Papers Relating to the Foreign Relations of the United States, Transmitted to Congress, with the Annual Message of the President, December 6, 1875, Volume I
No. 183.
Mr. Seward
to Mr. Cadwalader.
Shanghai, March 15, 1875. (Received May 7.)
Sir: You will have learned, perhaps, through the public press, that the Chinese government has recently made several loans from foreigners. In this connection I have the honor to transmit to you several editorial articles from the North China Daily News. You will observe that the rates of interest stipulated for are high. I regard this as indicating not so much want of confidence in the capacity of China to carry loans, or in her good faith, as her lack of skill in the negotiation of the inconsiderable loans mentioned.
The fact that the government has come forward to borrow money of foreigners may be held to indicate that the financial straits of China are great, and more or less that the old unreasoning dislike and jealousy of foreigners is less strong than heretofore.
I am, &c.,
Newspaper extracts on the Chinese loan.
1.
If the rumor is true that a new Chinese loan is to be placed on the London market, it will be interesting to see at what rate it can be floated as compared with the two loans contracted by Japan. The small portion offered in London of the loan made lately through the Hong-kong Bank hardly affords a criterion. Otherwise the public seem to have fixed the interest in that case at a little over 8 per cent. The difference between this rate and that of the more recent loan from the Oriental Bank, which is reported to be 10½, seems at a first glance to be startling; but it is, we believe, as regards the rate paid by the Chinese government, more apparent than real. The high rate of exchange which was charged by the Hong-kong and Shanghai Bank fully covers the difference between 8 and 10½ per cent, as a total charge on the loan. What we have now to do with, however, is the market value of the stock, and it is curious to note that the Chinese 8 per cent, stock is quoted here at exactly the same rate which the Japanese 7 per cent, stock commands in the London market. Unless, therefore, we assume that a higher value will be eventually put upon the Chinese stock in London than it commands here, we may take it that Japanese credit is 1 per cent, better [Page 409] than the Chinese in the money market. The comparison is hardly flattering to China, and it remains to be seen how her apparent inclination to increase her debt will affect; her future credit. She is actually paying now, at the outset of her career, very nearly as much (10½ per cent.) as Turkey, which is thought to be nearing the end of its financial tether. The public are apparently willing, as yet, to let her have money more cheaply. But the loans are thus far secured on the revenue of the foreign customs, and if the government goes on much longer at the present rate and in its present mood, all available receipts from this source will be soon completely pledged; and we may be sure that, this limit once reached, a much higher rate of interest would be at once required. It would not be a little strange if the result of the so-called patriotic agitation in China should be to turn all the direct income derived from duties on foreign trade back into the pockets of the foreigner himself.
At the time of the threatened difficulty with Japan, the Chinese professed to look down with contempt upon the-little state which was galling them. Rightly judging money to be the sinews of war, it seemed surprising that a country undeniably possessing considerable financial resources should not be able to make a better show in that transaction than did their own. We have recently shown what have been the true reasons of the collapse of China in both its military and financial aspects. In neither has she that confidence in herself without which a nation cannot be prosperous. Rudely disturbed in its dreams of universal pre-eminence, the Chinese government discovered that its troops, armed with the antiquated weapons of the Middle Ages, were no match against European levies. It saw the necessity of reform, but commenced the reform at the wrong end. It endeavored to imitate the external aspects, of those forces to which it had to succumb, but left out the fundamental principles of action by which such forces are regulated. So in finance. Finding that its revenues from trade, in place of displaying the elasticity which the return of the empire to a state of internal tranquillity would have naturally produced, were actually falling off, it took the course, not of alleviating the incidence of those taxes, but of endeavoring to increase their amount. Warnings have been given from all quarters of the effect of those measures. One province after another has protested against the manner in which it has been forced to increase the burdens upon the resources of the people. To all this there has been but the one stereotyped reply, desiring the provincial officers to see that their subordinates do not squeeze. As it is necessary, in order to meet the demands upon them, that the higher officials should exact as much as they possibly can from those below them, and those in return have recourse to their own inferiors for a similar purpose, it needs no special prescience to foretell the result. We do not mean to say that there are no well-meaning officials in China. The occasional able and straightforward memorials which appear in the Peking Gazette are sufficient proof to the contrary. The best of men, however, works with the millstone of an utterly corrupt system round his neck, and in some respects the higher the office the more corrupt does the system seem to become. In nothing does this position of affairs appear in more unenviable light than in the rescripts to the memorials which from time to time appear in the Peking Gazette. Possibly an utter want of power to grasp the true bearings of the subject submitted is at the bottom of the unmeaning verbiage with which important memorials are quietly shelved. If a memorial be of too important a nature to be thus quietly put to one side, the device, not unknown indeed in other quarters, is adopted of referring it to one or other of the boards. Thus it is that the memorial of Hu Ting-kwei, to which we referred some time ago, is delegated to the board of revenue. Hu, our readers are aware, requested that the revenue and expenditure of the various provinces should be stringently audited, and that a travelling commission to inquire into abuses be formed. We doubt if the board of revenue, or the government in its present state of comparative feebleness, could give effect to such a sweeping proposition. It could, however, do much. At all events, it could commence reforms near home, but there is no symptom of the purpose or the will to do even this.
