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exported to China, and the accordance of a reduced rate
on silk to a third State entitled to the most-favoured-nation
treatment would not necessitate a grant of the same privileges

^ Immigration is not covered by the most-favoured-nation clause.



Tariff and Tariff Administration 203

as those obtained by France, because it may be unable to
supply silk of the same weight, length, and fineness as the
French.

It is true that a country which is passing from the purely
agricultural state to the industrial, requires some protection
for its infant industries against foreign competition, but in
China the transition has hardly begun and there are, as
yet, very few industries to protect. Moreover, as the
foreign capital required for the development of the country
will always be imported in the form of goods, a protection
against 'them will be inconsistent with the policy of absorbing
foreign investments. In fact, at a time when the annual
volume of foreign trade per head is only 6s., China requires
the creation of a demand rather than a restriction of supply.
The people should be encouraged to consume foreign goods
in order to raise their standard of living, and the only thing
in China (agriculture) that offers employment to the over-
whelming majority of her people, and that needs protection
in order to keep them employed, has already been sufficiently
protected by virgin soil and cheap labour, and requires no
protective tariff.

For many years to come, the main object of the Chinese
tariff should be directed towards the production of a
maximum revenue at a minimum cost to the consumer.
The main benefit she can hope to derive from the power of
fixing her own tariff is that she will have something to
bargain with, either in the way of making a return to other
States for their favourable treatment of Chinese imports
or as a retaliation on their discrimination against them.
She should, on her own initiative, abolish li-kin and all
such dues irrespective of what she might get from other
Powers in return. The only defence for their maintenance.



204 Tariff and Tariff Administration

apart from the weakness of the Government already alluded
to, is that during the past few years they have brought in
revenue almost as large as can be expected from the im-
position of a surtax as contemplated in the treaty of 1902 ;
but with the suppression of the opium trade, from which
the bulk of the li-kin and other revenues were derived,
they will produce very little, and their repeal should not
cause the Government to suffer any loss.

To complete our study of the Chinese tariff, it will be
necessary to understand its administration. Before 1842,
it was her Viceroys and Intendants of Circuits who were
responsible for the collection of customs duties, but the
practice of corruption and illegal exaction gave rise to
numerous complaints from foreign merchants. After the
treaty of Nanking, it was arranged that foreign Consuls
should collect these duties for the Chinese Government,
but the increase in the volume of trade and the specialized
skill required of customs administrators made it difficult
for them to do this extra work with efficiency. A board
composed of the Intendant of the Circuit and three foreign
representatives was then constituted in Shanghai to collect
taxes and to supervise shipping, but it died a premature
death because it was impossible to work. In 1854, an
Inspector-General of British nationality was appointed by
the Chinese Government, and the assumption of this
office by Sir Robert (then Mr.) Hart in 1863 marked the
beginning of the Customs Service as it exists at the present
time. The understanding with Great Britain of 1889,
reaffirmed in 1906, has made it obligatory on China to
employ a Briton at the head of the Service, so long as her
trade exceeds in aggregate that of any other treaty State.

The Inspector-General is entrusted with the direction



Tarijf and Tariff Administration 205

and supervision of the Custom Houses in all the treaty
ports ; with the appointment and promotion of personnel
in the service ; and with the establishment and maintenance
of lights and harbours on the coasts. He was formerly
under the Ministry of Foreign Affairs, but since 1906, when
the Department for ' Customs Affairs ' was created in
Peking, he has served under the new institution. The
Chief Commissioner of the Custom House in a treaty port,
usually a foreigner, carries on much the same functions as
the Inspector-General, though by the nature of things he
attends to administration in much greater detail. He
examines the papers of all the ships entering the port,
collects duties both on imports and exports, issues transit
passes, examines packages, and prevents fraud. In case of
a dispute with a shipowner or consignee, he has to deal
with his Consul and, if necessary, appears in the Consular
Court. He also collects coastal-trade duties and li-kin
and other inland dues within the 15-mile limit from the
port. The total number of Custom Houses in China,
including those in leased territories, is forty-seven, and it
will be increased when more ports in Manchuria and
Mongolia are opened to foreign trade in accordance with
the provisions of the treaty of 191 5 with Japan. The staff
of the whole service now numbers 7,500, of whom 2,000 are
foreigners and the rest Chinese.

