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French, German, and American Governments in China, was formed in 1909, but the political and financial germs from which it was gradually evolved, date back to the days when "spheres of influence" were in the ascendant, when the shadow of Russian expansion lay darkly over North China, and before the rise of Japan to the position of a great Asiatic Power had called new and turbulent spirits from the Celestial deeps, postponing for a while the day of China's partition. The consolidation of international financial interests which has been evolved at Peking since the tumultuous days of the Battle of Concessions in 1898, affords in itself a most remarkable illustration of the modern world's economic interdependence. It reveals also the farreaching influence which the cosmopolitan financier wields in the field of our latter-day politics, and emphasises in the clearest possible manner the fact that, so far as British interests are concerned, the ends towards which that influence is exercised require a wider measure of intelligent anticipation and firm guidance than they have yet received from any British Govern

ment.

The history of British political economy in China during the past decade has been almost exclusively connected with the financial operations of the Hong Kong and Shanghai Banking Corporation, the leading British Bank of the Far East; and with the railway loans negotiated either by that institution or its affiliated companies. It may therefore be useful to recapitulate some of its main features and turning-points. In 1895, that is to say, before the Cassini Convention and the seizure of Kiaochao had foreshadowed the conditions which were to turn Manchuria and North China into a cockpit, the British Bank entered into an agreement to share with the newly established Deutsch-Asiatische Bank of Berlin all Chinese Government business obtained by either party. In making this agreement, under political conditions widely differing from those of to-day, the British Bank was, no doubt, actuated by a perfectly legitimate and intelligible desire to avoid unnecessary competition in a field which, up to that time, had been generally neglected by other Powers. In 1898, however, with the acute development of the "spheres of influence" régime and the assertion by Great Britain of special rights in the Yangtsze Valley, five exclusively

British railway concessions in that region were extracted from the Chinese Government under severe diplomatic pressure by the British Minister. These concessions were clearly not of a nature to be financed with German participation; they were accordingly obtained on behalf of a purely British syndicate, the British and Chinese Corporation, in which the Bank was associated with the firm of Jardine Matheson and Co. as joint managers. From 1899 to 1906, as the result of the Boxer rising and the Russo-Japanese War, political finance in China remained, generally speaking, in a state of suspended animation, only one of the five British railway concessions being brought to the conclusion of a loan during that period. It is, however, noteworthy that, in regard to the final Boxer indemnity loan of February 1905 the Deutsch-Asiatische Bank asserted its right to participation under the terms of the 1895 agreement; although in 1898, foreseeing difficulties with Russia, it had declined that right in the case of the Northern Railway loan. Upon the conclusion of the Russo-Japanese War, economic conditions in China quickly reflected the political changes which then took place as the result of Russia's defeat, of the aggressive nationalism of Young China, and of the increasing competition by new-comers for a share of the benefits confidently expected to follow upon the country's promised development of trade and industries. When, therefore, four of the five British railway concessions obtained in 1898 had been negotiated, tant bien que mal, to the conclusion of loan agreements in 1907-1908, the German Bank took occasion to intimate in London its intention of competing for railway and other Chinese Government loans, unless admitted to full participation on terms of equality.

The position of the financiers responsible for the proceedings of the British Bank became, at this juncture, one of considerable delicacy. On the one hand, they were bound to acquiesce in the German demand for participation because of their undenounced agreement of 1895; on the other, having for years enjoyed a monopoly of British Government support and become identified with British enterprises of far-reaching political importance, they could not openly advance the German claims without arousing criticism and opposition in England and France. The Germans, however, realising that the psychological moment

had arrived, proceeded to force their partner's hand. The representative of the Deutsch-Asiatische Bank at Peking (Herr Cordes, formerly of the German Consular Service) had gained high favour with the Chinese in 1908 by dispensing with all effective control of loan funds in the case of the Tientsin-Pukóu Railway; he now gave an earnest of the significance of that policy, and claimed his reward, by opening negotiations with Chang Chih-tung, the Viceroy at Wuchang, for the HankowCanton, and Szechuan Railway loans. Both of these lines, coming within the Yangtsze Valley area, had been recognised by the Chinese Government as enterprises reserved for the British, the United States alone being entitled to a share in financing the Szechuan Railway. In entering into competition for these loans, the Deutsch-Asiatische Bank violated an agreement made on September 2, 1898, whereby German financiers bound themselves to respect the Yangtsze Valley as a British Railway sphere (vide Blue Book China, No. 1 of 1899, p. 214) ; it ignored, also, the formal protest addressed by Sir John Jordan to the Chinese Government, alleging, in justification of its action, that the conditions under which Great Britain's preferential rights had been recognised had automatically lapsed with spheres of influence." In view of the fact that German claims to exclusive rights in Shantung have been consistently-not to say quixotically-recognised by Great Britain, the bad faith of Germany's action in this matter was on a par with that of the Chinese, who, in repudiating their pledges, were obviously actuated by a desire to foment international jealousies.

