Mingchien Joshua Bau.

The foreign relations of China: a history and a survey online

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financial, to be made to the Chinese Government or any
province. To be more specific, it aims "to include within
its scope only those basic transportation systems, high-
ways reorganization of the currency, etc., which would
serve to establish sounder economic conditions through-
out China and thus form a firmer foundation for the
encouragement of private initiative and trade." 2 Arti-


cl'e 2 of the agreement sets forth the scope of the Con-
sortium as follows :

"This agreement relates to existing and future loan
agreements which involve the issue for subscription by
the public of loans to the Chinese Government or to
Chinese Government Departments or to Provinces of
China or to companies or corporations owned or con-
trolled by or on behalf of the Chinese Government or to
any party if the transaction in question is guaranteed
by the Chinese Government or Chinese Provincial Gov-
ernments but does not relate to agreements for loans to
be floated in China. Existing agreements relating to in-
dustrial undertakings upon which it can be shown that
substantial progress has been made may be omitted from
the scope of this agreement."

At the same time, however, it was mutually agreed
that the existing agreements or future loan agreements
within the scope of the Consortium should be subject to
the provisions of the Consortium Agreement (Arti-
cle 3).

The rights and the duties of the constituent groups
arc defined on the principle of complete equality. That
is to say, every group enjoys the same rights and carries
the same obligations as the other. To be more specific,
equal rights are accorded to all in all operations, the
signing of contracts, the equal sharing in existing agree-
ments and future contracts, and in the liberty to decline
participation. ( In the other hand, equal obligations are
placed upon all groups for exp mnected with any

business, for preliminary advances in any transaction,
ting stamp duties and the profits and losses of each
group in their operations (Article 4).

pecting liability, each group is to liquidate its own
liabilities, disclaiming any responsibility for joint lia-
bility. Furthermore, each group is to realize its own
profits within its own market, on the understanding,


however, that the issues in each market are to be made
at substantial parity (Article 5).

Inasmuch as it is quite possible and probable that, in
consequence of war, the groups will not be able to share
the loans equally, in view of the needs for reconstruc-
tion in Great Britain and France, but must be com-
pelled to allow the group or groups, meaning particu-
larly the American group, to assume the greater share
of the burden, it is therefore provided that the party
or parties unable to take an equal share of the burden
allotted or entitled can ask, in writing, the other party or
parties who are competent and willing to make the ad-
ditional issue for their account, which is known as "the
Residuary Participation" (Article 6).

As the system of Residuary Participation is liable to
be abused and thus to imperil the interests of the other
parties, rigid conditions are stipulated to safeguard the
proper operation of the system. Notice of such Residu-
ary Participation must be given and received prior to
the execution of the agreement. The party so requested
is to be free to decide the apportionment of the addi-
tional issue among its own members, or else they shall
share them equally among themselves. The issues in
pursuance of Residuary Participation shall be placed on
a parity with the regular issue. The party issuing the
Residuary Participation shall be free to decide upon the
expenses in connection with its flotation. It is entitled
to a commission of not more than one and one-half per
cent of the nominal amount of the Residuary Participa-
tion and to charge the party or parties making the re-
quest for expenses in connection with the issuance, these
to be calculated in accordance with the proportion which
the Residuary Participation bears to the entire ismie. It
is not required to subscribe thereto, nor to cause others
to do likewise. It shall "apply all subscriptions received


by it pro rata between the Residuary Participation by it
and the amount issued by such party on its own ac-
count." It shall "use its best endeavors to obtain a
quotation on its own market for the total amount issued
by it." Mutual agreement of the parties making the re-
quest and those requested is necessary to any issue of
Residuary 1 'articipation.

Each party enjoys exclusive control of its own market
as far as the issuance of the bonds is concerned. No
participation can be given to any outside its own mar-
ket (Article 7).

