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met and agreed to rules of trade of which the tenth
stipulated for the appointment of a British subject as
Inspector-General to assist the High Commissioner ap-
pointed by the Chinese Government : 20

"The high officer appointed by the Chinese Govern-
ment to superintend foreign trade will accordingly, from
time to time, either himself visit, or will send a deputy
to visit, the different ports. The said high officer will
be at liberty, at his own choice, and independently of
the suggestion or nomination of any British authority,
to select any British subject he may see fit to aid him
in the administration of the customs revenue ; in the
prevention of smuggling; in the definition of port boun-
daries; or in discharging the duties of harbor-master;
also in the distribution of lights, buoys, beacons and the
like, the maintenance of which shall be provided for out
of the tonnage dues."

Under this provision Mr. H. N. Lay was appointed
Inspector-General in 1859, but he soon fell into dis-
agreement with the Chinese Government over the pur-
chase of a fleet of gunboats for the suppression of pii
because of which he was permitted to resign in 1863. The
successor of Mr. Lav was Mr. Robert Hart, who was
knighted in 1882 for his distinguished in the or-

ganization and administration of the Chinese Maritime
Customs. He held the office until 1906, when he wa
ceeded by Mr. F. A Aglen. Thus, abiding by the p
of 1898 -" that a British subject should 1"- appointed
Inspector-General while British trade predominates, the



378 IMPAIRMENTS OF SOVEREIGNTY

Chinese Government has successively appointed the
British to that important post.

Turning to the tariff system and its administration, the
rate of duty on imports, we find, is five per cent ad
valorem calculated on the average of the prevailing prices
of 1912-1916, inclusive. The rate of duty on exports
still remains five per cent ad valorem as fixed in the
treaties of 1858. A drawback of the duty paid can be
obtained if the imported goods are reexported within
three years, either to another open port or to a foreign
port.- 7 Goods shipped from one open port to another
are to pay five per cent on departure and two and a half
per cent on arrival. 28 The frontier trade with Russia,
Korea, Annam and Burma obtains a reduction usually
of one-third of the usual rate at the treaty port. The
foreigner further is permitted the option of paying the
transit dues in the inland trade through tolls at the
different stations or by a single payment at the rate of
half of the tariff duties, or two and a half per cent,
which will exempt his goods from all further exactions in
transit. 28A

There are four kinds of customs in China. The first
is the Maritime Customs located at the treaty ports and
under foreign supervision. The second is the frontier
customs located at the boundaries between China and
Russia, Korea, Annam and Burma, which are also under
foreign supervision. The third is the customs in the
leased territories, situated usually at the frontier between
the borders of the leased territories and China. They are
likewise under the control of the Inspector-General of
Maritime Customs, although the commissioners in charge
are usually of the nationality to whom the leased ter-
ritory pertains. The fourth kind is the native customs
for the collection of inland duties. They are generally
under the control of the Central Government at Peking,
except those located within fifty li radius of the treaty



TARIFF AUTONOMY 379

ports which have been annexed since 1901 to the Mari-
time Customs. 29

The Maritime Customs, despite foreign supervision,
remains, nevertheless, a branch of the Chinese Govern-
ment. While an autocrat in his administration, to whom
the Chinese Government does not dictate nor interfere in
appointments or administration, the Inspector-General
is yet under the authority of the Chinese Government, and
administers the service in conformity with the wishes
and commands of the Peking Government. The customs
receipts, while accounted for by foreign customs com-
missioners, do not pass through their hands, but are paid
by the importer and the exporter to the bank or deposi-
tory designated by the Chinese Government. The re-
ceipts, however, cannot be drawn upon by the Chinese
Government until the obligations of the foreign debts
for which the customs revenue has been pledged as
security have been discharged.

We now come to the disadvantages of the tariff sys-
tem in China. In the first place, the tariff as fixed lacks
the element of reciprocity. That is to say, it is a one-
sided or unilateral tariff, imposing restrictions on China,
but offering no concession or compensation in return.
Thus, foreign importers pay only five per cent ad valorem,
but Chinese importers have to pay whatever foreign
states levy.