The foreign members of the staff have served China
loyally, and have never shown any prejudice in favour of
their own countries. They have maintained the standard
of efficiency and vigilance set up by Sir Robert Hart, and
have won the admiration of foreigners and the Chinese
alike. The way in which they are "recruited is thoroughly
international, and all posts, except the Inspector-General-



20 6 Tariff and Tariff Administration

ship, are open to candidates from all treaty States, ranging
in commercial importance from Great Britain to Peru.
So long as the loans and indemnities mortgaged on customs
receipts are not redeemed by China, it will be difficult to
get the foreign Powers, who are distrustful of the Chinese
on monetary matters, to consent to a restoration of the
Customs Administration to the Chinese themselves. In
fact, during the past seven years, when the country has been
faced with constant political upheaval, the Customs revenue
has not been even remitted to the Chinese Government,^
but deposited by the Inspector-General in the foreign
Banks in Tientsin, Shanghai, and Canton in order to meet
the annual loan charges. There have been attempts to
make use of the foreign staff of the Customs for the manage-
ment of securities offered by China for railway loans in the
event of a default of payment of principal and interest,
as is stipulated in the Tientsin-Pukow Railway agreement.
Under these circumstances, it will not be possible to
cease employing foreigners for the Customs Administration
when the Tariff is revised ; but it is a matter of urgent
importance that the Chinese should be trained for the
Service. The Inspector-General should be less neglectful
in this direction than he has been in the past, and Customs
schools on the model of that in Peking, established in 1906,
should be opened in all treaty ports so as to encourage and
attract promising young Chinese, It should be made
a condition binding on the Inspector-General that a certain
number of graduates from these schools should be enrolled
in the service every year. They should first be employed
in inferior positions and, when qualified, in responsible
posts, and their promotion should be entirely based on
^ Only the surplus is remitted to Peking,



Tariff and Tariff Administration 207

merit. So long as the Inspector-General is a foreigner,
there is no need of apprehension on the part of foreign
creditors that the introduction of the Chinese would lower
the standard of administrative efficiency and thus diminish
the receipts, and it would in time furnish China with a
thoroughly trained native staflf capable of taking over the
Administration, when customs receipts are no longer mort-
gaged for foreign loans.



8
Economic Concessions and Foreign Investments

In this chapter it is proposed to deal, first, with con-
cessions granted to foreign Governments ; secondly, with
Chinese public loans issued through foreign banks ; and
thirdly, with foreign capital invested in industrial enter-
prises in China.

(i) Under the first category comes the Russian Concession
of the Chinese Eastern Railway, which runs from Chita
through the Chinese province of Manchuria to Vladi-
vostock and connects the terminus of the Trans-Siberian
Railway with the Russian Pacific port. Its length in Chinese
territory is about 980 miles, and its total cost of construction
350,000,000 roubles. In the contract between the Chinese
Government and the Russian Railway Syndicate, it is
provided that subjects of both States may equally take
shares in the capital aiithorized at 5,000,000 roubles, but
the provision has offered no attractions to the Chinese.
They resent a concession which gives the control of their
strategical points to an Alien Government ; and far from
being willing to give it financial help, they tried their best
to prevent the railway scheme from coming into operation.
Moreover, they have little capital to invest.

The management of the railway is entrusted to a Com-
mittee elected by shareholders, and its Chairman must be
Chinese. But events have proved that, to all intents and
purposes, the Chairman is only a figure-head elected to



Economic Concessions 209

' save the face ' of the Chinese Government. The full
power of control rests with the Russian Minister of Finance,
who guarantees the railway revenue for working expenses
and amortization of bonds, which can only be issued with
Ills consent. Moreover, he has the power to accept or
reject nominations made by the Committee of Engineers
and other officials.

The South Manchurian Railway now owned and con-
trolled by Japan was originally the southern extension of the
Chinese Eastern Railway. It has been transferred to her
since the conclusion of the Russo-Japanese War, and the
conditions formerly binding on the Russian Government
are now, presumably, binding on the Japanese. But the
South Manchurian Railway Syndicate, the capital of which
is almost entirely supplied by the Japanese Government, ^
has now acquired the additional concession of the Antung-
Mukden line and has built several branch lines, making
a length, with the main line included, of 680 miles. The
Syndicate is also authorized by the Chinese Government
to exploit mines in Fushan, in Yentai, and in Hsin Chiu
coalfields. It maintains a steamer service between Shanghai
and Dalny, manages the Dalny Harbour, and supplies gas
and electricity to several towns in Manchuria.

