Papers Relating to the Foreign Relations of the United States, Transmitted to Congress, With the Annual Message of the President, December 4, 1883

No. 67.
Mr. Young to Mr. Frelinghuysen.

[Extract.]

Legation of the United States,
Peking, October 18, 1882. (Received December 1.)

No. 43.]

Sir: On the 21st September I received from Mr. Cheshire, acting consul-general at Shanghai, a dispatch which I inclose. Mr. Cheshire recites the fact that Mr. W. S. Wetmore, an American citizen, resident at Shanghai, and doing business there, had organized a company for the manufacture of cotton yarn. In doing this Mr. Wetmore and his associates acted under the laws and in the enjoyment of a right which they believed to be secured to them by treaty. Shares were issued. Deposits were paid by shareholders to the amount of 100,000 taels, and the company was about to embark in active business. Thereupon a notice appeared in a Chinese newspaper to the effect that Mr. Wetmore’s proposed company was illegal in this, that it was in contravention of a monopoly for the manufacture of cotton cloth, which had been granted for ten years to a Chinese company by the Chinese northern superintendent of trade.

Chinese investors were forbidden to take shares in Mr. Wetmore’s company, “as it never would be permitted to go into operation.” As many of the shareholders were Chinese, and as this announcement inspired a sentiment of distrust, Mr. Wetmore’s enterprise came to a stand-still, and entailed upon him pecuniary loss. Mr. Wetmore asked the intervention of the acting consul-general. That officer reports to the legation that he called upon the taotai and presented the case. He pointed out to the taotai that many branches of manufacture had been established by foreigners in Shanghai, and that Mr. Wetmore had, in addition to his legal rights, only followed many precedents in forming his company.

The taotai informed Mr. Cheshire that he was acting in obedience to the minister superintendent of northern trade, and that his orders made it incumbent upon him to issue a mandate forbidding Chinese to invest in the shares of Mr. Wetmore’s company.

The taotai gave Mr. Cheshire a copy of the decree, a translation of which I inclose, and which presents the Chinese case. It is written by Chang, at present minister superintendent of trade, as well as viceroy of Chihli, who succeeded Li Hung Chang, when that statesman went into mourning. In this decree the minister superintendent states that Li Hung Chang, his predecessor, had, in view of the difficulties attendant upon any new business enterprise, and as encouragement to manufacturers, granted to a Chinese company the exclusive right to manufacture cotton cloth in Shanghai for ten years, and that he had done sounder “the patent, law existing in western countries.” This concession was submitted to the throne, and had received the sanction of the Emperor. The minister superintendent refers to the embarrassments accompanying the efforts of his company to manufacture cotton cloth, partly from the character of the native cotton, partly from the want of experienced artisans and proper machinery. An American named Danforth, “a diligent and careful man,” had therefore been employed to look into these difficulties, and the result of his efforts is that Mr. Danforth believes he can, by an improved loom and other processes, make good cloth out of native cotton. Orders had accordingly been given to carry on the enterprise, when “all of a sudden” his excellency learns that another “factory” is announced in competition.

His excellency does not overlook the fact that while his monopoly covers the manufacture of cloth the company of Mr. Wetmore simply contemplates the manufacture of cotton yarn, branches of industry as far apart as making shoes and tanning leather. But he meets this difficulty by the ungracious intimation that Mr. Wetmore and his associates have “clearly avoided styling theirs a cloth factory with the intent to covertly subvert Chinese interests. His excellency feels that if the new company is not suppressed his labor and trouble will be wholly spent in vain. Its success would prove greatly detrimental to commercial interests in China.” The taotai is therefore ordered to take necessary steps to suppress the new company and protect the monopoly.

The case of Mr. Wetmore is presented fully and clearly in letters from that gentleman which I inclose. Mr. Wetmore is the head of one of the largest mercantile houses in China, and a merchant of high standing. Before starting his company he called upon Mr. Denny, the consul-general, and was informed by that gentleman that there was no reason why it should not be organized, and mills erected in Shanghai for the manufacture of cotton yarn. Mr. Wetmore recites at length the obstacles thrown in his way by the Chinese, to which I allude above in referring to the dispatch of Mr. Cheshire. He avers that the effect of the taotai’s action has been to bring the enterprise “to a deadlock,” and unless he can have assurance of protection he is afraid he “will be compelled to abandon the project altogether.” Such an ending he fears would result in “serious consequences.” He had been acting in good faith as a business man seeking an holiest business purpose. He had the assurance of protection from his consul-general. Under this assurance two-thirds of the shares had been allotted, and machinery telegraphed for. There had been estimates for building and negotiations for land. Mr. Wetmore points out that foreign manufactures of acids, brick, leather, flour, iron-ware, matches, glass, and paper have been permitted in Shanghai. He naturally sees no reason why cotton yarn should be prohibited.

A further dispatch from Mr. Cheshire, dated September 23, recites certain facts and rumors in, reference to the Chinese company monopolized by the Government. * * *

Although these rumors have no bearing upon the point at issue as to Mr. Wetmore’s rights under the treaties, they have some interest as a part of the history of the case.

I have given the subject careful attention, anxious to secure Mr. Wetmore isrights, and anxious also not to do anything that might appear like an attempt to interfere with the internal affairs of China, and especially with any sincere effort on the part of Chinese officials to create new branches of industry, an effort which I would support with entire respect and sympathy.

