise not so honourable. Through this step, whatever

confidence still remained in Yuan Shih-kai was dissipated. Because of

the complex nature of Chinese affairs peculiar consequences followed.

Thus, the postal administration offices and those of certain railways

independently announced that they would not accept notes but would

demand payment in silver.

All reports of local troubles coming from reliable sources in various

parts of China spoke of the participation of Japanese in revolutionary

activities. Specific reports from Shantung indicated that the

revolutionaries there were favoured by the Japanese. At Tsingtau

bandits had come over from Manchuria and were openly drilling early

in May under the noses of the Japanese military. About a thousand

of these rebels left Tsingtau on May 4th over the Shantung railway,

carrying machine guns to the centre of the province, where they took

part in the disturbances. Meanwhile, the same railway, under Japanese

control, had refused to carry Chinese government troops on the ground

that neutrality must be maintained. When questioned about the rebels

transported, the railway officials stated that the rebels must have

been in civilian clothes and must have carried their armament as

baggage.

It is not clear whether the Japanese were systematically working

for the establishment of an independent government in the south, or

whether they were merely covertly encouraging opposition to the Central

Government, to foment division and unrest. But the plans of Japan for

gaining a dominant position in China were certainly favoured by the

final breakdown of the authority of Yuan Shih-kai.

Japanese correspondents at this time started the report that Chinese

merchants in the Yangtse Valley were so provoked with Americans for

making a loan to the Chinese Government--the Lee Higginson loan--that

they were planning a boycott against American goods. The Japanese

paper, _Shun Tim Shih Pao_, incidentally drew on its imagination, and

published a yarn to the effect that in addition to the $5,000,000 loan

already agreed to, the American firm had promised to hand over to the

Peking authorities $15,000,000 before the end of July. As a matter

of fact, beyond the original payment of $1,000,000, nothing was ever

paid over. The Chinese did not take up the suggestion of a boycott;

although, had the making of the loan proceeded, such a result might

have followed. In Peking, on the other hand, the Japanese tried to

impress upon Chinese officials that the non-completion of the Lee

Higginson loan offered new proof that Americans could not be relied

upon when it came to a showdown.

Throughout this difficult period the European Allied Powers felt that

they lacked a free hand, and that any joint action undertaken might

easily assume such form as to create a Japanese hegemony. The Japanese

at all times urged that as they were on the spot it would be only

natural to entrust them with the representation of the interests of the

Allies. Many representative Europeans in China plainly intimated to us

the hope that the American Government might show a strong interest in

Chinese affairs, and might not fail to insist on the maintenance of

existing treaty rights and of Chinese sovereignty.

I knew from the Chinese who saw him daily that Yuan Shih-kai suffered

under the strain of his troubles and disappointment. As early as March

Mr. Liang Tun-yen besought me to visit the President and give him

encouragement, as worry and despair were breaking him down. Yuan had

lived a sedentary life of intense work and great responsibility. He

had developed Bright's disease, but his strong constitution had fought

it off. Now when great trouble beset him his strength failed. Mr. Chow

Tzu-chi remarked to me: "The President's power of quick decision has

left him; he is helpless in the troublesome alternatives that confront

him. Formerly it was 'yes' or 'no' in an instant, to my proposals. Now

he ruminates, and wavers, and changes a decision many times." Yuan

contemplated resignation, and seemed taken with the idea of visiting

America. I was sounded as to giving him safe conduct and asylum. The

Opposition, it seemed, would make no objection to his leaving the

country. He was confined to his room during the latter half of May, but

continued to give his personal attention to telegrams and important

correspondence. In the first days of June his health seemed to improve.

I went with my family to Peitaiho to instal them in their summer

residence, and to rest for a few days. I had left a special code with

Mr. MacMurray, in which the word _Pan_ stood for Yuan Shih-kai. I was

shocked on the afternoon of June 6th to receive the brief telegram:

"Pan is dead."

By the night train I returned to the capital. Yuan's sons, the

ex-Premier Hsu Shih-chang, and several officials close to the

President, were with him when he died. During the night he had made

solemn declaration to the ex-Premier that it had not been his wish

to become Emperor; he had been deceived into believing that the step

was demanded by the public, and was necessary to the country. After

saying this he seemed exhausted, and continued to sink until the end

came. He had weakened himself and further aggravated his illness by

indiscriminately taking medicine prescribed by a foreign physician

together with all sorts of Chinese remedies which his women urged upon

him.

The ministers of the Allied Powers at once called on General Tuan to

inquire whether the Government was prepared to prevent disorders. Some

time previously the Japanese minister had asked me whether I would

consider it suitable for the diplomatic corps, in the event of danger

of disturbances, to make such an inquiry. I felt it unnecessary and

undesirable, as it might cause apprehension among the public.

The German and Austrian commandants were included in the conference to

agree on measures of protection--probably the only instance during the

war where the belligerents of both sides met to consider common action.

Subsequently the Belgian minister requested the American Legation to

take over the patrol of the city wall immediately back of the Belgian

Legation, which had thus far had German sentinels. It illustrates the

complexity of all things in China that, as late as 1916, German troops

were concerned in the formal protection of the Belgian Legation.

Yuan Shih-kai before his death wrote a declaration to the effect

that in the event of his disability the Presidency should devolve on

General Li Yuan-hung. The accession of the Vice-President was announced

immediately. The members of the cabinet, as well as Prince Pu-Lun, as

chairman of the State Council, waited on President Li on the 7th of

June; with a simple ceremonial, including three deferential bows, the

cabinet expressed its allegiance to the new President. He was accepted

peaceably and with unanimity by all the provinces.

General Tuan Chi-jui and Mr. Liang Shih-yi coöperated in arranging

for the transfer of authority to the new President. That this was done

so quietly and in so orderly a fashion caused the foreigners to regard

Chinese republicanism with much higher respect.

The body of Yuan was not transferred from Peking to his Honan home

until June 28th, when the mausoleum on the ancestral estate was ready.

