This total amounts in sterling approximately to £99,625,000.

The domestic loans have all been contracted since the Revolution. Directly or indirectly, the proceeds have been spent mostly for military purposes. Nothing productive has been done with any of the money. The bonds of some of these loans were sold for prices as low as 15 to 20 per $100 bond. Many bonds were forced upon the public by the Central and Provincial Governments. On the whole, probably the Government received as cash on an average something like half the face value.

There is a large and busy market in Peking for the bonds, which fluctuate up and down according to the prospects of interest and amortization being forthcoming on the appointed dates. Various offers at consolidation have been made, and one scheme provided for $12,000,000 per annum from the salt surplus, $10,000,000 from the wine and tobacco monopoly, pending the reorganization of which the Board of Communications was to furnish $500,000 per month. Any deficiency was to be made up from the customs surplus. One payment only was made out of the salt surplus, but nothing has come from the two other sources, with the result that this whole liability now falls on the customs surplus.

In other words, China is trying to use the customs and salt surpluses, her only good assets, and both under foreign control, to pay domestic debtors when she is in default all round to foreigners.

British, American, French, and Japanese Ministers upon the scene, protesting against the neglect of obligations to foreigners in favor of internal creditors. They referred to the credit of China, 'now become seriously impaired by default on loans in England, America, France, and Japan.' They take exception to the preferential treatment of internal loans, and request that future customs surpluses shall no longer be exclusively used in this manner.

The result was a flurry in the local money-market, and much uncertainty as to the future of the domestic bonds, for the Legations interested have the power to withhold release of surpluses and thus to suspend payments on account of internal loans. Should they do anything of the kind, a financial panic would follow and many Chinese banks would come down.

In much the same category as the domestic loans come the short-term debts to Chinese banks, firms, and so forth. These represent amounts borrowed concurrently with the issue of the domestic loans. Some of the transactions were forced on the banks, and all are at high rates of interest, some indeed at usurious rates. The inability of the Government to pay has left most of the banks high and dry, and suspension must ensue in many cases if an arrangement is not made at an early date. The total under Treasury notes represents transactions of a character similar to the foregoing. It includes over five millions held by the Manchu family in lieu of arrears of pension, and covers a host of liabilities for military supplies, military and official pay.

The formidable figure under unsecured foreign debts covers the series of Japanese loans made in 1918 and 1919, totaling 120,000,000 yen, all overdue and upon which no interest has been paid. These transactions were warmly

criticized in China and abroad, and are repudiated by many Chinese on the ground that they were made without the consent of Parliament. It includes also about 40,000,000 yen due to Japanese firms and banks, mostly for military supplies. In this list appears about 150,000,000 fr. due to the ill-fated Banque Industrielle, and debts due to other foreign banks. It also includes the Marconi and Vickers and the two American loans (G.$5,500,000 each), all four in default.

The last item of $100,000,000 owing to foreign firms is for railway, telephone, and telegraph material supplied during the past two or three years through the Ministry of Communications. This department, when the railways were running satisfactorily and producing a net revenue of about $35,000,000 per annum, was a substantial concern, well able to meet its obligations. Foreign firms, therefore, were justified in accepting orders for material obviously needed and economically productive, and it has been a great shock to them to find, not only that the department has suspended payment, but that the railway position as a whole has become so bad that prospects of payment have become exceedingly remote, while some of the lines are deteriorating to a point where traffic may have to be suspended. British firms at home and in China, and British banks, are deeply involved, and for some firms it will spell disaster if some sort of settlement is not speedily arranged.

On the one side there is a load upon the Chinese Government which is unbearable, and a constant source of anxiety and friction, owing to the demands for payment which cannot be met. On the other side there is the hardship upon creditors and the danger of a financial panic which would inevitably affect the general economic life of the country. Some of the rail

ways are in desperation for the ready money to purchase daily necessities, for their credit is entirely gone. For instance, although traffic on the PekingSuiyuan railway is seriously impeded for lack of rolling stock, there are three hundred cars lying at one of the ports of which delivery cannot be obtained because the Government cannot pay the charges.