With this view I read with care the order of the minister superintendent of northern trade, considering every argument advanced by him with interest and in a friendly spirit. But the case appears to admit of no cavil. The right of Mr. Wetmore is assured by treaty. There is no special provision in any convention between the United States and China, but the French treaty contains an express stipulation which Mr. Wetmore enjoys under the “favored nation” clause. In the convention signed at Tien-Tsin, June 27, 1858, and ratified in Peking, October 25, 1860, between France and China, there is this provision:

French subjects and their families may establish themselves and trade, or pursue their avocations in all security, and without hindrance of any kind, in the ports and cities enumerated in the preceding article.

In the treaty signed at Peking, November 2, 1865, and ratified at Shanghai October 27, 1866, between China and Belgium, occurs identically the same provision.

Feeling, therefore, that Mr. Wetmore had been denied his undoubted rights as an American citizen, and that the arguments of the minister superintendent were untenable, I addressed a dispatch to Prince Kung, which I inclose, calling the early and serious attention of his imperial highness to the subject. I pointed out the exact position of American citizens in China under our treaty, as well as their conceded rights under international law. I held that the “monopoly” granted by the superintendent of northern trade was void, as contrary to law. I reminded him that in the United States Chinese subjects had engaged in many kinds of manufacturing and mercantile pursuits, from which they had gained large profits, and that Mr. Wetmore was only asking a privilege and right which had been given in America to a multitude of the prince’s countrymen. I might also have shown the detriment to the best interests of China of the adoption of any system of exclusion or monopoly such as was proposed in Shanghai; that instead of benefiting manufactures, it would stifle them, and that it was a violation of the modern laws of practical economy.

As the question will lead to further discussion, however, it seemed best to reserve these considerations and rest our case upon our undoubted treaty rights.

As illustrating the possible feeling of his imperial highness upon the question thus presented to him, I would call your attention to the dispatch of my predecessor, Mr. Holcombe, No. 92, dated April 29, 1882. (See Foreign Relations, 1882.) In this dispatch Mr. Holcombe sends to the Department copies of correspondence between Mr. von Brandt, the German minister, as representing the diplomatic body, and the foreign office upon a case somewhat akin to that of Mr. Wetmore. The result of this correspondence as summarized by Mr. Holcombe was that the Chinese cabinet contended, first, that foreigners had no right to engage in manufacturing operations in China; and, second, that if they did so goods so manufactured must invariably be exported, and could not be sold. “In the opinion of the entire diplomatic body,” Mr. Holcombe continues, “there is no treaty stipulation which can furnish a just basis for either of these assumptions.” The apprehension was also expressed that there “was no present prospect of reaching a satisfactory arrangement.”

I attach much importance to this case, because it will revive in a practical shape, and as directly affecting American rights, the serious problem referred to by Mr. Holcombe, and which has been in abeyance since the date of his dispatch.

* * * * * * *

If there should be any difficulty in convincing the cabinet of the error which has been committed by the minister superintendent in dealing with Mr. Wetmore, my belief and hope are that the ministers of the treaty powers will Unite with me in a general statement of our case, and insist that the real point at issue is not one merely affecting a commercial enterprise in Shanghai, but one that rests at the foundation of all commercial and business relations between Chinese subjects and the citizens of the western nations whose capital, enterprise, industry and genius have done so much to give to China the benefits of an advanced and enlightened civilization.

I have, &c.,

JNO. RUSSELL YOUNG.

[Inclosure 1 in No. 43.]

Mr. Cheshire to Mr. Young.

Shanghai, September 12, 1882.

Sir: I have the honor to bring to the notice of jour excellency a question of some importance, and one which I think can only be satisfactorily determined at Peking. The question to which I allude is the formation by foreigners of public companies for the manufacture of articles from native products.

Mr. W. S. Wetmore, an American, and head of the firm of Frazar & Co., and Mr. T. V. Grant, some time ago started a company for the manufacture of cotton yarn; shares were allotted and deposits made to the extent of about 100,000 taels. Everything appeared to be going well, when there appeared a notice in the Shen Pao to the effect that as the Shanghai Cotton Mill Company had obtained a monopoly for the period of ten years from the northern superintendent of foreign trade, the Shanghai intendant had been instructed to investigate and prohibit the formation of a cotton yarn company, which it was alleged had been started by Chinese under the name of some foreigner, &c.

This notice seemed to have caused the circulation of many rumors among the Chinese, some of whom were shareholders in the company started by Mr. Wetmore.

Mr. Wetmore, therefore, addressed a communication to me (see letter dated September 8, inclosed herein), requesting my official assistance, with a view to ascertaining whether any special monopoly had been granted to a native company, which had been started for the sole manufacture of cotton goods, while his was for the manufacture of cotton yarn; and, if so, by whom issued, &c. I called on the taotai, with whom I discussed the matter, and learned from him that a grant or permission had been issued by the northern superintendent of trade to the Shanghai Cotton Mill Company, which is in course of formation.