In the second place, the tariff as now fixed at a
uniform rate of five per cent ad valorem 18 unscientific.
It docs not differentiate raw materials and manufactured
goods, taxing all alike at five per cent ad valorem, which
practice has long been discarded by modern states adopt-
ing a scientific tariff. Further, it fails to distinguish

luxuries from necessities, levying the same uniform duty
of five per cent on both, which distinction all scientific
tariffs make. The glaring COntraSl b etwe en I 'hinese tariff
duties and those of the ( ircat Powers can be seen in the



380 IMPAIRMENTS OF SOVEREIGNTY

following table of the tariff duties on tobacco and liquor
vied in 1913 : 30





Tobacco Spirits




L. s. d. L. s. d.


AND

i i) States

Fb \Ni 1".

Japan

C HIN A


8 6 per lh. 15 2 per gal

18 9 " " and 25% 10 10 " "

1 7 2y 2 " " 2 6V 2 " "

355% 10 2 " "

5% 4/,% " "



On the other hand, articles which should be imported
free of duty, such as the necessities of life, pay the same
uniform rate of five per cent ad valorem. The disparity
is indicated in the following table of the percentage of
value of articles imported free of duty into China and
the other countries in 1913: 31

China 6.5%

Japan 49.5%

Fi \\>-i: 50.0%

United States 54.5%

England 907%

In the third place, duties are rigid and inflexible. The
rate cannot increase nor decrease as the needs of revenue
require. It is constantly out of adjustment with rising
prices. Its rates for imports are estimated on the basis
of the average price of 1912 to 1916, inclusive, that is,
five years ago, and except for a revision in the imme-
diate future, in the face of the rising tide of price levels,
they will soon be out of adjustment with market prices.
The rates for export are still based on those fixed by
the treaties of 1858, which were concluded more than half
a century ago.

In the fourth place, the operation of the present tariff
system results in a shortage of revenue. Based on the
average of the prevailing prices of 1897-8-9 until 1919,
and since then, on that of the prevailing prices of 1912-



TARIFF AUTONOMY 381

1916, inclusive, the revenues collected, in view of advanc-
ing prices, are wholly incommensurate with the fiscal
needs of the Government. The uniform rate of five per
cent ad valorem being so low and unchangeable, it is no
wonder that customs receipts should constitute a rela-
tively small percentage of the total income of the Chinese
Government.

What is worse, out of the shortage of revenue, there
arises another great evil, and that is the likin or the inland
transit dues. Because of the dire needs of the Govern-
ment, this cannot be abolished without a compensating
increase in tariff which, as we have seen, cannot be ob-
tained without the unanimous consent of all the Treaty
Powers enjoying, or that may enjoy, the most favored
nation treatment. In view of the privilege of commuta-
tion granted to foreign traders who are required to pay
only two and a half per cent at the Maritime Customs,
Chinese merchants denied this privilege have to pay all
the tolls collected at the successive likin stations varying
from ten per cent within the province to some twenty
per cent for transit through several provinces. Thus in
commercial competition foreign merchants are favored
through the likin reduction, equivalent to the difference
between the two and a half per cent paid by the foreign
merchants and the ten to twenty per cent, or more, paid
by the Chinese. Thus, the likin system tends to destroy
the Chinese inland trade and to deter the growth of
Chinese industry, while it favors foreign commerce. 32

In the fifth place, the present tariff system deprives
China of one of her most important attributes of sov-
ereignty, the right of taxation, or, to be more accurate,
the right to regulate her own tariff. As it is, China is
crippled to such an extent that she cannot alter her tariff
without the consent (if the Powers,- nay, what is worse,
their unanimous consent. '11 . in so far as the

control of the tariff is in the hands of t : a Powers,

to that extent is China's sovereignty impai



382 IMPAIRMENTS OF SOVEREIGNTY

In view of these serious disadvantages, the Chinese
Government is determined to recover tariff autonomy at
the earliest moment possible. In 1906 she established the
Shui-wu-chu, or Board of Revenues, to supervise and
centralize the administration of the revenue departments
of the Government, including the Maritime Customs,
which step, however, did not do away with the foreign
supervision of the Chinese Marlime Customs. In 1908,
a Customs Training College was established at Peking
to prepare students for customs service when her con-
trol of the customs should be recovered. Besides these
preparatory measures, at the Paris Peace Conference,
the Chinese Government, through its Delegation, an-
nounced its claim for the restoration of her tariff
autonomy.

"To conform to the aim and object of the League
of Nations it is urgently desired that the right of China
to revise the existing tariff conventions should be recog-
nized and agreed to by the friendly Powers.