Under the contract between Russia and China, the latter
has the right to redeem the lines thirty-six years from the
date of their opening to traffic. This remains true, so far
as the portion retained by Russia is concerned. For the
portion transferred to Japan, the term of redemption has
been extended from thirty-six to ninety-nine years and the

^ The authorized capital of the South Manchurian Syndicate is
150,000,000 yen and the subscribed 120,000,000, of which the Japanese
Government take 100,000,000 yen.

1832.13 p



210 Economic Concessions and

earliest possible date of redemption has been fixed at
2002. ' The term of the Antung-Mukden line shall expire
in 2007.'

In connexion with her lease of the Kiaochow Bay,
Germany is granted the right to construct a railway from
Tsintao to Tsinanfu. Its total length now opened to
traffic is 284. miles and its cost of construction 58,032,000
marks. In its agreement with the Chinese Government,
the railway syndicate stipulates that the Government or
people of China may subscribe to the capital and appoint
directors, but, as in the case of the Chinese Eastern Railway,
the shortage of capital and the suspicion of foreigners have
prevented the Chinese from investing money in the enter-
prise. After the lapse of twenty years from the time of
signing the agreement, China may purchase the line by
paying four-fifths of the original cost of the machinery,
rails, and other equipments, but in case she desires to borrow
foreign capital for the development of the province of
Shantung, German capitalists will have the preference.

In association with the railway concession, Germany has
the right to exploit mines within thirty li, or ten miles,
limit from the line, and has operated those in Poshan and
Weihsien districts, which in 1913 produced 687,000 tons of
bituminous coal. The additional right to prospect for mines
in seven areas not included in the railway zone was acquired
by the Syndicate, but so far no great success has crowned
its efforts.

In the Province of Yiinnan,^ France has extended her
railway system from Indo-China. A syndicate with a
capital of 12,500,000 francs, together with a subvention of
12,500,000 francs from the Government of Indo-China,
was entrusted with the construction of the line from



Foreign Investments 211



''b



Haiphon to Laokay on French territory, and from Laokay
to Yunnanfu on Chinese territory. The total cost of con-
struction is 165,000,000 francs and the mileage is SZZ'77o
of which 288*94 i^il^s are on Chinese soil. Under the
agreement signed with France in 1903, China has the right
on the expiry of twenty years from that date, to ' get back
the land granted and to repurchase the line from the French
Government after the payment of all expenses put into the
railway, including stocks, interest and principal of bonds,
and all properties in connexion with the line ',

All the concessions so far dealt with are immune from
any interference by the Chinese Government, before the
time of their redemption ; and they were granted under
the pressure of the powers interested, who demanded them
not with the motive of developing the country, but with
that of establishing their influence in certain parts of it, so
that they might delimit their respective spheres of interest
and convert them into their protracted territory, in the
event of a disruption of the Chinese Empire.

(2) The more important asset of foreign capital in China
is that invested in public loans issued by the Chinese Govern-
ment. We need not be detained here with her loans issued
before the war with Japan, as they have now all been
redeemed ; nor with her war loans issued in 1894-5, to
the aggregate of ^6,635,000, as they were also promptly
redeemed within twenty years. The loans issued after the
war to pay her indemnity to Japan and other demobilization
expenses are represented by a Franco-Russian Government
loan of ^15,820,000 and two Anglo-German Government
loans of j^i, 000,000 each. They are all secured on the
Maritime Customs Revenue with the additional guarantee
of the Russian Government in the case of the Franco-

p 2



212



Economic Concessions and



Russian loan, and of charges on three salt taxes and four
li-kin revenues in the case of the second Anglo-German
loan. The amounts of principal outstanding on December
31, 1915, are respectively ^9,745,446, ^10,901,475, and
j^i 3,148,950. It is interesting to note that Customs Receipts
were offered as security, not only because of the handsome
sum of money they yielded to the Chinese Government,
but also because of the fact that the Customs administration
was in the hands of foreigners whom the lending Powers
could trust to remit their receipts regularly and without any
default to the Government to enable them to pay their debt.
The Boxer indemnity amounting to ^67,500,000 to be
paid by China to different Powers was converted into a loan



Date. Title, Source, &c.

1898 British and Chinese Cor-
poration for Imperial
" Railways of North
China

1898 Franco-Belgian Loan for
Peking-Hankow Rail-
way

1902 Russo-Asiatic Bank Loan

for Shansi Railway
(Floated in France)

1903 Franco-Belgian for Kai-

feugfu-Honan Railway
1907 Franco-Belgian Supple-
mentary Loan (Kai-
feugfu-Honan Railway)

1904 British and Chinese Cor-

poration Loan for
Shanghai-Nanking
Railway
1907 British and Chinese Cor-
poration Loan for
Shanghai-Nanking
Railway



Principal

Amomil.

i

2,300,000



Interest.