As part of the Imperial movement, Yuan Shih-kai had previously begun

the construction of this large tomb. The commemorative ceremony took

place on the 26th in Peking. The great hall of the Presidential palace,

where we had often witnessed New Year receptions and other festivities,

was used. There were gathered the foreign representatives with their

staffs and the high officials of the Chinese Republic. It was a strange

mingling of old and new. The President's body lay on a high catafalque,

in the very place where he had so often received us. In front of the

entrance to the inner apartments stood rows of tables bearing the usual

funeral offerings as well as the weapons, clothes, and other objects of

personal use of the departed. Here were gorgeous Mandarin coats of the

old régime, including the famous Yellow Jacket, and generals' uniforms

of the new, and innumerable decorations sent by all the countries

bestowing such honours; also tall riding boots, soft Chinese slippers,

long native pipes and foreign smoking sets, swords, and pistols.

The service was a litany conducted by Lama priests from temples

in Peking and Mongolia. Some of the priests wore a huge headdress

resembling a dragoon's helmet; others, a large round hat not unlike

that of a cardinal. As they intoned the ritual their deep voices rolled

as if they issued from an underground cavern. The music accompanying

the singing was Chinese, supplied by flutes and stringed instruments;

but at the beginning the President's band had played a Western funeral

march. The second part of the service consisted of the burning of

incense in memory of the departed. First, the sons of Yuan, wearing

the white garments of mourners, came forth from an inner apartment and

took their station before the catafalque. They prostrated themselves,

struck their foreheads heavily against the floor, and wailed with loud

voices. Yuan Ko-ting, as chief mourner, offered sacrifice. Meanwhile,

the women of the Presidential household peered through the windows of

the apartments which opened into the central hall.

When the sons of Yuan had withdrawn, the singing of the priests was

taken up again, now in a different key and accompanied by the tinkling

of many bells clear as silver, but some of them as deep as the sea.

Buddhist prayers were intoned in voices sonorous and deep as the grave.

The new President next offered sacrifice at the bier of his predecessor.

What contrasts of character and aims, what mingling of old and new

forces, what a rush of incongruous ideas and practices were typified in

this ceremony, with all its accompaniments! And these were embodied,

too, in the personality of the dead leader and in his successor!

The foreign representatives next paid their respect to the memory of

Yuan. We rose and each in turn deposited before the catafalque a huge

wreath, and returned after making the customary three bows of high

ceremony. Following the diplomats came the Secretary of State and high

Chinese officials, as well as the foreign advisers.

The procession to the railway station, on June 28th, testified to

the genius of the Chinese for pageantry. They had preserved some of

the colour and brilliance of an Imperial procession, and what was

remarkable, had so arranged the parade that the modern elements--troops

in modern uniform, brass bands, officials in evening dress, and

diplomats in their varied uniforms--myself alone wearing ordinary

civilian dress--did not impart to the pageant a jarring note. In fact,

throughout the ceremony at the palace and the subsequent procession,

there was a gratifying absence of dissonance, notwithstanding the

multifariousness of the elements included.

The huge catafalque upon which the body of Yuan lay was borne by a

hundred men by means of a complicated arrangement of poles. It was

covered with crimson silk embroidered in gold; its imperial splendour

accentuated the tragedy of the occasion. Old Chinese funeral customs,

such as the throwing into the air of paper resembling money, were

observed. Heading the procession rode twenty heralds, then followed

in succession three large detachments of infantry, bearing their arms

reversed. Between each two detachments marched a band. After the

infantry came Chinese musicians, playing weirdly plaintive strains

on their flutes. Then came the beautiful and fascinating part of the

cortège--a large squadron of riders in old Chinese costume, carrying

huge banners, long triangular pennants, and fretted streamers of many

colours, which, as they floated gracefully in the air, made a charming

picture. The Chinese have a genius for using banners with dazzling

effect. Then followed lancers escorting an empty state carriage;

Buddhist monks beating drums and cymbals; the President's band; long

lines of bearers with sacrificial vessels preceding the sedan chair

in which was set the soul tablet of Yuan; then still other lines of

men bearing the food offerings, the mementoes of Yuan's personal life,

and the wreaths, all from the funeral ceremony of two days before.

High officials came next, on foot, in military uniform or civilian

full dress, and here indeed the frock coats and top hats did seem

somewhat out of keeping. A throng of white-clad mourners preceded the

catafalque; the sons of Yuan walked under a white canopy. Yuan Ko-ting

in the midst of it all seemed a pathetic figure.

The vast throngs that lined the route behind lines of troops looked

on in respectful silence. There was no sign of grief, rather mute

indifference. Yuan had not won the heart of the people, who regarded

him as a masterful individual dwelling in remote seclusion whose

contact with them came through taxes and executions. I believe a

Chinese crowd is incapable of the enthusiastic hero-worship which great

political leaders in the Occident receive. The people have not yet come

to look upon such men as their leaders. The Peking population, imbued

still with traditions of imperial splendour and the remoteness and

semi-divinity of their rulers, are as yet only onlookers at the pageant

of history.

The tragedy of the great man who had died as a consequence of his

ambition made this occasion impressive to the foreigners present,

even to the most cynical. It was the last act in one of the most

striking dramas of intrigue, achievement, and defeat. The foreign

representatives left the cortège before it issued from the southernmost

gate of the Imperial City, stopping while the mourners and the

catafalque moved past. A piece of paper money thrown into the air

to pacify the spirits fell on me, and I kept it as a characteristic

memento. I walked back to the Legation Quarter with the Russian

minister, Prince Koudacheff, who, like myself, was deeply impressed; we

agreed that in ceremony and pageantry the Chinese stand supreme.

Thus, with the fluttering of bright banners and the wailing of the reed

flutes, another crowded chapter in the history of the new China drew to

its close.

CHAPTER XVII

REPUBLICANS IN THE SADDLE

The passing of Yuan Shih-kai left the ground clear for the nurturing of

a real republic in China. Would those in control be real republicans,

or would they be merely politicians? Politics, with all that this term

implies in modern times, was exotic, its importation into China might

have disastrous results. Concentration on industry, on local government

by the Chinese people, and the building up from these of a sound

and democratic national consciousness were needed. It was upon this

foundation that Li Yuan-hung might have founded his rule.

