Foreign Relations of the United States, 1901, Appendix, Affairs in China, Report of William W. Rockhill, Late Commissioner to China, with Accompanying Documents

Mr. Rockhill to Mr. Hay.

No. 79.]

Commissioner of the United States to China,
Peking, May 1, 1901.

Sir: The diplomatic corps held a meeting to-day for the purpose of hearing the report of the committee appointed to study the question of the payment of the indemnities to be asked of China. I inclose herewith copy of said report.

After the reading of the report, which, as you will notice, contains no recommendations as to the method to be suggested to China for paying the indemnities, the Russian minister submitted a short memorandum, with the object of proving the necessity of a joint guaranty by the powers of the loan which it is supposed China will be obliged to negotiate.

Assuming that the amount of the indemnities which will be asked of China is £65,000,000, and the correctness of the statement contained on page 23 of the report of the commission, that it would cost China 23 per cent in commissions, etc., to float a loan, and that she would furthermore have to pay 7 per, cent interest on it, Mr. de Giers shows that she would have to borrow £84,500,000 to secure £65,000,000. At the rate of 7 per cent, China would have to pay on this £5,915,000, or 34,447,500 Haikwan taels. Should a joint guaranty be given, China would not have to pay over 7 per cent in commissions; consequently a loan of £70,000,000 would net her £65,100,000. With this guaranty the annual interest, Mr. de Giers said, would not probably be more than 4 to 4½ per cent, which, at 4 per cent, would be £2,800,000 per year interest, or 18,200,000 taels. The saving, therefore, on a loan of this magnitude which a guaranty would insure would be 16,247,500 taels a year on interest alone.

Mr. de Giers then made the same calculation on the American proposition, payment of a lump sum of £40,000,000 sterling. This, he said, would entail a reduction on the present figures of the indemnities asked by the various powers of 38.46 per cent, Without guaranty, a loan of £40,000,000 would cost China £51,935,000; at 7 per cent interest this would make £3,630,450, or 23,597,925 taels. In other words, more than the loan of £70,000,000 with guaranty.

A loan for the same amount of £40,000,000, at 7 per cent commission, with a joint guaranty would only cost China £43,000,000; and with 4 per cent annual interest, £1,720,000 a year, or 11,180,000 taels.

The saving to China on the loan of £40,000,000 which a guaranty would insure would be 12,417,925 taels annually.

Turning to the question of resources, Mr. de Giers stated that he suggested, as a means of raising the 18,200,000 taels necessary to insure the payment of a guaranteed loan of £70,000,000 at 4 per cent, that the following resources be availed of:

	Taels.
Balance of foreign Maritime Customs	3,523,920
Native customs	3,000,000
5 per cent effective ad valorem duties	2,500,000
5 per cent additional ad valorem duties	10,000,000
Total	19,023,920

Mr. de Giers’s figures are, like all those given in the report of the commission, subject to considerable correction. Their importance, however, is not great in the present case, and I only give them as showing the disposition of the Russian Government to favor a joint guaranty, and not to attempt anything in the way of reforming the interior administration of China. Russia and some of the other powers can favor with perfect equanimity the raising of tariff on imports and exports, as they have small commercial interests in China.

The British minister informed me that he is in favor of using to secure the loan, the foreign customs, the native customs to be put under the control of the Maritime Customs, the raising of the tariff to an effective 5 percent, and the salt tax, which the Chinese Government has expressed itself willing to have applied to this purpose. This latter, it is thought, would bring in a sum of 11,000,000 taels a year.

The important feature of the report of the commission and of the suggestions made by the Russian minister and those offered by others of my colleagues is that without the raising of the tariff to 10 per cent, and a joint guaranty given by the powers of the loan China will have to make, it is absolutely impossible for China to pay £65,000,000. The figure of the indemnity you suggested indicates the limit of her ability to pay.

To all inquiries of me whether the United States would join in a guaranty I have in the most categorical and emphatic way said “No.” I furthermore refused to consider, or even submit to you, the raising of the tariff to 10 per cent unless equivalent compensation be given our trade immediately, or at least the negotiations pushed on concurrently with those for the settlement of the indemnity. To raising the tariff to a 5 per cent effective I think there can be no objection. It is simply equity to China, but even this should be compensated for in some way. This is more easy for China to do, since a compliance on the part of China with several of the demands our commercial world has been urging on it for years past will not entail any loss of revenue to it.