I informed the taotai that I did not think that the company Mr. Wetmore had started could in any way interfere with the Cotton Mill Company, for the reason that one Was for the manufacture of cloth and the other yarn; and as the yarn company had been started by an American and another foreigner, and as there were no regulations that I was aware of in force prohibiting the establishment of such a company by foreigners, I failed to see how an instruction like the one referred to could affect it, even though there were Chinese shareholders interested in it. I pointed out the fact that there were silk filatures which had been established in Shanghai by foreigners in which Chinese held shares, and that a tannery company had been started in the same way; and in view of these precedents Mr. Wetmore was perfectly in stifled in floating his company, which was for the manufacture of cotton yarn, an industry which, if developed, would conduce largely to the prosperity of the country; and the fact that there were Chinese shareholders in it was proof that they took an interest in the undertaking. I also explained that the notice referred to the company as having been started by Chinese and put under a foreign name, which was not the case; that Mr. Wetmore had established it, and Chinese had invested in shares the same as in other companies.

With a view of obtaining the text of the concession to the Shanghai Cotton Mill Company, and to have an official record of the same, I addressed a note to the taotai on the 10th instant, referring to the notice which appeared in the Shen Pao, and requested him to send me a copy of the communication received from the northern superintendent of trade. I have just received a reply inclosing the document, a copy of which I beg to inclose.

I had a further conversation with the taotai last Saturday, when he informed me that so far as the Chinese shareholders in Mr. Wetmore’s company were concerned, he would be obliged to carry out the instructions of the minister superintendent of northern trade, and that he had issued prohibitory notices to three of them-through the mixed court magistrate. I inclose copy of a letter which I addressed to the taotai to-day, and also copies of two other communications which I received from: Mr. Wetmore upon the subject, one dated the 9th and the other the 12th of September, which fully explain the case.

You will observe in his last letter that, if possible, Mr. Wetmore would like to secure a special grant from the Chinese Government to work the yarn company.

It seems to me that Mr. Wetmore’s case is a good one. If a monopoly had been granted by the Chinese Government to the Cotton Mill Company, to the exclusion of all other like enterprises, this fact should have been known. Then, again, other companies have been started by foreigners against which no opposition has been made by the Chinese officials.

I trust that your excellency will be able to bring about a speedy and satisfactory adjustment of the matter, and that Mr. Wetmore may be allowed to carry out the enterprise he has undertaken.

I am, &c.,

F. D. CHESHIRE,
Vice-Consul, in charge.

[Inclosure 2 in No. 43.]

Mr. Wetmore to Mr. Cheshire.

Shanghai, September 8, 1882.

Sir: Sometime before the departure of Mr. O. N. Denny, I had in hand the formation of a company for the manufacture of cotton yarn from native cotton at this port, an industry that has never been undertaken here, and which if developed would conduce argely to the prosperity of the country.

I had several conversations with Mr. Denny on the subject and was informed by him there was no reason whatever why I should not go on with such an enterprise and establish mills for the purpose on any convenient site in the vicinity. I accordingly organized a company with a capital of 300,000 taels, and shares for the full amount were subscribed for and about one-third of the money already paid in, when, in the issue of the native paper Shen Pao on the — — instant an article appeared to the effect that the formation of this company was an infringement of the rights of a certain other company, to which it was stated a monopoly for the manufacture of cotton fabrics in China had been granted for a period of ten years.

This article, without any signature, was given simply among the news items, but was furnished to the paper by the principal party interested in the company claiming the monopoly, and evidently for the purpose of intimidating the intending shareholders and preventing them from paying up their subscriptions; and this is precisely the effect that has been produced, so that at the present time the formation of the company is brought to a dead lock, and unless the statements in the article can be immediately contradicted in some way, I am very much afraid I will be compelled to abandon the project altogether.

I am committed to such an extent with reference to the company that such a result would have serious consequences for me, and I am anxious to make use of every lawful means to meet such a failure of the enterprise.

With regard to the company claiming a monopoly, I knew nothing at the time I commenced the formation of the one I have in hand, nor was I aware any company was in existence claiming such an exclusive right, until the article referred to appeared in the Shen Pao, nor do I know anything about it now except a vague report that some special privileges were granted to some company several years since for the manufacture of cotton cloth, but so far as I can learn no practical steps have thus far been taken to carry out the enterprise.

My contention in the premises is:

• First. That there is no law or usage in China authorizing the issue of such an exclusive privilege or monopoly (as that claimed) to any person or company.
• Second. That if there were, it should be done as in other countries, under letters patent, so as to give notice to the world and fair warning to others contemplating similar enterprises.
• Third. That the exclusive license for the manufacture of cotton cloth could not he construed to embrace cotton yarn.
• Fourth. That, therefore, in alleging a monopoly to which they were not entitled lawfully, and publishing the same for the purpose of interfering with the carrying out of our company, the practice therein implicated has inflicted on myself and those interested with me a serious injury for which they should be held accountable.

I am informed and believe that the Chinese officials generally are very desirous to develop manufacturing industries in this country by which their raw materials can be converted by machinery into fabrics which have a large consumption here, and in no direction is there such afield for such operations as in the use of raw cotton which is produced in very large quantities in this portion of the Empire.

It is stated that the company claiming exclusive privileges as aforesaid has, or proposes to have, a capital of 400,000 taels; With such a capital the production of cotton goods would be so insignificant in comparison with the enormous quantity used and imported here that it would not be worth even a mention. In the stabilities of trade it would occupy no perceptible position, when it is considered that cotton fabrics are imported into China yearly to the extent of about 15,000,000 pieces, worth over 25,000,000 taels, and cotton yarns exclusively from England and India to the extent of 150,000 pieces, worth 4,000,000 taels, it will be seen how insignificant would be the production of a company which could not work up more than thirty piculs of cotton per day.