His first reception to foreign ministers was given by President Li

Yuan-hung shortly after the funeral of Yuan Shih-kai. Li had removed

from the island in the Imperial City before the death of Yuan; and this

was a step toward freedom, though he had continued to be surrounded

with guards ostensibly for his protection, but really there to watch

him and restrict his movements. His friends were still apprehensive

for his safety, and I was repeatedly approached with inquiries as to

whether in case of need I should receive him at the American Legation,

or possibly, even, send a guard detachment to bring him in. The latter

I could not do; but, while it is not proper to give specific assurances

of protection in advance, I could say that it was customary to grant

asylum to political refugees. I learned that some Americans were ready

to try a rescue of the Vice-President should his situation become

perilous. Upon the death of Yuan Shih-kai, General Li's situation of

uncertainty and danger was ended at least for a while.

He received the diplomats in a private residence, whence he did not

remove to the palace for several months. The ceremony was simple.

The foreign representatives were introduced in three groups: Allies,

Neutrals, and Central Powers. The President received us standing,

attended by his ministers and twelve generals, all in uniform.

General Tuan Chi-jui looked disconsolate, standing with bent head and

with epaulets sloping down on his chest. I do not know whether his

spirit was as sad as his outward demeanour, but he probably saw many

difficulties ahead. The President made a few remarks of a friendly

nature, but throughout he looked far more serious than was his wont;

and his face was not wreathed in smiles.

On the afternoon of the day of Yuan's funeral I visited the new

President informally; passing through several interior courts where

soldiers were on guard and through a smiling flower garden I came

into the library, simply furnished, where the President was working.

Piles of papers and books on the desk and side tables indicated that

he had been seeking information from many sources. We spent an hour

or so discussing the political situation. He felt relieved at being

no longer guarded and confined; but his newly acquired state had not

changed his simplicity of manner. Quite in his usual optimistic mood,

he said: "I have found a way to secure the coöperation of all factions.

I will declare the Provisional Constitution of 1912 to be in force, and

summon the old parliament; but its membership should be reduced by one

half; it is too unwieldy. It will be summoned for this purpose only and

to finish the Constitution; the reduction will come by amending the

parliamentary election law."

I asked the President whether he did not consider it impossible thus to

limit the function of the parliament, when once it was summoned. Would

it not, I asked, almost certainly try to assume a controlling power in

the Government, and would not this, in the absence of mature leaders,

cause confusion?

"No," the President insisted; "the parliament will be confined to the

specific function indicated by me."

As the community of Americans at Shanghai had repeatedly invited

me to come to that city, I carried out a long-delayed intention by

journeying southward to celebrate the Fourth of July there. My chief

engagement--following, among others, an address at the Commencement

exercises at St. John's University, an American University Club lunch,

a reception given in my honour on the Flagship _Brooklyn_--was an

address before the American Chamber of Commerce at dinner in the Palace

Hotel, on July 1st. I spoke about the requirements of the new period

upon which American commercial interests in the Far East were entering.

In European countries and Japan, I said, the relation between the

Government and the large industries and banking institutions is close.

Together they develop national enterprise abroad. Not so in America.

The Government and the concentrated capital of the United States do

not act as a unit in foreign affairs. We believe that it is better to

leave the initiative to private enterprise, confining the action of the

Government to protecting opportunities for commerce abroad. In their

work of organization, American merchants and representatives have the

function of discovering, testing, and approving commercial policies and

projects which are to be executed with home capital. On their wisdom

and experience in China, New York and Chicago have to rely.

At the reception given by the Consul-General in Shanghai on the Fourth

of July, I met Mr. Tang Shao-yi, the Kuo Min Tang leader who had

been Premier and Minister of Finance in the first cabinet under the

Republic. I found him unprepared to assume any responsible part in

politics, although the prominence of his opposition to Yuan Shih-kai

might have made him ready to help. As President Li had urged him to

come to Peking, Mr. Tang said he would go when parliament had been

reconvoked. But I apprehended and understood from others that he was

loth to go because his enemies in Peking were still too powerful.

After a brief vacation at the summer residence of my family at

Peitaiho, whither I had proceeded on the U.S. ship _Cincinnati_, I

returned to Peking on the 27th of July, as much business awaited me

there.

A change of government took place. The appointment of a new cabinet

was announced on June 30, 1916, with a personnel completely different

from that under Yuan Shih-kai. Mr. Tang did not leave Shanghai. A

provisional cabinet was therefore constituted under General Tuan

Chi-jui, Dr. Chen Chin-tao acting as Minister of Finance and Mr. Hsu

Shih-ying as Minister of Communications. I had long known Doctor

Chen, who had received his education in the United States and had

lived abroad many years as Financial Commissioner of the Chinese

Government. He was one of the few men in Chinese official life familiar

with Western finance and banking--a scholarly man, slow and somewhat

heavy in speech and manner, studious, and desirous of carrying modern

methods of efficiency and careful audit into all branches of the

Administration. Everyone met him with confidence.

The southern leaders did not come to Peking because they wished

their complete ascendency to be recognized before taking part in the

Government. Their demands that the Constitution of 1912 be revived

and that Parliament be restored had been complied with. They further

insisted on punishment for the leaders of the monarchical movement.

Accordingly, on July 13th a mandate was issued providing for the

arrest and trial of eight public men, including Liang Shih-yi, Chu

Chi-chien, and Chow Tsu-chi. All of these men happened to be beyond

the jurisdiction of the Chinese Government, so the mandate had the

effect only of a decree of exile. General Tuan, the Premier, smilingly

remarked in cabinet meeting that if the monarchists were really to be

punished, few men in public life would go free.

With an entirely new personnel of government, all threads of

negotiations, past and present, had to be taken up anew. I was already

acquainted with the Premier and with Doctor Chen, but the other cabinet

members I had met casually or not at all. With Doctor Chen and his

associate of the Ministry of Finance, Mr. Hsu Un-yuen, who had been

appointed managing director of the Bank of China, and with General Hsu

Shu-cheng, the Premier's chief assistant, I frequently talked over

the financial situation of China. The monarchical movement had been

defeated, the Republic more firmly established; now, they suggested, it

was highly appropriate for America to support China financially. They

requested that the loan contract made by Lee, Higginson & Company be

carried out, and further steps taken for strengthening and organizing

Chinese credit.