I have got my colleagues to agree that the first step be taken now is to inform the Chinese plenipotentiaries that the losses and disbursements of the various powers approximate £67,000,000 sterling, and to ask them what measures they propose taking for the payment of it.

I have the honor, etc.,

W. W. Rockhill.

[Translation.]

Report of the Commission for payment of indemnities.

The commission appointed by the diplomatic corps to study the question of the payment of indemnities to be demanded from China, in virtue of Article VI, of the Joint Note, has considered—

1. The mode of payment to be adopted in order to satisfy, as far as possible, the-interests of the creditors and those of the debtors.

2. The Chinese revenues which offer the greatest security and which can be diverted from their present application without embarrassing the internal life of the country.

In the examination of the mode of payment the commission has taken into account the desire of the indemnified powers to be paid in full at the earnest possible moment and the consideration to be observed toward China, considered as a solvent creditor who has always been scrupulous in her engagements up to the present, but is temporarily embarrassed.

Among the Chinese revenues it has principally considered those which combine the following conditions: Well organized collection, assured yield, easy and efficacious control. It, however, advises, even though they fulfill these conditions, to exclude those taxes whose income is especially applied to expenses which apparently could not be modified without prejudice to the internal administration of the Government.

Above all, it was necessary to know the approximate amount of the claims of the powers. The information which was obtained from the different legations, and which in some cases is as vet only known provisionally or semiofficially, seems to bring this figure to about £65,000,000–1,629,000,000 francs, 1,300,000,000 marks, $399,000,000 gold, 415,000,000 Haikwan taels (in calculating a Haikwan tael at 3.90 francs).

This total will, moreover, probably he exceeded, since it is only calculated approximately up to July 1 and since it must increase with the protracted military occupation.

The commission next consulted the persons who appeared most capable, from their situation, experience, and special authority, to furnish the commission information on the resources of the Empire and the best mode of payment. It successively interviewed Sir Robert Hart, general inspector of customs; Mr. Hillier, director of the Hongkong and Shanghai Bank; Mr. Pokotilow, Russo-Chinese: Mr. Rump, director of the Deutsche asiastische Bank; the Mandarins Hsu Shou-peng, late Chinese minister to Korea; Na Tong, vice president of the treasury department, and Chou Fu, grand treasurer of Chih-li.

The commission examined a work by Mr. Augustin, director of the Indo-China Bank. The German, English, and Japanese ministers submitted reports.

From all these opinions and information some general observations are brought out which are important to be noted to serve as guide for the detailed explanations which are to follow.

There is little doubt but what China will find it difficult to clear in one payment, through its native resources, the sum which the powers, according to the first information we possess, are disposed to claim from her. There are not sufficient available funds in the country.

The commission was unanimous in considering the balance of the maritime customs and the likins actually under foreign control, the increase of the customs tariff to 5 per cent effective ad valorem, the yield of the native customs, and the taxation of certain merchandise, at present imported free, as revenues offering I good security from the triple point of view of income, collection, and control, and which could be applied to the service of the indemnities without exercising any injurious effect on the internal organization of the Empire.

Objection was raised to certain other resources, such as increasing the customs duties to 10 per cent, the salt duty, the rice tribute, the Manchurian income, and the revenue resulting from economies in various expenses.

A third category, the land tax and the likin, was withdrawn as not satisfying the sought-for conditions.

Finally a fourth one was pointed out as offering the Chinese Government the means to cover the deficit in its budget, caused by applying the receipts to the payment of the indemnities—dwelling tax, stamp tax, increased duties on native opium.

These general observations made, we will resume what has been said relative to the mode of payment and resources.

1. Mode of payment: If China is relieved from the direct payment in a lump sum, four systems can be chosen from—

(a) Chinese loan, not guaranteed by the powers;

(b) Loan to meet the lump sum for the payment of indemnities, pledged by installments and guaranteed by all the powers jointly;

(c) Chinese bonds;

(d) Annuities.

(a) Chinese loan, not guaranteed by the powers.—This system would doubtless be very costly, the credit of the Empire being such that it would be difficult to borrow a lump sum of £65,000,000 at reasonable rates.

(b) Loan to meet the lump sum of the indemnities, guaranteed by all the powers.—Such a loan could undoubtedly be easily floated without too great expense and at a low rate of interest. Its realization would allow the immediate payment of the indemnities and the speedy restoration of China to its normal state.