The granting of a monopoly to such a company would be tantamount to the prohibition of the manufacture altogether, and it would be the same if the company had twenty times that capital. If therefore the rulers of China are really desirous to see factories springing up for the manufacture of one of their most important staples, they have taken a most effective step to prevent the carrying out of their own views, assuming they have made such a concession as is claimed, and that it could be maintained as against all others desiring to enter the field, as not only would it exclude others, but those who claim to hold the privilege do not seem to have taken any effective steps to carry it out.

When the field is so extensive there is room for not one company alone, but for hundreds, and I am safe in saying that ours would have no more effect upon the success of the other company than if, instead of making yarn, we were to make some article of an entirely different material and nature.

In asking your assistance in this matter, therefore, we are claiming nothing that interferes with vested interests, or inflicts an injury on any one. We are asking nothing that we are not satisfied we are justly entitled to and will therefore be greatly obliged if you will render us such assistance as may be in your power as early as possible, so that we may be able to give an authoritative contradiction to the article in the Shen Pao referred to, and at the same time have the means of satisfying the shareholders in the company that no official interference with the enterprise need be feared.

I am, &c.,

W. S. WETMORE.

[Inclosure 3 in No. 43.]

Mr. Wetmore to Mr. Cheshire.

Shanghai, September 9, 1882.

Sir: I am sorry to trouble you again in the matter of the company formed by me for the manufacture of cotton yarn, but the situation appears to be so critical as to call for such immediate action as may be possible to protect my interests and those of the parties associated with me in the company.

I hoped your visit to the taotai would have tended to neutralize the effect of the article in the Shen Pao to which I called your attention, but so far from this being the case, not only has the payment of subscriptions been stopped, but several of the principal shareholders are in great fear, owing to reports that they are to be prosecuted before the mixed court, and unless steps can be taken at once to restore confidence I fear the company will be broken up altogether.

Though the article in question appeared in the Shen Pao simply as a news item, it is known to have been furnished by the manager of the China Telegraph Company, and probably in consequence of the use of certain forms of expression which a private Chinaman would not venture to employ without some show of authority, the article carries a weight for the purpose intended probably as great as if it were an official communication.

Even if exclusive right or permission has been given to any person or company to manufacture cotton, no legal action could be taken against me or any one else for an infringement of that permission until I had actually commenced the making of the goods. I would have a perfect right to form a company, dispose of shares, purchase land, erect buildings, set up machinery and start it, and no infringement of rights could be set up and established until I actually commenced the production and sale of the manufactured article.

The parties interested in the company which has taken this unexpected action against me have, I am informed, taken legal opinions, and have doubtless been advised that they could take no judicial measures against us, and have therefore resorted to this underhand method to prevent the formation and carrying out of our company.

Being thus attacked in a semi-official way, it is my right to demand of the Chinese authorities, through you, an inspection of the alleged concession for the exclusive privilege of manufacturing cotton, under which this interference with the formation of my company has been ventured upon, so that in case no such concession has been made with reference to cotton yarn, or in regard to the manufacture of cotton generally, in terms which would render my action an infringement upon any existing exclusive privileges, I can at once have an official contradiction inserted in the Shen Pao to that effect, or that in case it does appear such a concession has been made, I can take the necessary steps to have its validity contested in the proper quarter, and my right or that of any other American to engage in such a business established, or the contrary.

I have, therefore, respectfully to request that you will obtain from the taotai an official contradiction of the truth of the allegations in the Shen Pao referred to, or a copy of the concession under which the claims referred to are put forward, so that I may at once be able to contradict the statements myself if they are not true, or take the necessary steps to contest the validity of any exclusive concessions if they have been made.

I am, &c.,

W. S. WETMORE.

[Inclosure 4 in No. 43.]

Mr. Wetmore to Mr. Cheshire.

Shanghai, September 12, 1882.

Sir: With reference to my letters to you of the 8th and 9th instant and my several consultations with you in regard to the formation, by myself, of a company for the manufacture of cotton yarn at this port, I understand from you that the taotai has received from his superior at Peking instructions to inquire into and prohibit the prosecution of the enterprise, in view of the fact that exclusive permission had already been granted to another company, for a period of ten years, to manufacture cloth from native cotton at this place.

As I previously informed you, I undertook the formation of my company on the assurance of Mr. Denny that he knew of no reason why I should not do so. I have therefore issued shares for more than two-thirds of the required capital, have telegraphed to England in regard to machinery, obtained estimates for building, negotiated for land, and taken other measures involving much risk, expense and labor.

Having now, however, been informed by you that the taotai alleges that he has received instructions to the effect that the enterprise, if carried out, would conflict with certain exclusive privileges accorded to other parties, I shall not of course proceed to the erection of mills unless on an investigation of the question it is found that I am entitled to do so, and I receive the requisite authority from or through our legation at Peking. As it is very important that the question should be decided as speedily as possible, I have to request, therefore, that you will kindly lay the matter before the minister, and on my behalf that he will have the subject carefully investigated, and, if possible, secure for me from the proper Chinese authorities the requisite permission to go on with my company, and erect mills and proceed to manufacture cotton yarn according to the intentions with which this company has been organized.

In the mean time I must most emphatically protest against any interference with me and my plans in connection with the company, and particularly with respect to the intimidations which the local authorities appear to be resorting to.