I told the Premier about the railway and canal negotiations. He wished

to encourage American participation in Chinese development, but did not

commit himself on the new American proposals. On the matter of a loan

he reënforced the position taken by the Minister of Finance and General

Hsu. General Tuan had won the confidence of the Chinese people through

his disapproval of Yuan's monarchical ambitions, and now occupied a

strong position. "I do not expect much good," he said, "from the return

of parliament; there will be endless party struggles and interference

with the Administration. But as to this curious modern method of

governing through talk, which fundamentally I see no virtue in, I am

willing to give it a fair trial."

When I called on the Minister of Communications, I took care that the

conversation should be, not on business, but on literature and the

surroundings of Peking. He liked calligraphy; also, he had written

short literary pieces, one of which was a poetical description of the

Summer Palace. After a pleasant hour with tea the minister escorted me

not only through all the various gates of the inner courts, but to the

very door of my carriage. One of my colleagues on his initial visit

to the minister had a less fortunate experience. The interview, which

concerned a certain action long delayed, was somewhat spirited, for the

diplomat insisted with great emphasis that something be done forthwith.

By contrast the minister made me specially welcome, pleased that I

did not immediately descend upon him with demands. When, thereafter,

matters of business had to be taken up, there was the same cordiality,

even when difficult things were discussed.

During the first month of its renewed life, beginning the 1st of

August, the parliament did nothing to justify the unfavourable

expectations of its critics. It was not rash or irresponsible, its

members subordinated their private and partisan views to the urgent

needs of national unity and coöperation. The military party pursued

a waiting policy, seeming ready to give parliament a chance to show

what it could do. Meanwhile, the financial situation of the Government

became difficult, as the provinces had not yet been prevailed upon to

give adequate support.

Among the newly arrived leaders of the democratic party whose abilities

and character I was appraising was Mr. Sun Hung-yi, the Minister of the

Interior. I went to him, passing through narrow and crooked streets to

his house in a remote part of the city. It was surrounded by military

guards, carriages, and automobiles. The courts swarmed with people;

soldiers were lounging about, while countless long-coated individuals

hurried to and fro or sat in conversation in the rooms or on porches.

Mr. Sun, who met me in an interior apartment, was tall, broad faced,

with sparse whiskers and hair standing up rebelliously in wisps. He

wore a long brown coat, bestowing little care on his appearance.

"The parliament," he said, "cannot confine itself to its principal

task, the finishing of the Constitution; it must also control public

administration."

A contest for power was inevitable, it seemed, between the Premier and

the parliament.

Mr. Sun was a typical politician. Here he was, his innumerable

retainers about him, all intent on the game, while he was cunningly

deploying his forces for tactical advantage in politics. He betrayed no

ideas of statesmanship, only a desire for party dominance; though later

he did show signs of developing a broader vision.

I also met Mr. Ku Chung-hsiu, the Minister of Agriculture and Commerce,

a most complacent and oily person, who would be recognized the world

over as the suave political manipulator.

Of such calibre, then, were the men who, under President Li Yuan-hung,

were to lay the foundations of the new government.

PART III

THE WAR AND CHINA

CHAPTER XVIII

AMERICAN ENTREPRENEURS IN PEKING

As the second year of the Hwai River conservancy option was about to

expire, something positive had to be done in order to make an actual

beginning on this work. Mr. W.F. Carey, whose various enterprises have

already been referred to, had arrived in Peking in December, 1915, with

his family and a large staff. He brought over his whole organization,

for his firm's arrangements with the New York capitalists made him

feel ready, not only to negotiate, but to start work. He had completed

extensive railway construction work in Canada and the United States;

his organization was ready for China. He was a man accustomed to

attacking his work with full force and getting it out of the way. He

knew there was plenty of work to do in China, and he was ready to start

doing it without delay.

Tested and highly recommended as the conservancy undertaking had been

by the engineering commission under Colonel Sibert, the financiers

associated with the Siems-Carey Company yet hesitated. It was then

suggested that they do part of the work and reserve an option on the

entire enterprise. The negotiations with Mr. Chow Tsu-chi, Minister of

Finance, developed that the only part which might be dissociated from

the whole was the restoration of the Grand Canal. But it would hardly

be profitable to undertake this unless at least the whole portion from

the Yangtse River to Techow were to be made navigable. Enough traffic

might then be counted upon to afford by means of tolls security for

the loan, together with certain tracts of land which would be drained.

A period of four months was given to investigate the feasibility and

cost of this work, while the option on the more extensive enterprise of

the Hwai River conservancy was extended.

The men representing American firms who came with Mr. Carey created

in Peking the impression of an onslaught of American enterprise. The

International Banking Corporation and the American International

Corporation had sent a new representative. The firm of Anderson, Meyer

& Company, hitherto Danish, had been acquired by American capital, and

a representative had been sent to Peking. Social life in the American

colony was visibly enlivened by this influx. It was amusing to see

how large groups of people from St. Paul, Kansas City, Chicago, and

various Eastern towns, suddenly planted in these entirely foreign

surroundings, could in an incredibly short time make themselves

thoroughly comfortable, and establish intimate relations with their

new neighbours. The various American representatives took large houses

in the city outside of the Legation Quarter, where they entertained a

great deal.

But by the legal talent mustered for the negotiations the Chinese were

rather taken aback. Not much given to legal refinements, nor to setting

down in the written contract detailed provisions for every imaginable

contingency, the meticulous care of the American legal draughtsmen

impressed the Chinese as savouring of suspicion.

Their own business arrangements are more simple and general, with

reliance on a mutual sense of equity; moreover, all contracts with

foreigners had hitherto been made in a less technical manner. An

American lawyer would not be satisfied with this. He would think of

the other corporation lawyers at home, sitting in their offices on

the thirty-fifth floor, to whom the ordinary Chinese way of drawing

up contracts would seem criminally lax. To overcome the concealed

resentment of the Chinese took time, together with much talk about

how the common interest would be promoted by completely defining all

responsibilities assumed. The argument which really impressed them was

that other foreign nations had frequently interpreted simply drawn

contracts entirely to the disadvantage of the Chinese.