Price

of
Issue.

97



Amount

received

by Chinese

Govern^nent.

90



4,500,000


5




90


1,600,000


5





90


1,000,000


5





90


640,000


5





90


2,250,000


5


97I


90



650,000



95^



Foreign Investments



21-



redeemable by annual instalments in thirty-nine years. With
its interest accumulated, the principal outstanding in 1914
was ^^63, 847,268, Itis secured on the balance of the Maritime
Customs Revenue not already mortgaged for previous loans,
and in fact, to enable the Chinese Government to pay their
indemnity, the Powers consented to revise the Chinese tariff
in 1902, bringing it to an effective 5 per cent, ad valoreiii
by re-valuing the commodities according to their current
market prices.

Other loans issued by China on foreign markets are mostly
for the construction of railways. For the sake of simplicity
and contrast the following table is appended.



Principal Principal

Term of paid off to outstanding on

Redemption. Z)fc. 31, 1915. Z)ec. 31, 1915. Security.

Tears. Date. £ £

45 1944 632,500 1,667,500 Government Guarantee and

Revenue of Railway, Rail-
way to be handed over in
case of default.
Redeemed In 1909.



152,500 1,447,500 Government Guarantee and

Revenue of Railway.



82,000 1,550,000 Government Guarantee and

Revenue of Railway.



30


1928


30


1932


30


1934


25


1932



50



47



1953 ^

To be re-
/■deemedin
^953 I full in 1953



2,900,000 Profits of and mortgage upon
the Railway.



214



Economic Concessions and



Date.
1905

1905
1907



1909



1908



1908



1909



1910



1910



Title, Source, &c.

Pckin Syndicate Loan for
Taskow-Chinghuas
Railway

Hong Kong Government
Loan for redemption of
Canton-Hankow Rail-
way Contract

British and Chinese Cor-
poration Loan for Can-
ton-Kowloon Railway

Anglo-German (Imperial
Chinese Government,
5 per cent. Tientsin-
Pukow Railway Loan

Anglo-German (Imperial
Chinese Government,
5 per cent. Tientsin-
Pukow Railway Loan

British and Chinese Cor-
poration Loan for
Shanghai -Hangchow-
Ningpo Railway

Anglo-French Loan for
Redemption of Peking-
Hankow Railway

Japanese Loan for Kirtin-
Changchun Railway

Japanese Loan for Hsin-
kimtun-Mukden Rail-



Anglo-German (Tientsin-
Pukow Railway Sup-
plementary Loan)

London City and Midland
Bank (Yuchuaupa

Bonds for Peking-
Hankow Railway Ex-
penses)



Principal

Amount. Interest,
i %

700,000 5

1,100,000 4i



yen



450,000



Amount
Price received

of by Chinese
Issue. Government.

— 90



1,500,000


5


100


94


3,000,000


5


98I


93


2,000,000


5


100


93


1,500,000


5


99


93



5,000,000


5 9!


b 94


2,150,000
@ 10 =


5


93


£215,000
320,000
@ 10:=
£32,000

3,ooOj00o


5
5


93



108



Foreign Investments 215



Principal Principal

Term of paid off to outstanding on

Redemption. Dec. 21, 19^ S' ^^'^^ 3I) ig'S- Security,

Tears. Date. £ £

30 1935 First Instalment 700,000 Government Guarantee and

due, 1916 Revenue of Railway.

10 191 5 Redeemed.



30 1937 First Instalment 1,500,000 Profits of and mortgage upon

due, 1920 the Railway.



30 1938

29 1938



First Instalment 5,000,000 First charge upon li-kin and
► due, 1919 internal revenues of Chili,

Shantung, and Kiangsu.



30 1938 First Instalment 1,500,000 Surplus earnings of Peking-

due, 1 9 19 Mukden Railway.



yen

30 1938 First Instalment '5,000,000 Surplus taxes of Chekiang,

due, 1919 Kiangsu, Hupeh, and Chili.

25 1934 First Instalme- c 215,000 Revenue of the Railway,
due, 1914

18 1927 £5,399 i6s. £26,60744-. Revenue of the Railway.



£

30 1943 First Instalment 3,000,000 First charge upon li-kin and

due, 1921 certain internal taxes of

Chili, Shantungs Kiangsu,
and Akkwei.
10 1920 First Instalment 450,000 Government Guarantee,

due, 1916



2l6



Economic Concessions and



Dale. Title, Source, &c.