This system would be advantageous for the indemnified parties (companies and individuals), China, and the commerce of the extreme East. As to the States, they would be jointly responsible for the new debt contracted by the Empire. Financially they would not be gainers, for they would have to borrow to pay themselves; rather they would lose, each one having to assume, besides the commission previously deducted by the bank, the joint responsibility of the total loan.

It has been urged, it is true, that this solidarity is not indispensable to the guaranty of a loan, the credit of certain States being sufficient security; that, on the contrary, it would excite fear among the financiers in case political complications should arise among the joint guarantors. Finally, the powers would not perhaps care to guarantee a loan in a lump sum without reserving control of the revenues to be applied to the payment of the installments, and this might create a very delicate and complicated situation in carrying it into effect.

(c) Chinese bond.—Each power would receive from China bonds for the amount of its total indemnity. These bonds, falling due at stated intervals, would bear interest, and each power could use them as security for a national loan which each would have to raise. The lump sum of £65,000,000 would then be distributed among the powers under various forms of loans and under conditions in harmony with the credit of each instead of floating one international loan. Each State would be at liberty to only raise the amount of the indemnity due its countrymen, provided it were willing to accept its payment in installments and to choose at its convenience the date of issue.

(d) Annuities.—This system would have the disadvantage of extending the settlement of the expenses already paid by the powers over a number of years and of leaving the door open to political contingencies.

Such is the resume of the opinions and information furnished the commission on this point. The commission does not feel it can recommend one system rather than another. It believes that in the actual state of affairs the question can not he decided except by the powers themselves, between whom there exist differences, and who independently of the agreement to be made, would undoubtedly have to consult the financial establishments whose cooperation would be indispensable.

ii. resources.

(a) Maritime customs.—The surest Chinese revenue is constituted by the Maritime Customs under the control of a foreign administration. The events of 1900 have proved their strength, since, excepting 1899, the receipts for last year equal those of 1898. Consequently they can be considered as a minimum which will be exceeded as soon as trade resumes its regular development, reaching 23,000,000 or even 24,000,000 Haikwan taels.

(b) Likins, actually under foreign control.—These resources are composed of (1) the general likins of the ports of Soochou and Kiukiang, of the Shanghai-Sunkiang, and the eastern district of Chekiang; (2) the likin on salt from the port of Ichang, from Hupeh and Anhui.

This revenue seemed safe enough to be accepted as security for the Anglo-German loan of 1898. The customs administration, which investigated it thoroughly, values it at 5,000,000 taels at the lowest.

Wisely administered, these two revenues form a total of from 28 to 29 million taels, from which amount an average of 24,000,000 taels is to be deducted until 1905 for the service of the present foreign debt. From the available balance, according to Mr. Komura, there would be paid besides the administration expenses of the Maritime Customs, including—

	Taels.
The pay of the foreign and Chinese personnel	2,198,000
Maintenance of light-houses	280,000
Peking College	120,000
Chinese legations abroad	1,319,000
Total	3,917,000

Balance (Haikwan taels), 83,000, or 1,083,000, according to whether the customs duties are valued at 23,000,000 or 24,000,000 taels.

The commission observes, however, (1) that of the four above-mentioned expenses, two—those of the Peking College and the legations—could be charged by the Chinese Government to other revenues, which would raise the disposable balance to 1,522,000 or to 2,522,000 Haikwan taels.

(2) That as the annuities of the actual debt will reach their maximum in 1905, decreasing from then on, the disposable balance will increase 200,000 taels per year from this date until 1918, at which time it will reach more than 5,000,000 taels.

(c) Increase of the import duties to 5 per cent effective ad valorem.—This measure is recommended on different sides on account of its easy application and of the certainity of its yield. It is accepted by the Chinese delegates without any reservation, except as to the advantages to be given foreign commerce in compensation of the increased taxes imposed.

The duties collected for the year 1899 equal 3.18 per cent (3.43 per cent for the year 1900) of the value of all the merchandise imported. The increase of 5 per cent will lead approximately to an increase in receips of 3,900,311 (figure for 1899), not including opium, which will not be taxed with a new duty, and rice, which will continue to enter free.

It is to be remarked that the year 1899 was exceptional, and if one takes for basis of calculation the average of three normal years (1896 to 1898, for example) the increase will not be found to exceed 2,320,276 taels, or 2,500,000 taels at the maximum.