As you are aware, they have written to those of the native shareholders in the company, requesting them to withdraw from it, their object being in this way, if possible, to intimidate the shareholders, and thus endeavor to break up the company. Having from the first shown no disposition to take any steps that were not authorized, and expressing our willingness to abide by the decision of the proper authorities on a consideration of the facts of the case, we have a right to expect that, on their side, the Chinese officials will refrain from all underhand and unlawful interference with us or those interested with us. I have already stated what I conceive are our rights, which may, in my opinion, he briefly summarized as follows:

First. According to the best of my knowledge and belief there is no law of this country, and nothing in our treaty with China, preventing me from forming a company such as I have formed, of selling shares in such a company, either to foreigners or Chinese, and with the funds derived from this or any other source erecting and carrying on mills and factories here.

The right has been exercised here for years by others of various nationalities, and the establishments working here for the manufacture of silk, of acids, bricks, leather, flour, ironware, matches, and various other articles prove this. I have never heard of any interference with such establishments, and two other companies, one for the making of glass and another of paper, have recently been started without let or hindrance. It is not on this ground that interference is attempted in my case, but solely, as I understand, because another company, formed some time since for the manufacture of cotton cloth, claims to have received exclusive permission for this manufacture, and that it embraces cotton yarn.

Second. With regard to this pretension, I may say that it appears to be placed by the authorities on the same footing as a patent at home, but it is necessary to say that in this the concession lacks the essential element of a patent, and that is of having been “patent.” It has not been patent, but secret—so secret that the United States consul-general knew nothing of it, and I venture to say no foreign consul in China knew of it. Since, in my case, the very object of a patent has been defeated, as I have unwittingly undertaken an enterprise in the same direction apparently as the so-called Chinese patentee, owing to the fact that his so-called exclusive privilege has never been patent. Unless, therefore, the Chinese Government claims and is conceded by foreign Governments the right to grant monopolies and patents without public notice or notice to the officials of foreign Governments, I do not see how this so-called patent can bar me in my enterprise, which was undertaken in good faith without any notice or knowledge that I was infringing any one’s rights, though to make certain there was no obstacle in the way, I took the precaution to make particular inquiries of Mr. Denny on the subject.

Third. Even though the parties claiming a monopoly should establish their right to the exclusive manufacture of cotton cloth, I deny that they have any such exclusive right to make cotton yarn. The right to make cloth no more gives the right to make yarn than that of making shoes gives the right to make leather, that is, exclusively; nor would exclusive right to make bread debar any one from making flour. On the foregoing and other considerations urged, I support my right to go on with the company I have formed, the breaking up of which would cause me serious loss.

I am, &c.,

W. S. WETMORE.

[Inclosure 5 in No. 43.]

Mr. Cheshire to Intendant Shao.

Shanghai, September 12, 1882.

Sir: Referring to the conversation I had with your excellency in regard to the cotton yarn company started by W. S. Wetmore, esq., an American citizen, of the firm of Frazar & Co., I have the honor to inform you that I shall communicate the facts of the case to the United States minister at Peking, with a view to ascertain whether there are any existing laws or regulations in China regarding the formation, by foreigners, of companies for the purpose of manufacturing native products, as I have no record of any in the archives of this consulate-general.

Pending a reply from the United States minister as to whether the establishment of such companies is an infringement of the law of China or not, Mr. Wetmore will temporarily cease carrying on the company he has formed.

I may inform you that Mr. Wetmore started this company precisely in the same way as other companies have been started of late by foreign merchants for the working of native products, and as it is a matter affecting American interests, it is but right and proper that it should be determined in accordance with justice and equity. Mr. Wetmore is a merchant of well-known reputation, and he would not have spent the time and trouble he has taken if he thought the carrying out of the undertaking was illegal.

Further, if it is contrary to existing regulations for foreigners to establish companies in China, may I ask your excellency how is it that various companies have been started in Shanghai by foreigners during the past few years, and that the Chinese authorities have never taken any action to interdict their operation?

I have, &c.,

F. D. CHESHIRE,
United States Vice-Consul-General, in charge.

[Inclosure 6 in No. 43.—Translation.]

Chang, minister superintendent of northern trade, to Shao, Shanghai customs taotai.

In the matter of an instruction.

Taotai Kung Shou Fu and others connected with the Shanghai Cotton Cloth Company have addressed a petition to me wherein they state that “the establishment of a factory to weave cotton cloth by machinery was undertaken some years ago.

“Previous to the formation of the company, in answer to a petition presented to Li, the late viceroy and minister superintendent of northern trade, he, in view of the difficulties attendant upon the initiative of such an enterprise, and the great expenses that must necessarily be incurred, granted to the company an exclusive right for a period of ten years. In accordance with the patent law existing in western countries, their company was allowed to issue shares, but no other company was to be organized. Wishing the enterprise to be a success, he thus showed consideration for those interested in it. A document, wherein was described the concession of privileges as sanctioned by His Majesty the Emperor was sent to it.

“The petitioners now learn that certain persons have induced a foreigner to organize a company within the limits of the Shanghai settlement, with the intent of utilizing native cotton. The Tsung-li yamêd had long ago memorialized the throne, and communications were sent by that office to the northern and southern minister superintendents of trade to instruct those connected with the cloth company to consider the matter. That the company has not succeeded is owing to the fact that the nature of native cotton is different from that of foreign, and inferior to it in softness, tenacity, and length of the fiber, and that it does not bear much tension when woven on account of its brittleness. For these reasons the officials and merchants petitioned the Government authorities on several occasions, but failed to carry out the enterprise.