It is urgent that a settlement of the debts for railway material shall be made, in order to restore credit and make possible the purchase of material essential to continue working. If financial collapse and railway dislocation occur together the foreign trade cannot but be affected, with dire results in every direction. The case for the application of a remedy, if remedy there is, is as urgent as could be, in Chinese as well as in foreign interests.

There is a remedy, and the Treaty Powers interested have already agreed in principle to a policy which makes its application practicable at an early date. It was recognized at the Washington Conference that China's customs duties were unduly low, and it was settled, first, that they should be revised to give China an effective 5 per cent, — which is now in operation, — and, second, that a surtax of 2 per cent should be imposed. These two concessions have been estimated to yield an additional revenue to China of $46,000,000. A further increase was contemplated when China had abolished the likin taxes, which handicap the internal trade of the country.

A foreign commission is to go into the whole question and to formulate the conditions under which the 2 per cent surtax is to be granted. The appointment of the commission, however, awaits the ratification of the Washington resolutions by the French, Italian, and Japanese Governments, and the commission cannot sit before the au

tumn, or complete its business for at least a year from now - much too long to wait for an examination of the present serious state of affairs.

It is obvious that the increased revenue to be derived from the contemplated surtax must be used to liquidate the floating debt. The view has been expressed that it would be a mistake to use the proceeds of an additional tax on foreign trade for the repayment of transactions like the Japanese loans, which were made for a political purpose and have since been condemned in Japan. The two American loans in default were also given to China unconditionally, in opposition to the policy of the Consortium, to which the United States now subscribes. The Marconi and Vickers loans were warmly criticized because they involved China in enterprises, wireless and aeronautic, which she could not successfully conclude.

The truth of the matter is that practically all the money borrowed by China during the past few years, at home and abroad, has been used, directly or indirectly, to serve the purposes of the militarists; and there is little to choose between any of the transactions, although in some cases the lenders did not realize the uses to which the money was being put.

It may be said that all the loans were bad for China. Yet China has had the money, and in the end she will have to repay. Meanwhile the Americans and the French and the Japanese want their transactions put on a sound footing, and it is useless to expect these Powers to agree to any disposal of the increased customs duties until Chinese debts to them have been settled.

Theoretically, it is sound that parties who made selfish or ill-considered or speculative advances to a bankrupt Government should be allowed to stew in their own juice. But the reality of the situation is that China owes the

money and that failure to recognize the fact will involve her in serious international difficulties. Considering the whole position, the danger of financial collapse, the decay of the railways and the economic check which must follow, it is plain that there is nothing to be done with the additional revenue but to consolidate the unsecured debt.

Forty-six million dollars per annum, plus something from the salt, and a further contribution from the wine and tobacco monopoly, which must be reorganized, will suffice to secure a loan or bond issue large enough to fund all China's unsecured obligations. It will be possible to write down domestic loans and probably some domestic debts.

It is, however, at this stage useless to go into details. The mess can be cleared up, and the case for action is established. But the interested Powers should not wait for the Washington Commission. They should appoint a small committee of experts completely familiar with the situation at once to examine the facts and to be prepared with the necessary evidence to lay before the Commission. Otherwise the representatives of nine Powers will assemble in Peking and find themselves confronted by a deluge of figures and a tissue of complicated issues, with which they will be totally unable to deal until they have lived years in the country.

One word in conclusion. If the mess is cleared up and the Chinese Government given a fresh start, it must be recognized that solvency may soon again be succeeded by renewed insolvency. Safeguards may be imposed, and they may hinder any tendency to revert to bankruptcy; but they cannot in the end be effective if the Chinese persist in taking the downward path. This risk the foreigner will have to run. The alternative is to let things go, with all the evil consequences which it has been sought in these articles to describe.

FROM the time of the Armistice French and English interests have been opposed to each other. As we have said in earlier articles, the history of several centuries might have enabled the rulers to anticipate as much. England, like Germany, had kept her soil and her factories intact. She meant to profit without any delay by the advantageous activities which her financial and industrial leaders had brought about or prepared while hostilities were still in progress, in America, Switzerland, and Holland.