Commerce seems to make no objection to this measure, but demands in compensation: (1) Specific and not ad valorem duties: (2) a more equitable tariff-evaluation; (3) reform of the Chinese administration of the likin, assuring a more honest administration in the transit of merchandise, and putting an end to the obstacles created by the dishonesty of the Chinese Government.

In view of the increased customs duties to 5 per cent ad valorem, Sir Robert Hart indicated a way which presents the advantage of requiring neither revision nor negotiation of tariffs, at the same time restoring the duties to their primitive value. At the time of the establishment of the tariff 3 Haikwan taels were worth £1; to-day it takes about 7 to make £1.

It would only be necessary to give the Haikwan tael a fixed conventional value equal to its value in the beginning to tax merchandise with 5 per cent effective ad valorem.

According to the customs inspector, the corresponding increased receipts would be from 10 to 15 million taels.

It has, however, been remarked that this proceeding would create inequalities in practice, and it would be difficult to make the Governments accept it, and Sir Robert Hart’s estimates appear optimistic. According to the average of the years 1896–1898, the increase would only be 9,153,833 taels.

(d) Native customs.—In the ports open to foreign commerce the maritime customs exercises its authority only over vessels of foreign construction whether they be owned by Chinese or foreigners.

The duties on merchandise transported by junks are collected by a special native administration, and according to a special tariff which is effective in the open ports side by side with the maritime customs, and, moreover, everywhere else on the coast or in the islands at the stations which the Chinese Government has established from time immemorial.

The opinions obtained are unanimously in favor of the control of this revenue and of its application to the service of indemnities. Sir Robert Hart estimates that the high personnel of the maritime customs could easily, in the open ports, undertake the service which is exercised by the native customs administration of “Chang Shui.”

Sir Ernest Satow valued this revenue at 1,000,000 taels for the present and at 4,000,000 for the future. Messrs. Komura and Hillier, at 5,000,000—at 3,000,000 now and at 5,000,000 to 10,000,000 for the future. Mr. Pokotilow estimates the duties collected in the open ports alone at 5,000,000, At the rate of 2½ per cent, Mr. Rump calculates that at Tientsin alone the duty on the junks would amount to 300,000 taels.

In regard to these native customs, Mr. Hillier claims that their yield has always been considered by the Chinese Government casual rather than a certain income, for scarcely 20 per cent is turned into the treasury, which consequently would not feel the loss to any great extent.

(e) Taxation of merchandise at present imported free.—Some articles, such as flour, butter, cheese, foreign clothing, soap, candles, spirits, etc., which at the establishment of the tariffs were only imported in small quantities and for the exclusive use of foreigners, are exempt from duties. The sale, having increased since the Chinese have generally adopted their consumption, represents to-day a considerable value. It has been proposed, consequently, to submit this merchandise to the general tariff, with the exception, however, of rice and cereals. The commission sees no objection in so doing.

The following table recapitulates the minima and maxima valuations of this first category:

	Minima.	Maxima.
	Taels.	Taels.
(a b) Balance of the customs duties and likin under foreign control	83,000	1,083,000
(c) Increase of the Maritime Customs duties to 5 per cent effective	2,320,276	3,900,311
(d) Native customs, imports	3,000,000	10,000,000
Total valuations	5,403,376	14,683,311

It must be recalled that the disposable funds will increase from 1905 about 200,000 taels per year, and that in 1918 they will reach more than 5,000,000 taels.

We will now examine the second category of resources.

(f) Increase of customs duties to 10 per cent.—This measure has in its favor, as has already been stated, its easy application and the certainty of its yield. According to Mr. de Mumm, foreign commerce with China would see no great inconvenience in this, experience having shown that the increase in the entrance duties is divided about equally between the producer, the dealer, and the consumer, and that, maintained within reasonable bounds, it does not encroach upon the consuming power of a country. Japan, where the duties have lately been raised from 10 to 20 per cent over their preceding figure, is the most recent proof of this fact. Mr. de Mumm calculates that this increase in duties would produce an increase of 17,475,000 taels.

Mr. Rump estimates that the tax of 10 per cent could be adopted under the condition of a tariff revision. Certain products, such as needles, aniline dyes, etc., could easily bear increased duties. Others, such as cotton goods, could not. A choice would have to be made. Mr. Komura proposes a 10 per cent increase of the import duties for all merchandise, including foreign opium and articles introduced in franchise under the actual régime.