Mr. Carey, also, did not personally believe in much legal refinement,

but bowed to the mature judgment of the profession. He had won his way

from the ranks, and his Irish originality had not been befogged with

theoretical discussion. He immediately felt at home with the frank and

human Chinese, and constantly had many of them at his house, where they

partook of true American hospitality and shared in frolics of dancing

and poker. The Chinese are fond of this American game, in which human

nature plays so large a part; the impassiveness of their countenance

lends itself admirably to the tactics of poker. It was amusing to hear

Liang Shih-yi, who otherwise spoke not a word of English, enunciate

from behind a pile of chips, in staccato tones: "Full house,"--"Two

pair." This eminent financier was a worthy match for any poker expert.

Mr. Carey brought his unwarped intelligence to bear with great

freshness on Chinese affairs, which he discussed in the language

of an American contractor and business man who reduced everything

to terms of getting something done. To observe how a man of his

training, instincts, and tradition, so utterly different from the

Chinese, remained in constant, intimate intercourse and joyous mutual

understanding with them, made one believe that there must be real bonds

of sympathy between Americans and the Chinese. Mr. Carey abbreviated

many of the Chinese names, thus making them far more pronounceable. Mr.

Chen Pan-ping, the Minister of Agriculture, thus became Ping-pong; the

Secretary of State, Hsu Shih-chang, was Susie.

When the preliminary contract for the Grand Canal had been signed, Mr.

Carey and all his associates departed for Shantung and Kiangsu under

the guidance of Mr. Pan Fu, a young capitalist and official from

Shantung Province, who was anxious to have the constructive work begun

early.

A mistake made by Americans in other parts of the world was not avoided

in China. Several of the new organizations that came in at this time

and during the war made their entry with a considerable blare of

trumpets and pounding of gongs, announcing the millions that were

backing them and describing the manner in which they would rip things

up generally when they got started. As a great part of international

business is diplomacy, such methods of blatant advertisement are not

best calculated to facilitate the early operations of a new enterprise.

They raise expectations of "easy money" in the people dealt with,

and they engender cynicism and rock-ribbed opposition on the part of

competitors. Great enterprises in foreign trade are usually built up

with quieter methods. My observations on this score by no means refer

to all new American enterprise in China, but there was enough of

this sort of brass-band work to give people an idea that it was the

approved method of American entry into foreign markets. The subsequent

flattening out of several of these loudly heralded ventures did not

help matters.

I had on February 29th a long interview with Dr. Jeme Tien-yow, an

American-educated engineer, who had won repute through the survey

and construction of the Peking-Kalgan Railway, of which he was chief

engineer. He was looked upon as a living example of what the Chinese

could do for themselves in engineering. At this time he was managing

director of the Hukuang railways. I had had extensive correspondence

with him, directly and through the Consul-General at Hankow with

respect to the engineering standards to be applied on his lines, as it

was difficult to find a middle ground between the American and British

manufacturers and those of other nations concerned. Doctor Jeme was

on the whole favourable to America, but clung to European standards,

much to the disadvantage of American equipment. We went over all the

disputed points with regard to solid cast wheels or tread wheels,

shapes of box cars, types of engines, and so on--a curiously technical

conversation for a foreign minister to hold with a railway director as

a matter of official business. Doctor Jeme was slow, undemonstrative,

quite willing to discuss, but not ready to yield any point in which

he thoroughly believed. The argument cleared up some matters and left

others the subject of continued correspondence.

I was trying to induce the American group to take the lead in

furnishing funds so that the building of the Szechuan line of

the Hukuang railways could be undertaken. I also hoped that,

notwithstanding the war, the British and French groups might continue

to furnish enough funds to complete the line from Hankow to Canton.

Doubtless the greatest national need of China was the completion of

these trunk lines, both to connect the north and south of the country,

and to open a land route to Szechuan Province, which could then be

reached only by boat on the Yangtse, subject to all contingencies of

an uncertain and dangerous navigation. It should not have required

argument to induce the capitalists to advance money for a short

railway which would open an inland empire of forty millions of people,

especially when they had already bound themselves by contract to

furnish the funds.

The $30,000,000 originally advanced had been spent, without more than

two hundred miles of actual construction to show for the vast sum. This

was due partly to the need of buying out earlier Chinese companies

at extravagant figures, but also in large part to the cumbersome and

expensive organization of this international enterprise. Only by

actually finishing one of these basically important lines and putting

it in operation could the money already expended be made to count.

At home the group seemed favourable to going ahead to the completion

of the work. Mr. Willard Straight in February went to London to seek

the consent of the British and French partners. But beyond settling

some minor details about alignments no definite result was secured.

Chinese development was blocked disastrously through this failure to

complete the existing contracts. In comparison with the amounts spent

in Europe by America, the cost of entirely carrying out this enormously

important work would have been infinitesimal; a thousandth part of our

war expense would have permanently changed the face of China.

Indeed, completion of such an enterprise would far transcend

mere business. What the Chinese needed was the organization of

their national life. In every particular this depended upon

communications--trunk lines north and south, east and west--which would

have largely overcome obstacles to Chinese progress. The nation's mind,

instead of being focussed on building up, unifying, and organizing the

different parts of the country, remained localized and scattered. A

thousand times the energy needed to achieve this unique work was spent

by us in Europe. That is part of the cost of war.

Mr. Charles Denby, interested in automobile manufacture, called one

morning and asked that I take a motor ride up the Tartar City Wall--a

thing which had never before been attempted. I yielded to the idea, and

without further inquiry joined him, together with the commandant of

the guard, Colonel W.C. Neville. Leaving the rear gate of the Legation

and approaching the broad ramp leading up to the wall, I was surprised

to see gathered there all the American marines, as well as many other

people, including motion-picture men. I had not counted on this

publicity; it was, however, too late to have any regrets, so we were

whisked up the steep incline and took a ride on the top of the great

wall. This first automobile ascension of the monumental structure

excited a good deal of attention. A British paper tried to raise a

laugh by ironically criticizing the British minister for not supporting

British industry by taking air flights, or doing other things which

might serve to attract attention to national products. I did not mind

what was said, as I had enjoyed the excitement of the ride.