“In the spring of the year before last the petitioner Kung and others received a dispatch from the viceroy, Li, instructing them to consider the matter and make an endeavor to carry out the enterprise.

“Accordingly capital was derived by the issue of shares. With this means we procured samples of different kinds of native cotton and shipped them to factories in foreign countries for the purpose of converting them into cloth as an experiment. As a result of the experiment the fabric was found to be poor in quality and unsuitable for the market. After much difficulty in making inquiries, with a view to secure the services of one thoroughly experienced in the matter of machinery for producing cotton goods, we again procured native cotton to be shipped abroad for experiment. A telegram from the factory informed us that after repeated trials it was found that native cotton with its own peculiar nature could be converted into cloth after making an alteration in the structure of the loom; and, in truth, the goods sent back to us-were tolerably good. Thereupon we requested the Chinese ministers to England and America to engage a first-class engineer for us and send him to China so that we could discuss with him fully on the subject. The engineer engaged is an American named Danforth, a diligent and careful man. After having examined the different samples of said cloth, he said he could not guarantee the production of equally fine goods out of native cotton, for the reason that he had not manufactured them. Therefore-we directed him to take abroad an assortment of native cotton for trial. First he visited a cotton industrial exhibition in America and there studied into the most perfect patterns of cotton machinery; then he repaired to factories and machine foundries and interviewed the manufacturers and made some experiments himself. Later on we sent our interpreter to America to assist in Mr. Danforth’s work. A recent letter from our engineer informs us that the loom, after several improvements made in it, is now adapted to converting Chinese cotton into fabric, the texture of which is much closer than that of the samples sent over to us before; and on receiving the goods we observed they were in fact superiorto the other samples. Now that we have found suitable machinery for the factory, an order has been sent which will be fulfilled, and the machines forwarded to us in a year.

“We now, therefore, feel a satisfaction in thinking that we have not gone into all this labor and expense for the past few years to no purpose.

“Exercising proper management, it is possible that we shall successfully carry out our enterprise. But all of a sudden, even before the establishment of the factory, certain persons start a company in competition against us, assuming the name of a foreigner in its management, and unlawfully adopt our new plan, thus interfering with our interests. Perceiving the difficulty in attempting to oppose our company, they have cleverly avoided styling theirs a cloth factory, with the intent to covertly subvert our interests. With reference to the manufacture of cloth, from extracting the cotton from the seeds to making the cloth, the intermediate processes, including that of making yarn to be woven into cloth, belong to the same branch of industry.

“Moreover, the cloth company in manufacturing cotton fabric must of necessity manufacture yarn also. If steps are not taken to suppress the company and if its existence is permitted to continue, surely all our labor and trouble will be wholly spent in vain, and it would be impossible to say whether the enterprise would succeed or not, and it would prove greatly detrimental to commercial interests in China. As to the promoters of this enterprise, though the names of responsible persons are not known, yet we have good reason to believe that the company was incorporated by Chinese and not a project of foreigners. The facts of the case should be clearly set forth and a prohibitory notification be issued everywhere, so as to render powerless the efforts of those interested in the yarn company, and thus restrain them from carrying it into operation. We have already acquainted the taotai here of the facts of the case, and begged him to make further inquiry, from time to time, concerning the yarn company, and we cannot but also petition and pray your excellency to look into this matter, and to consider the difficulties merchants have to contend with, and to issue instructions to the Shanghai customs taotai to investigate the matter and to prohibit the formation of any company whatever for the purpose of manufacturing cotton yarn with machinery, so as not to undermine the foundation of the cloth company, to the end that it may gradually attain success; and we shall feel our most sincere gratitude for your excellency’s assistance. Whether such a course should be adopted or not, we humbly await your excellency’s instructions.”

With reference to this matter laid before me, namely, that pertaining to the establishment of a factory to manufacture cotton cloth with machinery, the viceroy, Li, had already memorialized and received a decree from the throne granting to Chinese merchants the privilege to start such a company and issue shares, forbidding the establishment of other companies for a similar purpose within the space of ten years. All processes, from extracting the cotton seeds and spinning yarn to weaving cloth, are a series of one and the same kind of work.

From the above petition it appears that some persons have organized a yarn company within the limits of the Shanghai settlement under the name of a foreigner, likewise intending to use native cotton for its manufacture, thereby unlawfully copying the new plan of the cloth company, by which means they will rob its interests, infringe upon its rights, and cause great detriment to its welfare.

The petitioners are hereby instructed to wait an investigation of the Shanghai customs taotai into the case, and the necessary prohibition issued, and to wait also the instructions of the southern minister superintendent of trade to the said taotai in regard to the matter.

The intendant is instructed to act accordingly and report.

[Inclosure 7 in No. 43.]

Mr. Wetmore to Mr. Young.

Shanghai, September 13, 1882.

My Dear Sir: I have communicated with Mr. Cheshire officially and asked him to address you (which I believe he does by this conveyance) with reference to interference on the part of the Chinese authorities at this port with a company which I have organized for the purpose of manufacturing cotton yarn here from the native fiber.

Mr. Cheshire, I believe, sends you copies of the letters which I have addressed to him on the subject, to which I would ask your reference for details of the case, and will only add a few remarks now which, perhaps, may throw further light upon the matter.