The increase in the receipts would be, according to him, about 18,037,374 taels. Taking for base the imports of 1899, however, he expresses the opinion that this change in the tariffs would call for compensations. He then proposes as a correlative condition of the increase in duties an absolute exemption of likin duties, terminal or other taxes collected in the interior in favor of the imports and exports. Considering the enormous importance of the total commerce of the Empire, he believes that the imports and exports enter for only a small part in the income from the likin and that its loss would not greatly affect the provincial budgets.

The transit duty should, at the same time, be abolished. Mr. Komura advises the institution of a commission charged with revising the tariffs on the new bases adopted and indicating the measures to be taken to put an end to the extortion affecting the import and export articles in the interior of China.

The new tariff could be applied without it being necessary to wait until the commission has concluded its labors. The taxes would be collected temporarily according to the ad valorem tariff.

Mr. Pokotilow does not believe there are any fundamental objections on the part of commerce to the elevation of the entrance duties from 5 to 10 per cent, providing that a serious revision of the tariffs is made, rendering them as equitable as possible, If the revision is well made, the movement of exchanges will not diminish. The revision could be made in a relatively short time, in a few weeks at the most.

Sir Ernest Satow shows that his Government could not accept the increase in the rate of the entrance duties to 10 percent. He declares that English trade is already protesting against this measure, unless it be compensated by modifications in the commercial regime of China. He upholds the 10 per cent duty as well as the 5 per cent, exclusive of opium and rice.

The Chinese delegates, on the contrary, would view the increase to 10 per cent with great satisfaction. Resuming, the yield from it would be valued at 10,648,736 taels at the minimum, exclusive of opium and rice, and at 18,037,374 taels at the maximum, including these products.

(g) Salt duty.—The salt duty is a state monopoly, reposing on a vast and complicated organization having in its favor the strength of a long tradition and assuring the existence of a considerable number of officials, manufacturers, and licensed tradesmen.

According to the report of Mr. Jamieson, the Government previously deducted two sorts of duties on salt—one on consumption, collected in the center of production and the place of sale, the other on circulation or likin imposed en route or on arrival at the last station. No distinction has been made between the two duties in the propositions which have been made on this subject.

Sir Robert Hart declares that the proposed legislation on salt can raise no objection, for there is nothing safer. According to the finance department’s figures, the salt duty in 1899 yielded a little less than 14,000,000 taels, but according to certain information this figure would reach 15,000,000, and even 20,000,000 under a good administration.

Sir Robert Hart suggests, as a means of control, the extension of the actual control of the likins intrusted to the Maritime Customs administration. It is to be remarked in this connection that the administration only controls the likin on salt and not the consumption duty.

Sir Ernest Satow, who is also in favor of applying the revenue from the salt tax to the payment of the indemnities, values this resource at 12,000.000 or 13,500,000 taels, which, according to the most conservative opinions, could be increased 50 per cent, or 6,000,000 taels, and even 100 per cent, or 12,000,000 taels, under an honest administration. Mr. Hillier, who agrees with Sir Ernest Satow, says that the salt revenue under the present administration is valued at 13,800,000 taels, but that under foreign control this figure would be considerably increased.

From his estimates he deducts 1,800,000 taels already applied to the foreign debt, which brings it to 12,000,000 taels.

Mr. Pokotilow advises the assuming of the salt duty only as a last resort, and then only in case that the increase in the customs duties to 5 per cent, the native customs, and certain economies to be imposed upon the Chinese Government in various expenses do not furnish sufficient resources. According to Mr. Pokotilow, this control would necessitate the creation and administration of a very complicated and delicate organization and a foreign personnel, which is completely lacking. He considers this control as an interference in the internal administration, and as such discourages it.

Mr. Rump believes that the duty on salt could be placed under foreign control. At Tongku alone, where it reaches 6,000,000 piculs per year, an income of 1,600,000 taels would thus be obtained. He does not conceal the fact that the control in the interior provinces might be difficult. He does not consider it would be possible to import salt free of duty, using the amount of the duties collected for the service of the debt. As long as the monopoly exists and corporations hold the traffic in their hands they will be strong enough to oppose the sale of foreign salt. The Chinese delegates declared that the disposable yield from the salt duties was 10,000,000 taels, from which 6,000,000 must be deducted for governmental expenses, leaving a balance of about only 4,000,000. According to them, a reform in this tax would be difficult to establish.

From these various opinions the yield from the salt tax can be valued at between 4,000,000 and 20,000,000 taels.