Mr. Carey's party had by this time finished its survey. Laborious

negotiations had gone on for an acceptable contract to improve the

ancient Grand Canal. Mr. Carey also sought a contract for the building

of railways. These matters were entrusted to Mr. Roy S. Anderson,

who carried on the detailed negotiations. I had given Mr. Carey an

introduction to the various officials concerned, and had from time

to time supported his efforts, but did not take part in the details.

The business was carried on with Mr. Tsao Ju-lin, the Minister of

Communications, while the canal matter lay with Mr. Chen Pan-ping,

Minister of Agriculture and Commerce, a younger man, educated in Japan

and a member of the Christian Church. Mr. Chow Tsu-chi, the Minister

of Finance, and Mr. Liang Shih-yi, wielded a directing influence in

the negotiations. I was careful to abstain from anything which could

possibly savour of pressure, or a desire to take advantage of the

difficult financial necessities of the Government. The contracts were

made not on the basis of any temporary or local interest, but to

furnish a foundation for long-continued constructive work.

The Chinese Government gave to the American concern the right to build

fifteen hundred miles of railway, to be selected from five alignments

mentioned in the contract. Mr. Carey started for America on May 18th,

to secure ratification of the agreements. With him he took the most

favourable concessions which the Chinese Government had ever granted to

foreigners. All the most advantageous provisions of former contracts

had been embodied; the American contractors were to get a commission of

10 per cent. on the cost of construction and equipment, and were to

share, also, in the profits of operation. A broad policy of development

was adopted, embracing the encouragement of industries along the

railways to be built.

The Chinese Government, accustomed to financial support from nations

which had valuable concessions, hoped that the Americans would now

offer such assistance. The concessions were in no sense made dependent

upon loans, but collateral loan negotiations were proceeding, and Mr.

Carey took with him proposals concerning loans and securities offered.

His associates made every effort to secure a loan to China, but as

they now turned over their holdings to the American International

Corporation, and as the latter was negotiating to take over the

American group agreements with Great Britain, Russia, France, and

Japan, the matter became hopelessly tangled up with international

affairs and no action resulted. The Americans understood that Japan

would coöperate in a joint loan but would oppose any separate action

by the United States. American finance was still too provincial to

act independently in such a matter. Also it would approach each piece

of business as a separate unit, not ready to exert itself in behalf

of a loan in order to create a more favourable situation for other

transactions. European and Japanese combinations in China took a

different view; they were organized to represent a broad national

interest in Chinese business. While the attitude of individual American

corporations corresponded to the individualism of our business, yet the

national commercial interest of America was bound to suffer because

an organization did not exist which was broadly representative, which

would look upon all parts of Chinese commerce and finance in their

interrelation, and gather from every individual exertion favourable

cumulative effects in other fields of enterprise.

In yet another respect American practice was unsuited to the conditions

of business in China. After negotiating in a painstaking manner for

months, the corporation's representatives had finally signed a formal

agreement that was more advantageous than any ever granted before. The

results of this successful negotiation were set before the home office,

which took the position that its hands were still completely free. The

provisions of the contract were minutely reëxamined; on several points

it was concluded that still more favourable arrangements might be made.

The representatives were instructed to reopen the negotiations, making

the consent of the home corporation dependent on the acceptance of

these additional terms.

Such a method could not be used in China more than once. The

Chinese expect that when an agreement is arrived at with business

representatives in Peking, it will be adhered to, unless very radical

changes of conditions occur. They have been dealing on this basis with

the agents of European corporations, whose experience is considered

by their home offices as entitling them to handle the details of the

negotiations without reporting minutely to home officials far less

informed than they. To disavow the activity of a local representative

in China, except under absolute necessity, is to discredit the whole

negotiation. The representative who should wield great influence is

suddenly reduced to the dimensions of a clerk with whom the Chinese

will not take up anything of importance thereafter.

That the Americans would not make a loan disappointed the Chinese

officials. They were used to looking for financial support to

powerful groups, who desired or had obtained concessions. When, in

addition, proposals came for many changes in the signed contracts, the

displeasure of the Chinese knew no limits. The storm broke just before

the funeral of Yuan Shih-kai. I was appealed to for aid in predisposing

the Chinese officials to look upon the new proposals with more favour.

The Minister of Communications as well as Mr. Chu Chi-chien, the

Minister of the Interior, whom I interviewed, were dejected because

the loan had been so abruptly refused. They had counted on America to

take part in Chinese finance, in order that the Chinese Government

might not be entirely at the mercy of the Five-Power Consortium, or

rather of Japan, which was now the only active member of that group.

I tried to explain the action of the Americans on the basis of sound

business practice. I pointed out that in the United States, capital,

industry, and commerce are not mobilized for foreign enterprise as is

the case with the big foreign banking institutions of Europe. I tried

to encourage them to set American firms to doing constructive work in

China, and assured them that out of such relationships there would

naturally grow a readiness to afford financial support.

They did not dispute my point, but, in the words of Cleveland, they

felt themselves confronted by a condition, not a theory.

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.

CHAPTER XX

A DIARY OF QUIET DAYS, AUTUMN OF 1916

_September 3_: Judge Elbert H. Gary has just been in Peking for ten

days with Mrs. Gary and a small party. I took them to call on President

Li who is now living in a private residence with extensive rockeries

and gardens, in the East City. We threaded our way to a central

pavilion where the President received us. He talked amiably about his

desire to see the great resources of China developed with American

coöperation. In the evening I gave a dinner to Judge Gary and the new

Ministers of Finance and Communications. Charles A. Coolidge, the

Boston architect, was also present. On the following day I arranged for

the American guests to see the Winter Palace; Mr. Coolidge afterward

said to me that the trip through the palace grounds had been the

most interesting experience of his life from the point of view of

architectural beauty. Someone with Judge Gary told me that every lunch,

afternoon reception, and dinner engagement, for the entire stay in

Japan, was already arranged for, together with many engagements for

breakfast; adding: "The Japanese certainly know a great man when they

see him, more than the Chinese." As a matter of fact, the Chinese are

so unartificial that they do not think of organizing their hospitality

to any distinguished guest. What they do is quite spontaneous; they are

truly hospitable, but they do not understand the first elements of the

art of advertising.