1910 Peking-Hankow Redemp-

tion Loan (Yokohama
Specie Bank)

191 1 Yuchuanpu Loan (Yoko-

hama Specie Bank) for
Peking-Hankow Rail-
way Expenses

191 1 Hukwang Railways Sink-

ing Fund Gold Loan
(Four-nations group)

1 91 2 Nanshang-Kinkiang

Railway Loan (East
Asia Industrial Co.)

1 912 Lung-Tsing-U-Hai Rail-

way Loan (Belgian
Syndicate)

1913 Sinyang-Pukow Railway

(British and Chinese
Corporation)

1 914 Taskow-Chinghua Rail-

way

1 900 Anglo-Danish Telegraph

Loan

1 90 1 Anglo-Danish Telegraph

Loan
191 1 Telegraph Loan (Eastern

Extension and Great

Northern Railway

Company)
191 1 Currency Reform and 10,000,000

Industrial Development

Loan (Four-nations

group)



1912 Loan from Messrs. B.

Crisp & Co.

1 913 5 % Reorganization Loan

(Five-nations group)

1 914 Chinese Government 5 *^q

Gold Loan (Banque
industrielle de Chine)

1915 ChineseRepublic5%Con-

version Loan (Banque
Italo-Belge, London)



Principal

Amount.
i


Interest.


/O


Price

of
Issue.


Amount

received

by Chinese

Government.


220,000


7





97i


1,000,000


5





95


6,000,000


5





95


500,000


6^





100


4,000,000


5








3,000,000


5





95


800,000


5








210,000


5








48,000


5








5,000,000


5









5,000,000

25,000,000

4,000,000

400,000



95

95
90



95



89



Foreign Investments 217



Principal Principal

Term oj paid off to outstanding on

Redemption. Dec. 31, 1915. 1)^^.31,1915. Security,

Tears. Date. £ £

10 1920 First Instalment 210,000 —

due, 1915

25 1936 First Instalment 1,000,000 Government Guarantee and

due, 1922 Tribute Grain Conversion

tax of Kiangsu.

1951 First Instalment 6,000,000 Hupeh and Hunan Salt and
due, 1 92 1 li-kin revenues and Hupeh

rice tax.
1927 First Instalment 500,000 —



40


1951


15


1927


40


1952


40


1953


20


1935


30


1930


29


1930


(3 6 half-yearly
instalments)



due, 1922



4,000,000 Government Guarantee and
mortgage on railway.



— 800,000 —

— — Shanghai-Taku Cable.

— — Chefoo-Taku Cable.
41,664 458,336 Certain Telegraph Receipts.



(not yet floated) An advance of £400,000 made Tobacco, Wine, production
on June i, 191 1 and consumption taxes of

the three Manchurian Pro-
vinces and new Salt Sun
tax 7th whole China.
40 1952 First Instalment 5,000,000 Surplus revenue of Salt

due, 1923 Gabelle.

47 i960 First Instalment 25,000,000 Salt duties.

due, 1930
50 1964 First Instalment 4,000,000

due, 1930

4R 1968 — 300,000 Land tax and Customs duties.



2i8 Economic Concessions and

A few remarks on these loans are necessar}'.

In the first place, it should be made clear that, unlike
those in other countries, foreign loans in China are not
purely commercial transactions. They are negotiated by
banks or other financial institutions with the consent and
support of their Governments, and subject to their control.
Political expediency influences and dominates considerations
for remuneration, and often compels bankers or financiers
to accept or reject terms in accordance not with market
conditions, but with political instructions issued by their
Governments. It follows that with every change in govern-
mental policy, there is a change in the terms of loan contracts.

Speaking generally, there -are two distinct periods in the
history of Chinese public loans, each (period) characterized
by a policy not of the Chinese Government, but of foreign
Powers. The period before 1908 was marked by inter-
national competition, and since then it has been marked by
co-operation. To illustrate this distinction, let us take a few
instances of railway loans.

In 1898, Russia, acting through the agency of a Belgian
Syndicate, acquired the right to finance the Peking-Hankow
Railway. She also offered, through French and Belgian
Banks, to finance the railways of Shansi with the object of
exploiting the coal-mines in that province. These two moves
caused anxiety to Great Britain, who was afraid of a Russian
encroachment on her rights and interests. In consequence,
she demanded from the Chinese Government that the
Shanhaikwan-Hsinmintun line (now a section of the Peking-
Mukden Railway) should be built with British capital and


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