2.
If getting in debt be a sign of progress, the Chinese government has made a small step in that direction. The new Chinese loan of two millions and a quarter taels, secured as it is on the foreign customs’ revenue, will doubtless meet with ready acceptance at the proposed rate of nearly 8½ per cent. Economically speaking, the proposed loan has much to recommend it; but it is characteristic of the false position which China holds among nations, and the bad name its government has earned for itself, that it has had to go into the market at a rate so much less favorable than has the government of Japan. The securities offered are, as we have stated, ample, provided care is taken that the revenues assigned are duly placed aside for the intended purpose. There is no reason to believe that the Chinese governnment is other than [Page 410] desirous to do its duty in this respect; in fact we believe that those who control the executive are quite sensible that in a matter of this sort thorough honesty is their best and only policy, and their good intentions are guaranteed by the statement that a certain portion of the customs’ revenue is assigned to the introducers of the loan, the Hong-kong and Shanghai Bank, in trust for the bondholders. So far we believe the loan to be satisfactory, but there is a question to be asked, the reply to which is not of so clear a nature. We are not told the object of the loan, nor what are the circumstances which have impelled China to go into the market and become a debtor to Europe. Were the money raised to be devoted to some useful project, as in Japan, we have little doubt that China bonds would rapidly become a favorite in the market It has been our unpleasant duty lately to comment on the extremely unsatisfactory state of Chinese finance, and the issue of this loan lends considerable proof to the arguments that we have advanced, that China in this respect has fallen into a position whence she sees little hope of extricating herself. Yet this condition of affairs has occurred in a time of profound peace, when the empire is settled—so far as China can for years hope to be settled within the eighteen provinces—and when the only external foe to be guarded against is the Ameer of Kashgar. It is true, that the threatened rupture with Japan cost a good deal of money; but it augurs ill for the finances of a power like China that the few weeks of preparation really undertaken should, have so utterly exhausted its resources as to need an application to foreigners for capital. Had the finances of China been in a moderately sound condition, they should without difficulty have borne this strain; but so involved had they become that it rendered necessary the present appeal to right them again. These circumstances are not hopeful for the future of the empire, as the government is at present administered; and now that China is about to take the first leap, and become a debtor to the would at large, it will behoove her to see that her revenues are administered in a less extravagant manner than at present. That the empire is capable of occupying a high financial position, no one who has studied the economy of the country, its resources both mineral and agricultural, and the character of the people, can doubt. But all those things are rendered nugatory by a government feeble and yet grasping, and which, by unluckily always adopting the very worst means to an end, has succeeded in involving itself in its present complication. The break-down of Chinese finance when exposed to the light strain put upon it by the threatened rupture with Japan, cannot, however, but have left its impress on the minds of those who direct the government.
If the mere rumor of a war with a small power like Japan so seriously interfered with the car of state, the consequences of any serious difficulty with one of the great powers would be overwhelming. When China was ignorant of the ways of the rest of the world, as at the outbreak of the first war, it seemed but a slight thing to offend a power like England. Men there were in abundance, and the rude munitions of war within the experience of Chinese mandarins were readily obtainable without any very great expenditure of money or discomfort to the country. Experience has twice shown China that things have changed, and that even such measures as might have been effective in 1840, in 1875 would be of no avail. Even within that brief space the expense of war has probably quadrupled, and what China was unable to do then, with a comparatively uncrippled exchequer, is now altogether beyond her utmost endeavors. As we have pointed out, the very measures recently adopted to increase the revenue of the empire are in reality sapping its existence; but we fear that, although known to many Chinese officials, these unpleasant facts have not yet presented themselves in their nakedness to the de facto government of China. The present loan may afford a breathing space to enable some relief to be introduced, but we fear that this will hardly be its result. To amend its ways, unless under the extremest pressure, would be contrary to all the traditions of China’s policy. The slight relief afforded will, we anticipate, not be turned to the most useful, or to any useful purpose. The terms of the loan are, as we have stated, fair, but one point attracts comment. Issued at £95 per £100 bond, the repayment of the principal by lot will effectually prevent the scrip ever rising above par. The future quotations of the loan will thus never be a fair criterion as to public opinion with regard to Chinese financial resources. Perhaps, on the whole, this will be an advantage; though it might, on the other hand, be useful if the Chinese government had some external means of ascertaining the effect on its own credit of amelioration in its exchequer.