_September 9_: I took a trip to Dajessu with the Austrian minister.

This temple lies about twelve miles beyond the summer palace. We walked

part of the way; a Chinese fell in with us, and, as is customary,

opened conversation. Without seeming unduly inquisitive he elicited

information about the size of our families, our age, income, and the

cost of our clothing, the material of which he greatly admired. When

the Austrian minister told him that he had about four hundred men under

him, our companion looked rather dubious, and finally asked: "Why,

then, if you have so many attendants, are you walking?" The explanation

that we preferred to walk did not seem to remove his doubts. He told us

in turn all the details of his family and business affairs.

We spent the week-end at the beautiful temple, from which we took

walks to the surrounding mountainside. A deserted temple on a high

hill overlooking the valley is picturesque as any castle on the Rhine.

We ascended to the summer residence of Mr. Hsu Un-yuen, a temple

perched on a precipitous spur of the main mountain range. The temple

had evidently been erected originally for a semi-residential purpose,

though it was in a quite inaccessible place, where neither worshippers

nor vacationists would ordinarily have sought it out. We found Mr. Hsu

and his wife enjoying the magnificent view from a terrace opening out

from the living apartments.

_September 13_: I gave a dinner to Mr. C.T. Wang, the vice-president

of the senate, and a few representative members of parliament. We

engaged in a general after-dinner discussion of politics. Most of the

men present were Progressives. They argued volubly. The arguments

and illustrations were such as one would hear in a Western country.

I missed, as usual, a thorough discussion of underlying facts,

traditions, and practices of Chinese life, out of which institutions

should develop. I mentioned this; Mr. Wang said that they needed

a guiding principle of organization, which they must get from the

experience of constitutional countries. The question uppermost was

the proposed election of provincial governors by the people of the

respective provinces, instead of their appointment by the Central

Government. Most of those present considered this change necessary,

as through union and mutual support the appointive military governors

could exercise great power and defeat the aims of Parliament.

_September 14_: Failing to get financial assistance from America,

the Chinese have been considering Japanese offers of loans. Dr.

Chen Chin-tao, forced by the situation and the importunities of the

ministers, who need money, has signed a preliminary agreement for a

loan of eighty million yen, on which an advance of five million yen is

to be paid over immediately.

_September 18_: The House of Representatives to-day in secret session

discussed the Japanese loan. I am informed that it was strongly

attacked on the ground that certain mines in Hunan Province had been

pledged to secure the advance. The Minister of Finance was not present,

the vice-minister appearing to answer questions. The minister was

violently condemned for signing the preliminary agreement without

the consent of parliament. The argument was made that it related to

an advance, but not to the main loan itself. That argument was not

considered valid.

_September 19_: Negotiations were concluded with the Minister of

Communications for a satisfactory adjustment of the American railway

contract. Most of the proposals made were accepted, so that the

American corporation ought certainly to be thoroughly well satisfied,

considering all the changes and difficulties that have occurred since

the original contract was made. That of the 17th May was allowed

to stand, the changes being introduced by way of annexes. After

the Chinese have thus gone to the limit of making the undertaking

attractive to Americans, it is to be hoped that there will be no

further delay; that, at least, some important constructive work will be

done by Americans.

_September 21_: We welcomed a little son to-day in the family. I do

not know that any children were born to any American minister in Peking

before our little daughter Pauline came, in February, 1915. The two

little ones were born into a strange world in which parents may well

fear for the health of their children, because of frequent epidemics.

Still, aside from such visitations, the Peking climate seems to be most

favourable to children; they thrive and grow apace. Claire, the eldest

daughter, aside from a terrible attack of appendicitis in which Dr.

M.A. Stewart, of the Navy, saved her life, has been the very spirit of

health. The faithful Chinese servants surround the children with every

care.

_October 3_: I gave a men's dinner, attended by the ministers of

Portugal, Russia, and Japan, and by Mr. Obata, the Japanese counsellor;

Count Martel, the French first secretary; Mr. Aglen, Inspector-General

of Customs; Mr. Alston, the British counsellor; Mr. Herrera de Huerta,

formerly Mexican Chargé; Mr. Mitrophanow, of the Russian Legation;

Doctor Willoughby, Doctor McElroy of Princeton, and other guests. It

was really a dinner of welcome to the new Japanese minister, Baron

Hayashi, who has recently arrived to take the place of Mr. Hioki. It

was probably thought better to displace the minister upon whom had

fallen the disagreeable duty of forcing through the Twenty-one Demands

of 1915. Baron Hayashi, who had been ambassador in Italy, brings a long

diplomatic experience and very careful methods. He is very silent,

speaks little except when few or only one other person are present. In

a larger company or at a meeting, he gives the impression of detachment

and deep reflection. In social intercourse he is more retiring than his

predecessor. He impresses me as a thoughtful, fair-minded man.

_October 4_: I am told that a guest at last night's dinner, a visitor

from a distant country, complained because he had not been ranked with

the ministers. As I had no information, nor have it now, that he was

entitled to such ranking, I shall not worry. This is the first instance

of any dissatisfaction with the seating. My predecessor related to

me that a secretary of the British Legation once took his sudden

departure before dinner for this reason. I have not always closely

adhered to rank in seating, particularly at dinners where there are

Chinese, in order to avoid a grouping which should make conversation

impossible; but in such cases, of course, I always speak to whichever

guest is slightly prejudiced by the arrangement and explain the reason

to him. I have never noticed the least sign of displeasure. At a very

formal dinner, it is of course always safer to follow rank and let the

conversation take care of itself. Any enjoyment people get out of such

a dinner they set down as pure profit, anyhow.

_October 7_: Ambassador and Mrs. Guthrie arrived to-day. They will be

our guests for several weeks. Mr. Guthrie has not been very well, so

has come for a rest. We spent the day together, talking over Chinese

and Japanese affairs and relations. We agree on most points.

In the evening we dined at the officers' mess, after which there was

dancing. Mrs. Ollie James and Mrs. Hall of Washington came with the

Guthries. They were at the dinner, at which great cheer prevailed.

Colonel Neville, the new commandant of the marines, radiates good

fellowship. He is sociable, efficient, and ready to coöperate in all

good causes. His officers and men seem to revere him, and a very fine

spirit reigns in the marine compound.