Before taking any steps for the formation of my company I consulted fully on the proposed enterprise with Mr. Denny, and was assured by him there was no reason within his knowledge why I should not undertake and carry it out. He mentioned to me casually that some years since a company was formed for the purpose of making cotton cloth, but he was not aware that any actual progress had been made by them; he further informed me he had seen their agreement, but made no mention of any exclusive privileges, which he surely would have done had any such been brought to his notice then or at any other time.

The day before he left, having found a site just outside the settlement which would be more suitable for my purpose than any other, I wrote to ask Mr. Denny if there could be any objection raised to the site, this being the only point on which it occurred to me that any question could arise, and in reply he wrote me:

August 21.

Dear Mr. Wetmore: In reply to your inquiry of to-day, I have to say that in my judgment there can be no valid reason urged against the erection of cotton yarn mills on the site proposed by you.

Sincerely yours,

O. N. DENNY.

P. S.—I should like to write you fully, giving my reasons, &c., if I have the time.

D.

I therefore proceeded to make my arrangements for the formation of a company, and associated with me as director Mr. P. V. Grant, the head of the large engineering firm of Boyd & Co.

We proceeded to raise funds, as usual in the formation of public companies, by the issue and sale of shares, and had the shares all applied for and more than two-thirds of the first call paid up, when all further progress was arrested by the most unexpected appearance in the Shen Pao of an article to the effect that our company was an infringement of a monopoly granted to another company, and warning people not to take shares therein.

This apparently unauthorized intimation has since developed into what appears to be a formidable attack on the company which I have started, and whether the object is to suppress this particular company, or is a blow aimed at all similar organizations, I do not know.

The parties implicated have engaged the services of the three most eminent legal firms here—in fact three out of the four in Shanghai—and are apparently prepared to fight their cause with all the weapons at their command, whether fair or foul. Thus far they have made use chiefly of the latter only, and in addition to the notice in the paper above referred to, the taotai has addressed three of the principal shareholders by way of intimidation. As neither I nor those connected with me have done or contemplated doing anything that we have not, according to the best of my belief, a perfect right to undertake, and as I do not purpose to persist in any action which, on careful consideration by the authorities of the United States Government, it is decided I am not entitled to take, I have in the mean time to ask that you will kindly investigate the questions at issue as soon as it can conveniently be done, and in the mean time secure me and those interested with me from all illegal and improper interference. I have taken no legal advice or opinion on the subject, as it appears to me the questions involved are such as cannot be settled here, but must be referred to the consideration of yourself and the high Chinese authorities at Peking. If necessary I shall be prepared to go on to Peking, but the questions at issue can be setled without the necessity for my doing so.

Should the parties who are opposing us raise any questions as to the rights of foreigners to engage in manufacturing enterprises at Shanghai, of course, the interests of all the nationalities having treaties with China will be involved.

With many apologies for the trouble I am giving,

I remain, &c.,

W. S. WETMORE.

[Inclosure 8 in No. 43.]

Mr. Wetmore to Mr. Young.

Shanghai, September 18, 1882.

My Dear Sir: Referring to my letter of the 18th instant, in regard to the cotton-yarn manufacturing company which I have organized at this place, I must apologize for further troubling you in the matter, and trust the deep interest I have in the success of the undertaking will be considered a good reason for so doing. The status of the persons or company which have opposed me, and their authority for doing so are, according to the best information I can command, exceedingly questionable. I am informed on good authority that a quasi monopoly, or some exclusive privilege for making cotton cloth, was granted, about five years ago, to a Chinaman named Peng. He formed a company, which, however, broke up before its organization was fairly completed. Some time after, another company was organized which, it is said, acquired from Peng his license, but I am informed that the transaction was not strictly regular; that is, the license was a personal one and not transferable, at least without the sanction of the authority originally granting it. However this may be, and even admitting the right of the Chinese Government to grant monopolies, excluding others from participating in the trade or business affected, I contend:

• First. That public notice of such grant should have been given to prevent other persons from embarking in suck enterprises and perhaps suffering great pecuniary loss thereby.
• Second. As I have before stated, that the exclusive right to make cloth could not confer, without express language to that effect being used, the exclusive right also to make cotton yarn any more than the right to gin cotton or pass it through any other preliminary process. This view is generally taken here among the Chinese, and I have heard of expressions of opinion among those who are supposed to know something of the views prevailing among the high Chinese officials at Peking, that my position in the matter is so strong that I cannot be interfered with, and that though a little patience may be necessary to convince the authorities at the capital that I am really in earnest persistence in asking for what I believe to be my rights, I will eventually induce them to accord me justice in the premises. Even should they eventually decide to restrict enterprise in the way of manufactures generally, they cannot, it appears to me, interfere with undertakings which, like mine, have been entered upon in good faith and without notice that they were interfering with the rights of others in the same direction. I am informed, however, that some show of opposition is likely to be made at first to my claims, as some of the subordinate local mandarins here, and perhaps at the north, have rather committed themselves in favor of those who are opposing me, but that the merits of my case are so clear that any resistance which may be made will be comparatively feeble. Trusting I may not be imposing any trouble of magnitude upon you,

I remain, &c.,

W. S. WETMORE.

[Inclosure 9 in No. 43.—Extract.]

Mr. Cheshire to Mr. Young.