The duration of the New Consortium is fixed at five
years — that is, 1920 to 1925 — but subject to this con-
dition, that the majority of the parties can determine
its duration at any time by giving twelve months' notice
in writing to the other parties concerned, which means
that the majority of the parties can terminate, or
shorten, or lengthen, the period of duration at will
(Article 8).

Such being the Constitution of the New Consortium,
let us now observe its dealings with the Chinese Govern-
ment, so far as they have been made known to the pub-
lic. On September 28, 1920, before the Conference in
New York City in October, 1920, the American, British,
French and Japanese Legations at Peking despatched a
joint note to the Chinese Foreign Office, 1 informing the
latter of the formation of the New Consortium, setting
forth its purposes, scope, and the amount of diplomatic
support the respective Governments are pledged to give,
together with a collection of documents dealing with the
otiations for the formation of the New Consortium,
and ending with the wish, "for the early consummation
of a united Government in China so that the New Con-
sortium may eventually he enabled t0 give practical ex-
pression to the desires of the tour Governments con-


cerned to assist in the future development of this coun-

On receipt of this note, informal conferences took
place at the Chinese Ministry of Finance. Expressing
the view of the Chinese people, although the note took
the form of a personal opinion, Mr. Chow Tsu-chi, Chi-
nese Minister of Finance, communicated to the repre-
sentatives of the Consortium Banks on November 26,
1920, as follows: 4

"In pursuance of our conversation at the Ministry of
Finance on November 23, I deem it expedient, in order
to remove any misunderstanding as to my personal atti-
tude with regard to the Consortium, to set down the
following points :

"1. It is necessary that the Government of China
should at this juncture secure financial aid for construc-
tive purposes.

"2. If the Government is compelled to resort to for-
eign loans for this purpose (a) I personally cannot ad-
vise that any agreement embodying conditions calculated
to establish a financial monopoly should be signed with
any bank or group of banks; nor (b) can I advise that
any loan agreement be negotiated where the Land Tax
of China should be set down as security and placed
under foreign jurisdiction.

"The Consortium has been formed with the object of
assisting China in her reorganization. China, particu-
larly myself, heartily welcomes such evidence of good
will on the part of foreign financiers, but expects that
it will be manifested in a manner that will leave no
doubt in the minds of the people of China as to the
motives which animate the foreign bankers and which
will correct the impression now prevailing that their na-
tional freedom is being mortgaged."

In reply, the representatives of the Banking Groups
expressed their views as follows : *

"At your Excellency's request the general scheme of
the Consortium for a comprehensive constructive loan


to China for productive purposes, such as the construc-
tion of railways, was described, and the reasons for this
policy, as well as for the fact that our instructions did
not include the consideration of a loan for purely ad-
ministrative purposes, were clearly explained. At the
same time we communicated the conditions which in
the opinion of the Consortium were absolutely necessary
for the successful issue of any loan for China on the
foreign markets, viz.: (1) the recognition of all Ger-
man Bonds and Coupons of existing Chinese Govern-
ment Railway Loans, and (2) the provision of a sepa-
rate security in the case of future railway loans. We
further answered Your Excellency's inquiries regarding
the present position of the Pacific Development Corpo-
ration Contract, and the views of the Consortium on
the question of taking over this agreement. It is there-
fore necessary to state as clearly as possible that not
only was no proposal mooted on behalf of the Con-
sortium which included 'conditions calculated to estab-
lish a financial monopoly,' but also that during the inter-
view no mention was made on either side of the Land
Tax of China as a possible security for any loan to be
made. . . .