_October 11_: I presented Ambassador Guthrie to the President, who

had invited us for luncheon. We were only six at the table. Mr. Quo

Tai-chi, the youthful English-speaking secretary of the President,

interpreted. The President had many questions to ask about Japan.

Then, he spoke quite hopefully about the outlook in China. Financial

difficulties will be overcome through coöperation of parliament and

the cabinet, so that the Government may count on popular consent to an

increase in taxes.

President Li now occupies the palace where Yuan Shih-kai had lived. We

met in a small apartment in the building constructed for the Empress

Dowager, which was tastefully furnished in the best Chinese style.

_October 13_: The dinner season has fully set in. There are dinners

every night, and will be, throughout the winter. This evening we

entertained for the Guthries, having Prince Koudacheff, Baron Hayashi,

and the wives of the Russian and Danish ministers, who are themselves

absent.

_October 23_: The Political Science Association met at my house. The

Minister for Foreign Affairs presided. Doctor W.W. Willoughby and

Senator Yen Fu, the noted scholar, read papers. Over a hundred men were

in attendance--the cream of the Western-educated officials, as well as

European and American members.

_October 29_: The Guthries left yesterday. To-day arrived General and

Mrs. Liggett, who will be our guests for a few days. General Liggett is

tall and impressive-looking. We had a long initial conversation about

the effects of the war in the Far East. The Philippines are beginning

to be prosperous on account of the war demand for their products.

_October 31_: I presented General Liggett to President Li. In a long

conversation the President was frank in his statement concerning the

international difficulties of China. He expressed himself in strong

terms as desirous of close coöperation with America. I gathered that

he feared that certain foreign influences might stir up trouble

between the parliament and the Government, and otherwise seek to cause

embarrassment.

_November 3_: I went with a small party to the mountain temple

Djetaissu. Mrs. Chadbourne, the sister of my friend Mr. Charles R.

Crane; Miss Ellen Lamotte the writer; Mr. and Mrs. Burns of Shanghai;

and Mr. Charles Stevenson Smith, of the Associated Press, took this

excursion riding on donkeys, with many spills as the animals slipped on

the rocky road. The temple is near the top, commanding a magnificent

view of the plains and of the higher mountains farther inland. It rises

tier above tier, its platforms shaded by huge trees, with enchanting

vistas of architecture and a broad sweep of view in all directions.

_November 9_: The Continental Commercial Bank Loan is announced. I am

happy that this result has been achieved. An advance of only $5,000,000

will be made, but even that small sum will be an important aid to the

Chinese Government. The fact that a big Western financial institution

has taken up relations with China is promising. What foreign banking

there is in New York is tangled up with European interests, follows the

lead of London, and has not manifested much readiness to exert itself

for the development of American interests abroad.

_November 10_: I attended the balloting for the election of the

Vice-President of the Republic, at a joint session of the two houses

of parliament. While no speeches were made, with the exception of

brief discussion on points of order, yet it was of interest to see

the general aspect of parliament. The procedure, certainly, was

business-like. Balloting was by written and signed vote; after each

ballot, the individual votes are read off from the tribune. I had the

impression that a true election was going on. General Feng Kuo-chang,

the Military Governor of Kiangsu, had the lead from the start, which

was gradually increased by the balloting until finally he got the

necessary majority. I could not stay until the result was announced,

when there was a demonstration to honour the nominee. But I saw before

me a body which had evidently mastered the procedure of parliamentary

action, so that things were done with a smoothness and ease which

implied long experience. Many people witnessed the election, among them

several of my colleagues. I had a brief conversation with Mr. C.T.

Wang, who was hopeful that, now the Vice-Presidential succession was

settled legally and peacefully, the future of the Republic was assured.

General Feng has occupied a pivotal position at his post at Nanking. He

is shrewd and clever. Like a boy standing over the centre of a seesaw,

he used his weight to balance either side according as the pendulum

movement required. He was at first believed to have given Yuan Shih-kai

encouragement to be emperor, but when asked to express himself, had

allowed the report that he was neutral to gain currency; then, as

the opposition gained strength, he added his weight with gradually

increasing force to its side, although never at any stage coming out

with positive statements. His selection was an attempt to form a

compromise between the militarist and the progressive parties.

_November 10_: I took a long excursion with Prince Koudacheff. We rode

to the foothills by automobile, then climbed to the top of a lofty

range back of his temple, where one can promenade for six or eight

miles along the crest of the ridge with glorious views of mountain

country on either side.

_November 15_: I had a long conversation with Baron Hayashi to-day.

_November 20_: Admiral and Mrs. Winterhalter arrived for a few days'

visit. The Admiral is tall, gray-haired, strong-featured, of energetic

movements. He has always manifested a deep interest in what is going on

in China; we sat down for a long talk immediately after his arrival.

_November 22_: I presented the Admiral to President Li and we had

a pleasant conversation, although the President was not quite so

expansive and confidential as during my last call. As we made the

rounds of calls on the cabinet ministers, I took the conversation

beyond the ordinary civilities, so as to give the visitor an

opportunity of getting more insight into the affairs now engaging our

attention; also, to use this valuable time for an exchange of ideas

with the Chinese leaders.

_November 25_: The French are protesting against the Continental

Commercial Bank Loan, in so far as the security is concerned. The

security of the tobacco and wine tax had been assigned to some previous

French loans. I saw Doctor Chen, and Count Martel called on me. I

take the position that as the French loan--which is small in amount

and will require only a very minor portion of the proceeds of the

tax--remains entitled to be the first lien, the French interests are in

no way prejudiced. I imagine what they really object to is the eventual

appointment of an American auditor or co-inspector for this revenue. As

this, however, would still strengthen the security for their loan, I

do not see that they have any reason for complaint. The representative

of the French bank which is interested, saw me and made a tentative

suggestion that if advisorships were established, the French might take

the wine tax, and the Americans the tobacco tax. I feel, however, that

the hands of the Chinese were perfectly free when the loan was made;

there can be no objection, except on the supposition that whenever the

Chinese do business, no matter how small, with respect to any subject

matter, they impliedly give a lien on all future dealings.