"The prolonged unfavorable balance of trade and the
constant increase of national debt have created a serious
financial and economic stress which can only be relieved
by consolidating the system of taxation and encouraging
the export trade, which will in turn benefit the importers
by increasing the people's purchasing power. This reform
has long been overdue, and in placing China's case before
the Peace Conference the Chinese Government have be-
hind them the voice of the whole country. It is to be
hoped that the friendly Powers will restore to China
the same fiscal right as is enjoyed by all independent
nations so that the Chinese people may develop their
natural resources, become better customers of the world's
commodities, and contribute their share to the progress
and civilization of mankind." :,i

As a practical measure, the Chinese Government pro-
posed to supersede the conventional tariff two years there-



TARIFF AUTONOMY 383

after by the general tarilT now applicable to the non-
treaty Powers, that is, by 1921. Prior, however, to the
complete restoration, it proposed to enter into negotiation
with the Powers with a view to arranging a new conven-
tional tariff on the articles in which they are especially
interested, and, under these conditions :

"1. Any favorable treatment must be reciprocal.

"2. A differential scale must be established so that
luxuries should pay more and raw materials less than
necessaries.

"3. The basis of the new conventional rate for neces-
saries must not be less than twelve and a half per cent
in order to cover the loss of revenue resulting from the
abolition of likin as provided for in the commercial
treaties of 1902-1903.

"4. At the end of a definite period to be fixed by new
treaties, China must be at liberty not only to revise the
basis of valuation, but also the duty rate itself.

"In return for such concessions China is willing to
abolish the undesirable tax of likin so that anything that
tends to hinder the development of trade may be removed
once for all." 34

Notwithstanding the failure of her claim, China recov-
ered her tariff autonomy from Germany and Austria-
Hungary. Article 128 of the Treaty of Peace with Ger-
many reads : "Germany renounces in favor of China all
benefits and privileges resulting from the provisions of
the final Protocol signed at Peking on September 7, 1901,
and from all annexes, notes and documents supplementary
thereto." This includes the relinquishment of German
rights in Chinese tariffs. Article 129 further Stipulal
"China, however, will no longer be bound to grant to
Germany the advantages or privileges which she allowed
Germany under these arrangements." This i the

arrangement of August 29, 1902, regarding the new
Chinese Customs Tariff, thus specifically eliminating tier-
many from the list of the privileged nations in the



384 IMPAIRMENTS OF SOVEREIGNTY

Chinese tariff agreement. Similarly, she recovered her
tariff autonomy from Austria and Hungary. 88



NOTES TO CHAPTER XXIII

1. Hertslct's China Treaties, Vol. 1, No. 1. p. 10.

2. State Papers, Vol. 31, pp. 132, 141 et seq.

3. State Papers, Vol. 32, p. 791 et seq.

4. Hcrtslct, Vol 1, No. 39, p. 258 et seq.

5. State Papers, Vol. 32, pp. 791-792.

6. Hertslet, Vol. 1, No. 6, pp. 26-27, Art. 26.

7. Ibid., Art. 27.

8. Ibid, Art. 28.

9. Hertslet, Vol. 1, No. 7, p. 35 et seq.

10. Hertslet, Vol. 1, No. 7, p. 41 et seq.

11. Hertslet, Vol. I, No. 7, pp. 36-40, 41 et seq.

12. Hertslet, Vol. 1, No. 40, pp. 269-286.

13. Hertslet, VoL 1, No. 41, p. 286, Nov. 24, 1858; State
Papers, Vol. 51, pp. 654, 662.

14. Hertslet, VoL 1, No. 95, pp. 552-553.

15. Hertslet, Vol. 1, No. 81, p. 457, Art. 4, Treaty of June 13,
1858.

16. Hertslet, Vol. 1, No. 26, p. 123 et seq.

17. Hertslet, Vol. 1, No. 27, p. 148 et seq.

18. Hertslet, Vol. 1, No. 28, p. 174.

19. Hertslet, Vol. 1, No. 28, p. 180.

20. Hertslet, Vol. 1, No. 100, pp. 566, 568. Art. 4.

21. Hertslet, Vol. 1, No. 66, p. 384, Art. 1.

22. MacMurrav, 1917/7.

23. China Year Book, 1919, p. 422.

24. \V. W. Willoughby, Foreign Rights and Interests in China,
p. 119.

24A. Morse, The Trade and Administration of China, p. 367.

25. Hertslet, Vol. 1, No. 7, pp. 39-40.

26. MacMurray, 1898/2.

27. Hertslet, Vol. 1, No. 6, p. 32, Art. 45, Treaty of June 26,
1858; also No. 12, p. 79, Chefoo Agreement, Sept. 13, 1876, Sec.
3, Clause 5; No. 28, p. 171, Art. 1, Treaty of Sept. 5, 1902.