"If, as stated by Your Excellency, it is possible that
China can herself presently find the money necessary for
her reorganization, the groups will learn with the great-
. i i-f action of the success of her efforts in this direc-
tion, and we are certain that she will have not only the
entire sympathy, but, as far as possible, the cooperation
of the Consortium in her endeavors to achieve that

In view of this protest, Mr. Chow TsU-Chl made a
polite retreat and answered that inasmuch as the New

Consortium entertained no motive or intention of estab-
lishing a financial monopoly or of obtaining the Land
icurity, he was much gratified at the assurance.
On January 13, 1921, the American, British, French

and Japai • another joint BOte to the


Chinese Foreign Office informing the latter of the sign-
ing of the Consortium Agreement on Octoher 15, 1920,
and of the full approval of the New International Asso-
ciation by the four Powers interested/*

The significance of the New Consortium cannot be
over-estimated. It is the physical embodiment of the
policy of the Powers — the policy of international co-
operation and control. It will be remembered that, with
the realization of the evil consequences of cut-throat
competition, the Powers have since the Chinese Revo-
lution of 1911, adopted the policy of international co-
operation and control. In consequence, the old con-
sortium was formed and contracted the loans for the
Ilukuang Railway and the Currency Reform of 1911,
and the Reorganization Loan of 1913. Interrupted
partly by the withdrawal of the American Group re-
sulting in the loss of a moral leader within the Old Con-
sortium, but largely by the interposition of the World
War, which withdrew the struggling Towers from
"their happy hunting ground" of the Far East to the
ghastly arena of the European battlefields, this common
policy was temporarily laid aside. As soon, however,
as the World War was over, the Great Powers resumed
the old policy, and hence the formation of the New
Consortium. It can therefore be said that the New
Consortium embodies and represents the policy of In-
ternational Cooperation and Control during the present
period of China's history.

Further, the New Consortium is a practical assertion
of the Open Door Doctrine on the part of the United
States. While respecting vested interests, it pro]
as far as possible, to demolish the walls of spheres of
interest or influence. By pooling all existing options
in which no substantial progress has been made and all
future options, administrative, industrial or otherwise,
and by offering to public tender the execution of engi-


neering contracts and the purchase of materials, it estab-
lishes a condition of true equality of trade which did
not obtain under the old regime of international struggle
for concessions, or under the doctrine of Closed Spheres.
By mitigating the evils of spheres of interest or influ-
ence, and by requiring the submission of all agreements
to the approval of the Governments concerned, particu-
larly the Department of State of the United States, il
tends to maintain the political independence and the
sovereignty of China. Hence it is the incarnation of
the Open Door Doctrine.

Moreover, the New Consortium aims to put into
operation the new policy of the internationalization
of Chinese railways. Asserting as it does the
Open Door Doctrine which, as we recall, with respect
to railways, must either adopt the principle of interna-
tionalization, or exclude them entirely from the scope
of its application,— because of the monopolistic nature
of railways, — it cannot enter into the field of Chinese
investment except in the path of the internationalization
of these concessions. With the existing railways, already
in operation or under construction, or in which sub-
stantial progress has been made, it does not aim to
interfere, except in so far as the Chinese Government
or the Provinces desire to make an international loan
to redeem the foreign railways, which, however, is con-
ditioned upon the the consent of the New Consortium
to assume the burden and upon the willing cooperation
of the Powers owning and operating these railways.
With existing railway concessions, in which little or no
substantial progress has 1" en made, and with all future
railway concessions and other public and basic under-
takings, such as Hukuang, Second Reorganization, ( ur-
rency Reform, Pukow-Sinyang, Nanking-Hunan, Jehol-
Taonan, I sinan-Shunteh, Kaomi-Hsuchow, Siems-Carey,
Grand (anal, and so forth, it proposes to apply the
policy of internationalization. 1 bus, what Secretary


Knox hoped to carry out in his plan of the neutraliza-
tion of Manchurian railways is now to be applied
openly to all the railways of China to be constructed in
future, and to all other public and basic undertakings,
falling within the scope of the New Consortium. As
to whether this policy of internationalization includes
only international finance, or also international admin-
istration and hence control, it remains to be seen in the
contracts that are to be concluded. It is, however, to
be hoped that the policy of internationalization will
cover only international' finance, and will not include
international administration and control, which will in-
fringe upon and impair the sovereignty of China.