3.
A humorous picture was drawn in an English paper, at the time of the first Turkish loan, of the delight and astonishment of the Mussulman at finding such a mine of wealth in the easy confidence of the Giaour. It was only in 1854, at the time of the Crimean war, that the first Turkish loan was contracted—under, we believe, the joint guarantee [Page 411] of England and France—and the subsequent course of Turkish finance has fully justified the satire we have quoted. In 1858, 1862, 1863, twice in 1865, in 1869, 1871, and 1873, the Turkish government has appeared again and again as a borrower in the European market. What can be simpler? They have only to ask and the money comes. True they have now to pay the high rate (for Europe) of 11½ per cent.; but they can borrow afresh if they go in arrear. Ministers do not hold office long in Constantinople. Each one says, Aprés moi le déluge, and gives the ball another roll. There must be a limit; it will reach a size one day, when all the strength of the finance department will fail to give it another turn, and it will be very apt then to roll back and crush those who make the effort; but in the mean time it moves with comparative ease. We should be sorry to think China will, twenty years hence, have landed herself in the same financial slough; and we have recalled the experience of Turkey chiefly because we imagine the feeling at Constantinople in 1854 is paralleled twenty years later at Peking. What a relief must it be to a government embarrassed by the legacies of foreign and civil wars, its revenue checked by oppressive taxation, and its resources drained by unprofitable expeditions, to find an outlet from embarrassment in the wealth and generosity of the barbarian. Was it embarrassed by the result of the Formosa muddle? A loan of a million sterling at once smoothed the difficulty. Do the troops in the northwest ask for pay and provisions as an inducement to march on Turkestan? A loan of three million taels will send them on their way rejoicing. And if it should occur to Li Hung-chang that another three millions would be usefully spent in armor-plating the Taku forts, no doubt the money could be at once obtained. The sums are small, in comparison with European loans, but they must be a great relief to embarrassed financiers; and their very smallness suggests how real must be that embarrassment.
China is not like other countries, where a man’s money is recognized as his own, and he can only be made to contribute to the wants of the state by taxes imposed with popular sanction, or by loan offered in the open market. The paternal government of China claims a profound interest in the property of its subjects. The only limit to taxation is the rebellion of the taxed, or the attainment of a point at which taxation chokes the sources of revenue. And do not memorials in the Peking Gazette indicate that each limit has been attained in several provinces of the empire? And does not the resort for money to extraneous sources seem to confirm the tale? Besides, what could be more simple? Foreigners supply both principal and interest. Foreigners lend the money, and taxation on foreign goods supplies the necessary interest. We can imagine this is exactly the specious way in which the transaction commends itself to the mental vision of Chinese statesmen. That taxation on trade impedes trade, and thereby hinders the prosperity of their people, is a fact of which they are ignorant or careless. And, really, a loan of two millions sterling would be a very trifle to such a country as China, if it were not for the indications we have noticed, of grave financial embarrassment. The resources of the empire are enormous, if only they were allowed to be developed. Its mineral wealth and commercial capabilities are practically unlimited, if only it were intelligently governed. That such a country should be reduced to borrowing so paltry a sum is the strongest possible commentary on the incapacity of a government which we persist in treating as an equal. Properly governed, China could support a great debt with ease, and it would be an intelligent act on the part of her rulers to borrow largely for the purpose of developing her resources. Any movement in this direction would facilitate her operations by the greater financial promise it would open up, and by the greater confidence it would give in a government that showed an intelligent appreciation of its duties. But loans contracted to replace money squandered on arsenals, and to supply funds for profitless expeditions, only go to increase embarrassments. Already there is a rumour of a third loan, to be brought out on the London market, and we should not be surprised at any moment to hear the report confirmed. One good effect may possibly ensue. Attention will be drawn to China. People will want to know what she is doing with this money; and may urge their rulers to demand some guarantee in the shape of progress for the money which she asks them to lend. If the result of these loans should be to impart some vigour to our relations with Peking, the gain would be great to both foreigners and Chinese.