28. Hertslet, Vol. 2, No. 124, p. 634, Sec. 3, Art. 1.

28A. Hertslet, Vol. 1, No. 6, pp. 27-28, Art. 28, Treaty of
June 26, 1858; No. 7, p. 38, Rule 7, Agreement of Nov. 8, 1858;
No. 28, p. 174 et seq., Art. 8, Treaty of Sept. 5, 1902.

29. Hertslet, Vol. 1, No. 26, p. 128, Art. 6, Final Protocol of
Sept. 7, 1901.

30. The Shantung Question, presented by China to the Paris
Peace Conference, published by the Chinese National Welfare
Society of America, 1920, p. 87.

31. Ibid., p. 87.



TARIFF AUTONOMY 385

32. Chin Chu, The Tariff Prohlem in China, pp. 86-88.

33. The Shantung Question, op. cit., pp. 88-89.

34. Ibid., p. 89.

35. Treat}' of Peace with Austria, Sup. of American Journal
of Int. Law, Jan. and April, 1920; Treaty of Peace with Hun-
gary, June 4, 1920, The American Journal of International Law,
Jan., 1921.



PART V

NEW PROBLEMS ARISING SINCE THE WAR

XXIV. The New International Banking Con-
sortium.

XXV. The New International Banking Con-
sortium (Continued).

XXVI. The League of Nations and China.

XXVII. The Shantung Question.



XXIV

THE NEW INTERNATIONAL BANKING
CONSORTIUM

If there is any factor destined to affect the foreign re-
lations of China in the next decade or so, it is the New
International Banking Consortium. From a business
point of view, it is nothing more than an international
combine of the banking groups of the United States, Great
Britain, France, and Japan, for the purpose of coopera-
tive investment in China; but from the viewpoint of his-
tory and the political situation in the Far East, it signifies
more than mere business, and is pregnant with tremen-
dous political potentialities.

The new consortium is not a novel invention ; it has
its predecessor. To recall what has been said, the old
consortium was formed in 1908, consisting of the bankers
of France, Great Britain, Germany, and the United States,
which concluded the Hukuang Railway loan of May 20,
191 1. 1 The same consortium also negotiated the cur-
rency and industrial development loan of April 15, 191 1. 2
Subsequently, this quadruple syndicate was expanded into
a sextuple consortium, adding to its memmbership Russia

and Japan, which, despite the withdrawal of the American

group, concluded the Reorganization Loan of April 26,
1913. 8 With the advent of the World War. the sextuple

irtium, which had been reduced to a quintuple group,

d into oblivion.
To be brief, the formation of the new consortium dates

from L917, when a suggestion was made as to an Amer-
ican I oan to < hina so that the latter could he equipped

in effective participation in the- World War. In

June of 1918, the Department of State called together

389



390 PR< CLEMS ARISING SINCE THE WAR

a number of American bankers interested in Chinese
finance. As an outcome of the conference, it was decided
that in addition to the American Group of Bankers, the
United States Government would request the govern-
ments of Great Britain, France, and Japan, to organize
their respective banking groups and participate in the
new consortium, on the basis of full equality and partner-
ship. Accepting the principles of the American proposal,
representatives of the Allied Powers concerned met at
the Paris Peace Conference on May 11 and 12, 1919,
when several resolutions were passed and an agreement
was reached. Upon approval of the governments con-
cerned, the representatives of these banking groups met
in New York City in October, 1920, and signed the agree-
ment.

To be more specific, the formation of the new con-
sortium is a long story, and marked by several diplomatic
events of great political significance. The beginning of
the project goes back to the month of June, 1918, when
the State Department called together the American
bankers interested and experienced in Chinese finance.
At the conference, the project of loaning to China and
the best way of doing so were discussed. On July 8,
1918, the banking firms interested (J. P. Morgan & Co.,
Kuhn, Loeb & Co., The National City Bank of New
York, the First National Bank, New York, the Chase
National Bank, the Continental and Commercial Trust &
Savings Bank of Chicago, Lee Hegginson & Co., and
the Guaranty Trust Commpany of New York), informed
the Department of State that in their opinion a consortium
of the banking interests of the four Powers — the United
States, Great Britain, France and Japan — should be
formed, that one of the conditions of membership should
be the relinquishment of existing or future options, and
that in case of a loan issue, the Department of State
should make a declaration announcing that the loan was



THE NEW BANKING CONSORTIUM 391

to be made at the suggestion of the Government.* In
response to this communication, the Department of State
replied, on July 9, 1918, that it would comply with the
wishes of the American Bankers.