Furthermore, the New Consortium neutralizes Japan's
efforts to control China. Had it not been for the early
formation of the New Consortium, as China tottered on
the brink of bankruptcy, Japan, by repeated loans, might
have this day fairly reached the goal of controlling
China through finance. As it is, and especially as the
Department of State and Thomas W. Lamont success-
fully warded off Japan's reservation as to South Man-
churia and Eastern Inner Mongolia and brought her into
the fold of the New Consortium without any reservation
or condition, obligating Japan to observe the canons of
the Consortium, it has definitely neutralized her efforts
to control China, or at least, has placed an almost in-
surmountable difficulty before Japan's ambition in this

On the other hand, with the advent of the New Con-
sortium, China is face to face with the moral crisis of
choosing the right way at the parting of the roads. She
can avail herself of the assistance the New Consortium
can render and use the loans contracted for constructive
purposes and thus build up her own economic structure
and stabilize her own political equilibrium. In this way
she can find her salvation and derive benefit from the
New Consortium without incurring its perils. Or, she


can contract loans for administrative and consumptive
purposes, wasting the proceeds of loans and pawning
her national assets, one after the other. In this way,
she will inevitably follow the footsteps of Egypt and
bring her people to the brink of ruin and bankruptcy.
Which road will China take? May her responsible lead-
ers select the right path !

Finally, the advent of the New Consortium brings
into being a great issue in the politics of the Far East,
which will be the burning problem of the next decade
or so. That is the control of China. On the one hand,
if China should fail in her loan obligations, the Powers,
through the agency of the New Consortium, are bound
to impose international control. On the other, Chinese
nationalism, awakened to the seriousness of the situa-
tion, and having manifested itself so effectively and so
nobly in the Chinese Revolution of 1911 and the Stu-
dents' Strike and Economic Eoycott of 1919, would
not permit their inalienable right of national independ-
ence to be mortgaged or extinguished, but would enter
upon a death struggle for the preservation of their na-
tional liberty and sovereignty. Hence it is reasonable to
believe that the next decade or so may witness the great
struggle of the Chinese people for their national inde-
pendence as against the control of Japan, or of the Pow-
ers through the New Consortium.


1. Documents Concerning the New Consortium, released to
bj the Dept of State, Mar. 30, 1921; Far Eastern Review.

March, 1921, p,

2. T. W. Lamont, Preliminary Rep, on the New Consort for
China, p. 6.

3. Documents Concerning the New Consortium, op. tit.. I < >int

Sept 28, 1920.

4. Copy furnished thn of .1. P. Morgan >S. I

5. Documents, op. cit, Joint Note of American, Bnti h, French
and Jaj inese 1/ iti n .it Peking to < bine e Foreign Office.

Jan. 13, 1921.



Another event that has affected, or is going to affect,
the foreign relations of China, is the League of Nations.
In this treatise, we do not propose to deal with the or-
ganization, operation, or efficacy of the League as it is,
which falls beyond the scope of this work, but we do
aim, rather, to treat of the effects it has upon the for-
eign relations of China and of the rights and duties
which she has incurred by virtue of her membership

Before the advent of the League, there was no guar-
antee or protection for the territorial integrity and po-
litical independence of any nation. To maintain its na-
tional existence, every nation was obliged to depend
upon its own armament or upon the help of its allies.
In other words, the rights of territorial integrity and
political independence were not secured by any other
means than the armament of the nations themselves
and the arbitrament of war. Stated in another way, the
nations, for want of adequate remedy furnished by the
society of nations, had no more rights of sovereignty
than those which their own armament and other resources
could maintain and those which the other states were
willing or forced to accord to one another. For instance,
after China's disastrous defeat of 1894-5 by Japan, the
Powers proceeded to her and seized various strategic
bases. In the eyes of the Powers, China had
no more rights of sovereignty than those which
her own armament and other resources could de-
fend and those which the Powers accorded to her. In
short, under the old regime, the sovereign rights of ter-



ritorial integrity and political independence were not se-
cured by any international protection or guarantee, and
she was therefore exposed to the ill-treatment and

spoliation of the stronger Powers. Thus, the old regime
was the rule of might, and not of right.