The most elementary justice demanded imposing on Germany first of all the settlement of Reparations accounts due to France and Belgium. This Mr. Lloyd George did not appear to understand. He employed every artifice, every trick, all the cleverness of an imagination rich in devices, to block France and to dupe her. He had reasons of his own. What mattered to him was less fostering Germany for her own sake than favoring the combinations of a financial consortium whose mouthpiece he was. He had not the excuse of serving, like a good British

Minister, the traditional selfishness of his nation. He served as an accomplice the selfishness of an international syndicate.

At the moment France was exhausted. Her finances were at their last gasp. Her factories and industrial equipment were destroyed. Far from being able to provide goods for export, which alone would have improved her exchange, France was not even in a position to take care of her internal market, nor to provide for the needs of a diminished population. What competition had Mr. Lloyd George and his masters to fear from this unhappy country? Their greed was implacable. They counted on checking the economic recovery of France just as the Germans had counted on her ruin. The Germans destroyed, Mr. Lloyd George and his international syndicate hampered the work of reconstruction. The means were different - the effect the same.

We have struggled for four years to secure our rights. Despairing of success, we have made a decision to work alone, to demand direct from Germany

the credits which all the conferences have recognized and ratified. To strengthen our demands we have entered the Ruhr. The shortages of the Germans were established in the eyes of the whole world. Germany admitted them in the very act of seeking to excuse them. The Treaty of Versailles had provided for pressure. It bore the signature of England, and England refused to admit the German shortages in order to avoid honoring her signature by supporting our action.

In 1914 it would have been enough for England to indicate her intention to intervene at the psychological moment in order to block the world catastrophe. Ever since 1919 it would have been enough to apply the provisions of the Treaty in order to make our present action needless. The German default that brings us to the Ruhr is the outcome of an English default.

Ever since the Armistice the financiers and business men of England have been developing their position in Germany. They have invested enormous sums of capital there, so that the clash between French and British interests has steadily increased. Economic accord between France and England will be realized to-morrow no more than yesterday. It is necessary for us, then, freely to seek and to adopt the solutions that can save the fortunes of France to-day and in the future.

When Mr. Bonar Law replaced Mr. Lloyd George, Frenchmen believed that the latter's policy had been condemned by the great majority of the British people, and that as a logical result it would be given up by the new Cabinet. They assumed that Great Britain would support the French and Belgian efforts to secure Reparations. Mr. Bonar Law's first declarations justified this hope, which disappeared, however, with the first actual contact. Although Mr. Bonar Law has put into

his diplomatic reports more courtesy and sincerity, he has never ceased to defend British interests as Mr. Lloyd George originally saw them.

Though characterized by the finest outward grace, the fundamentals have never varied the business men of 'the City' are not disarming. Everyone knows that they control the Treasury and that the Treasury controls the Government. No entente, then, is possible with England. We may rely on that from this time on. Such is the economic system of Great Britain, which no consideration and no force in the world can turn aside from the way which she has marked out for herself, or which has been marked out for her by international finance.

Mr. Bonar Law's language varied according to the moment. There have been times when he recognized our rights and desired us to succeed, but at bottom he was afraid of our success because it must lead to his own downfall.

If, as is now certain, we force Germany to capitulate, Mr. Bonar Law's situation would be extremely delicate. England would show herself hostile to our action in the Ruhr, because that would constitute an obstacle or a hindrance to the combinations of her business men and financiers. Mr. Bonar Law, in short, understood that the French decision was irrevocable. He did not want to give occasion for a definite break-English opinion would not have permitted it—and so he declared himself neutral and waited.

If the action of France had been greeted by a general outburst of indignation throughout the world, as Mr. Lloyd George, his patrons, and his accomplices hoped, the British Government would have taken sides against us. They would have used us to point a moral in the name of what the Bolshevizing radicals of Manchester called