Shanghai, September 23, 1882.

Sir: Referring to my dispatch of September 12, in regard to the opposition made by the Shanghai Cotton Mill Company to the Cotton Yarn Company, established by Mr. Wetmore, I think it well to lay before your excellency certain facts which you may think of enough importance to bring them before the Tsung-li yamên, as I am led to understand they have been kept secret, and as much as possible from the knowledge of the high officials.

Li Hung Chang, some five years ago, granted a concession to a Chinese official, a taotai by rank, named Peng-chi-chih, to start a cotton-mill company, giving him the exclusive privilege of manufacturing cotton cloth at Shanghai, so far as Chinese were concerned.

Nothing was done except to waste money on land and erecting the foundation walls of the proposed factory, when the company came to grief, and Peng became involved in financial difficulties.

About two years ago the present cotton mill (which is opposed to Mr. Wetmore’s company) was established, * * * Mr. Cheng-tao-chai being the principal man. Peng transferred his grant or concession to the new company, but whether it was done with the consent of Li Hung Chang I am unable to say. I may say, however, that the land and foundation walls erected by the first company were sold to Cheng-tao-chai about a year ago for 60,000 taels, and the property put in the name of an American (Mr. R. M. Brown), and registered in the land office of this consulate-general. After the transfer had been made Mr. Brown * * * endeavored to dispose of it by lottery. A few tickets were sold, but as the Chinese authorities here are opposed to lotteries of all kinds, the taotai, on learning that the property of the cotton-mill company was to be disposed of in that way, addressed a letter to Mr. Consul-General Denny, requesting him to instruct Mr. Brown to close the lottery, which was done.

I do not think his excellency Li Hung Chang is aware of this fact, and in view of the position which the present cotton-mill company have assumed, your excellency may think it advisable to bring this matter to his notice.

I understand that the cotton-mill company have only one-third of the capital subscribed; that the Chinese have no confidence in it, and are strongly opposed to the action taken by the manager against Mr. Wetmore’s yarn company; that the promoters have taken no active management beyond sending a man (Mr. Danforth, an American) home to try to get machinery; that they have bought no land for a site, nor taken any active steps to carry out the object of the association.

I am, &c.,

F. D. CHESHIRE,
Vice-Consul-General, in charge.

[Inclosure 10 in No. 43.]

Mr. Young to Prince Kung.

October 13, 1882.

Your Imperial Highness: I have the honor to inform your imperial highness that I am in receipt of a communication from the vice-consul-general of the United States at Shanghai, setting forth the following facts in a case which it appears to be my duty to bring to your notice:

Some months since certain Americans and other foreigners established a company at Shanghai for the manufacture of cotton yarn. A large amount of capital was subscribed for the purchase of the requisite machinery and other requirements, when suddenly, just as the company was ready to begin operations, an apparently official notice appeared in a Shanghai Chinese newspaper, forbidding the organization of the company on the ground that a monopoly had been granted for this kind of work by his excellency the northern superintendent of trade, to a Chinese company.

The vice-consul-general at once brought the matter to the notice of the intendant of customs, who not only confirmed the notice which had appeared in the newspaper, but informed Mr. Cheshire that he had issued orders to certain Chinese who had invested their money in the company, prohibiting them from having anything to do with it. After repeated and unsuccessful efforts to induce the taotai to reconsider his action, the vice-consul-general has sought my intervention in the business.

After careful consideration of the facts in this case, I am forced to the conviction that the course taken by the customs intendant at Shanghai is not only contrary to a sound policy, but is also a plain violation of the rights secured to foreigners under the existing treaties with China.

Under the provisions of the French, Belgian, and other treaties, foreigners are expressly permitted to pursue their various avocations at all the ports open to foreign trade without hindrance or interference from the Chinese authorities. Merchants, artisans, professional men, and laborers are all free, each to follow his own vocation as though he were in his native land.

The meaning of this provision is clear beyond possibility of doubt, and it only need be referred to to prove the intendant of customs at Shanghai, in his action in the case tinder review, has violated a plain promise made in the treaties between your imperial highness and foreign powers.

But it is claimed that the action taken by your officer was based upon the assumption that the new company would interfere with a monopoly granted by the northern superintendent of foreign trade to a Chinese company already formed at Shanghai.

In answer to this assumption, I need only call the attention of your imperial highness to the universally recognized principle of international law, with which your imperial highness is doubtless entirely familiar, that treaties form the supreme law of the land in each of the two countries between which they are concluded, and that neither local regulations, nor even regulations of the supreme authority itself, can be allowed to curtail or contravene the privileges secured by them. Under this principle the monopoly referred to is void and of no effect, as it interferes with the treaty provisions mentioned above.

As your imperial highness is aware, a very large number of Chinese have established themselves in all parts of the United States in all kinds of manufacturing and mercantile pursuits, from which they have secured to themselves large profits. This has been done without interference or molestation on the part of either the local or general officers of my Government. Your imperial highness will assuredly be ready to grant to our people at the open ports in China the same privileges and opportunities which are freely accorded to Chinese subjects in all parts of the United States, and to which the people of either nation have under the treaties a perfect right.

I beg to call the early and serious attention of your imperial highness to this subject, with the hope that you will cause such orders to be sent to your subordinate at Shanghai as will prevent further interference on his part with the operations of the company referred to.

I have, &c.,

JNO. RUSSELL YOUNG.