The new order, however, as inaugurated by the League
of Nations, furnishes what was kicking in the old regime.
no matter how inadequate and how impotent it may
prove to he. That is, it provides for an international
guarantee or protection of the sovereign rights of ter-
ritorial integrity and political independence. While for-
merly there was practically no court of appeal for the
vindication of national rights, now there is the League
which requires the submission of all disputes among
the members either to arbitration or to inquiry by the
Council or the Assembly of the League. While under
the old regime there was no international guarantee or
protection for national rights as growing out of sov-
ereignty, in the new order there are the sanctions pro-
I in the League Covenant consisting of diplomatic
severance, economic boycott, international force upon
the recommendation of the Council, and expulsion from
the League by a unanimous vote of the Council and As-
sembly. Whereas in absence of a league each nation
had no other alternative than either to fight or to sub-
mit, in case of an ultimatum or actual invasion, as shown
in the case of Japan's ultimatum of May 7, 1915, now
under the protection of the League a member SO threat-
ened ran appeal to the Council or Assembly, or submit
to arbitration, in which cases, if the recommendation
of the Council is unanimous, or if that Of the Assembly

is concurred in by the representatives of the Powers

on the Council and a majority of the other mem-

tuding in each ease the parties to the dispute, or

if the award of the arbitration is properly made, the

party so threatened ran abide by the award or recom-
mendation and thus win the protection of the League. 1


Thus, however inadequate, a remedy is provided for
the rights of nations, which was non-existent under the
old regime. This surely is a step forward in the po-
litical evolution of mankind.
With this provision of an international guarantee or

protection for national rights, China's foreign relations
undergo a change for hetter. Whereas formerly China
could not appeal to any tribunal or constituted authority
in case of the violation of her rights, but had either to
submit or fight, she can now call for arbitration, or ap-
peal to the Council or the Assembly for a recomm
tion ; and should she choose to abide by an award or
recommendation made in pursuance of the provisions
of the Covenant of the League, she would obtain its
protection in case of an attack. While under the old
regime her rights of territorial integrity and political
independence were insecure except as her own arma-
ment, or jealousy among the Powers, or their friendly
assistance could maintain them, her territorial info
and political independence are now assured by the
League, or at least supposed to be so assured. To put
it concretely, under the protection of the League, the
threatened partition of 1900 is not likely to come to pass
again, nor the German seizure of Kiaochow, nor the
Japanese ultimatum of May 7, 1915. Herein lies a great
advance in the foreign relations of China as arising out
of the existence of the League."

Having seen the improvement in China's foreign re-
lations as growing out of the existence of the I.'
and her membership therein, we will ue.\' r the

rights and duties she has acquired as a member of the
ue. At the meeting of the Assembly, she has the
right to cast one vote and to have no more than three
representatives (Article- 3). At the meeting of the
Council, by virtue of her recent election then
has the right to cast one vote and to send one represen-


tative (Article 4), although "any member of the League
not represented on the Council shall be invited to send a
representative to sit as a member at any meeting of the
Council during the consideration of matters specially
affecting the interests of that member of the League"
(Article 4). As a friendly right of each member of the
League, she can "bring to the attention of the Assembly
or of the Council any circumstance whatever affecting
international relations which threatens to disturb in-
ternational peace or the good understanding between na-
tions upon which peace depends" (Article NI).- U She
has also the right to withdraw from the League, after
two years' notice, "provided that all its international
obligations and all its obligations under this Covenant
shall have been fulfilled at the time of its withdrawal"
(Article I) ; and to refuse to be bound by any amend-
ment, in which case she ceases to be a member of the
League (Article 26).

What is more important, she can appeal to the Council
for inquiry and recommendation, in case of any dispute,
or submit to arbitration.

"The Members of the League agree that if there should

Online LibraryMingchien Joshua BauThe foreign relations of China: a history and a survey → online text (page 32 of 39)