Despite the misgivings and dissatisfaction of the French financiers associated with the Hong Kong and Shanghai Bank in the syndicate known as the " Chinese Central Railways, Ltd.,” notwithstanding strong representations by the French Ambassador in London, and protests and warnings addressed to the Waiwupu by the British Minister at Peking, German participation in these Yangtsze railways became an accomplished fact in June 1908. The British Government's deplorable weakness throughout this unfortunate episode was primarily due to ignorance of the inner workings of German political finance, and consequently to the preponderant weight exercised by the counsels of Lombard Street. Downing Street sought justification for what was generally

recognised as an ignominious débâcle, in the pious hope that, after the elimination of German competition, it would be possible to impose on the Chinese Government conditions of honest railway construction and administration. Any one acquainted with the political finance methods pursued by Germany in China, Turkey, and other" troubled waters," must have realised the impossibility of attaining any such object by the means suggested; nevertheless, assurances were given and apparently accepted in good faith by the Foreign Office, that, with the admission of Germany to participation with the officially supported Anglo-French group of financiers in Chinese loans, those safeguards and guarantees would be re-established whereby China would be compelled to admit strict supervision of loan funds' expenditure. By an exchange of notes early in 1909, the British and French Governments had declared themselves opposed to any British or French capital being lent to China except under these conditions of control; they might, therefore, have been justified, as a matter of expediency, in consenting to German participation, had steps been taken to ensure fulfilment of the conditions of effective control named in the Memorandum of terms upon which the new Anglo-FrenchGerman combination was established. As events proved, no such conditions were imposed; on the contrary, the terms upon which the Hukuang and Szechuan railway loans were eventually concluded with the Chinese Government revealed an unmistakable tendency to relax still further the supervisory safeguards whereby the best interests of China and of her creditors had in the past been protected. This tendency has since been rapidly accelerated, so that to-day capital is being pressed upon a disorganised and more or less irresponsible Government under conditions likely to lead to grievous waste and corruption, internal unrest in the provinces, and endless complications abroad. The terms of last year's "Currency Reform and Manchurian Development " loan clearly reflected the temporarily profitable, but ultimately fatal policy of floating Chinese loans regardless of their political and economic consequences-a policy, of Teutonic origin which Great Britain for years wisely and successfully opposed as prejudicial to "the independence and integrity of China."

The admission of German participation to the Anglo-French

combination represented by the Hong Kong and Shanghai Bank and the Banque de l'Indo-Chine, in the Yangtsze railway loans, was an event sufficiently significant and important in itself to provoke further political complications. The correspondent of the Times at Peking, telegraphing on May 9, expressed the general wonder that "the British Government should delegate to one British Bank, which is naturally compelled to consider financial rather than national interests, the right to assist the extension of German influence." No sooner had British rights been irrevocably surrendered, however, than the Government of the United States intervened, formally protesting against ratification of the proposed railway loans and claiming the American rights of participation recorded under the agreement of 1903 between Prince Ching and Sir Ernest Satow. This was in June 1909. Chang Chih-tung, advised by the agent of the Deutsch-Asiatische Bank at Peking, showed a disposition to ignore the American protest, whereupon President Taft took the unusual, but highly effective, step of telegraphing to the Prince Regent direct, forcibly insisting upon recognition of American rights. This telegram was described by the Peking correspondent of the Times as directly due to the intrigues of the Deutsch-Asiatische Bank, whose influence over the Hong Kong and Shanghai Bank is so injurious to British interests in China"; he furthermore said that it was "the opinion of many Englishmen that the British Government should bring pressure to bear upon the Hong Kong and Shanghai Bank to dissociate itself from these German intrigues which are persistently directed, here as elsewhere, to bring us into a misunderstanding with the Americans."

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The firm attitude adopted by the United States Government at this juncture, and its results, served to throw into relief the vacillating inefficiency of British policy. Chang Chih-tung, who had persistently violated his former pledges to Great Britain and contemptuously ignored the existence of the British Minister, was effectively brought to book in one short interview demanded by the American Chargé d'Affaires. As the result of President Taft's message, American rights were promptly recognised by the Waiwupu, and Chang found himself compelled either to accept them or to abandon altogether the railway schemes to

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