As a fuller statement, the Department of State gave to
the press on July 29, 1918, the statement which we have
quoted in the chapter on The Policy of the United States
in China, setting forth the essential features of the new
policy."

(1) The formation of a group of American bankers.

(2) The cooperation of the bankers with the Depart-
ment of State, particularly with reference to policies.

(3) The approval by the Department of State of the
names of banks composing the group.

(4) Approval of the terms and conditions of the loans
by the Department of State.

(5) Diplomatic support in the execution of equitable
contracts.

(6) The formation of the national hanking groups of
Great Britain, France and Japan and their association
with the American group.

Meanwhile, the Department of State entered into nego-
tiation with the Governments of Great Britain, France
and Japan. On August 14, 1918, the British Foreign
Office asked for an elucidation of the scope of the new
consortium; whether the contemplated loan was to be ;i
second or supplementary Reorganization Loan or an
entirely different one; whether it was to include only
administrative loans or also industrial and railway loans,
the latter of which were excluded from the scope of the
former consortium by the intergroup agreement of P
September 26, 1913; whether the relinquishment of op-
tions was to include only the options nn administrative
loans or also on industrial in which ease the British Gov-
ernment feared to concur until they should have consulted

the British interests involved; and finally, whether the



392 PROBLEMS ARISING SINCE THE WAR

policy of maintaining the political independence and sov-
ereignty of China was to preclude any possibility of
foreign supervision in collection of revenues pledged as
securities and the employment of foreign advisers to
supervise the introduction of reforms. Jn reply, the
Department of State, on October 8, 1918, despatched a
memorandum covered by a note, to the French, British
and Japanese Embassies explaining that it was not the
intention of the United States Government to rejoin the
old consortium, but that a new one was to be organized ;
that the relinquishment of options was to cover all options
of whatever nature; that the loans were to include both
administrative and industrial loans; and that the policy
of maintaining the political integrity and sovereignty of
China did not preclude the possibility of foreign super-
vision in the collection of revenues pledged as securities
and the employment of a foreign adviser as prescribed
in the terms of the loan. 7

On March 17, 1919, the British Foreign Office ace
the proposals of the United States Government for a
new consortium, setting forth as their understanding that
the formation of the four Tower group should not preju-
dice the claims of Belgium and Russia, that financial
operation not involving a Chinese Government guarantee
or a public issue should remain open to all, that "the
-roups will pool nil existing and future options except
such concession as may be already in operation," that
each national group will receive the active and exclusive
diplomatic support of its government, and further adding
that the contracts for the execution of the engineering or
other works to he built out of the proceeds of the loan
and for the supply of the necessary materials should be

put up to public tender and that the loans to hi' made in
the immediate future, in view of the dire need for re-
construction in consequence of the World War, should
be of moderate dimension-."

On May 11-12, 1919, the representatives of the hank-



THE NEW BANKING CONSORTIUM 393

ing groups of Great Britain, France, Japan and the United
States with the sanction of their respective governments,
met at the Paris Peace Conference for the purpose of

organizing the new consortium. A set of resolutions was
unanimously adopted and submitted to the four govern-
ments concerned for approval. On May 31, 1919, the
United States Government, in a note to the French, Brit-
ish and Japanese Emhassies announced its acceptance and
approval of the resolutions and at the same time urged
the other governments to give similar confirmation, "in
order that the formation of the new consortium may be
completed, prior to the expiration of the old consortium
agreement on June 18, next." 9

On June 7, 1919, the British Foreign Office signified
its acceptance and approval of the resolutions with the
exception, however, to "the statement in the preamble of
the agreement that the groups are entitled to the exclu-
sive support of their respective Governments," giving as
its reason that the British Group "have hitherto failed to
comply with the conditions on which alone His Majesty's
Government are prepared to guarantee exclusive official
support." 10 In view of this exception of the British For-
eign Office, at the suggestion of the French Government,
the formula regarding diplomatic support was slightly
modified, the principal change being "in pledging each
government to the support of its respective national group
rather than to the consortium collectively." The modified
form which was communicated, on July 3, 1918, to the
French, Japanese and British Embassies, reads as fol-



Online LibraryMingchien Joshua BauThe foreign relations of China: a history and a survey → online text (page 30 of 39)