(h) Peking octroi.—Sir Robert Hart mentioned this revenue accessorily, estimating it at 500,000 taels. Mr. Pokotilow confirmed this valuation, adding that the duties collected were quite heavy.

He advised, in a general way, to avoid everything that might lead to interference in the internal administration of the country. Mr. Rump declared that they could not count upon such duties, and that they would have to be left to the Chinese.

According to the Chinese delegates, this tax would only yield 170,000 taels, which would be absorbed by the Peking administration.

(i) Rice tribute.—The rice tribute is furnished by the two provinces of Kiang-su and Chekiang. The quantity of rice sent to Peking varies from 12,000,000 to 14,000,000 tan or piculs, or 104,500 tons. About 200,000 piculs are sent by the old route of the Grand Canal, the remainder by the vessels of the China merchants.

The administration of this transportation is in reality one of the principal Chinese departments, and employs a regular army of officials and clerks. The method of collection is as follows: The land taxes, which are in principal collected in kind, are, in fact, paid in money, or rather in copper cash. The tariff conversion is fixed from time to time, according to the commercial value of rice, and increased by a supplementary tax, destined to cover the transportation costs and various expenses.

It appears to be sometimes double and sometimes treble the price of rice. With the money thus obtained the tax collectors buy rice on the markets and send it to the depots awaiting its shipment to the north.

When the transportation administration has received the rice, it is responsible for it until it reaches the Tung-chou storehouses, where it is to be left.

Sir Ernest Satow, who suggested this revenue, furnished the following observations on this subject. The quantity of rice shipped in this manner would, according to Mr. Jamieson, reach 1,200,000 piculs. The duties and transportation permit cost a very large sum in the provinces—1,500,000 taels.

From another source the rice tribute would amount to 800,000 piculs, worth 4 taels the picul.

Forty per cent of this rice is transported by the Grand Canal, and the expenses are so exorbitant that the picul delivered in Peking costs about 15 taels; 60 per cent is loaded on the boats of the China merchants at the rate of 1½ tael per picul. If the entire amount were transported by sea the saving resulting from this would amount to 9½ taels on 40 per cent of the 800,000 piculs, or 3,040,000 taels. Finally, a third estimate fixes the quantity of rice transported by steamers at 300,000 piculs, and places the picul at 6 taels delivered at Peking; 400,000 piculs would be transported by the Grand Canal, and would cost 15 taels. The saving resulting from the transportation by sea of the total tribute would amount to 3,600,000 taels. The sums used in the purchase of rice reach, according to Mr. Jamieson, from 3,360,000 to 3,920,000 taels.

The rice is eventually distributed to the bannermen, who resell it to the poorest classes in Peking for 1½ taels.

On the money used for the purchase of rice and the cost of transportation there might be realized, according to Mr. Jamieson, 6,562,000 taels; according to another, 7,440,000, and according to a third person, 7,800,000 taels.

Sir Robert Hart, without furnishing further information, values the yield from the suppression of the rice tax at 2,000,000 or 3,000,000 taels.

Mr. Pokotilow favors a reform in the transportation of the rice tribute and of the application of the savings thus realized to the service of the indemnities, but he does not consider the eventuality of the suppression of these distributions of rice to the bannermen, which are governed by the constitution of the Empire. He estimates the savings resulting from the use of the maritime route in preference to the Grand Canal at 1,000,000 taels.

Mr. Rump also believes that the Chinese Government would gain by transporting all the rice from the tribute by sea, because, besides the saving in freight, it would thus put an end to the frauds committed by the boatmen, who take advantage of the special passes of the rice tribute to smuggle merchandise and thus escape the customs.

This measure would only meet opposition on the part of the boatmen. But Mr. Rump does not think that the resources thus realized could be used to guarantee a loan.

Mr. Hillier proposes also to apply to the payment of the indemnities the land tax of Kiang-su and Chekiang. This tax is estimated by the Chinese at from 10,000,000 to 12,000,000 taels in the present state, but Mr. Hillier only estimates it at 8,000,000, remarking, however, that it would certainly give much more under foreign control.

The information furnished on this revenue by the Chinese delegates was somewhat vague. According to them the rice tribute to-day represents 1,240,000 bags. It was formerly 1,400,000 bags. The price of this rice in the south would be 4,000,000 taels; the transportation would cost 6 taels per bag by the maritime route; 130,000 bags would pass by the Grand Canal, but they were not able to say what the expenses would amount to. The delegates agreed that the freight of the maritime transportation could be diminished if it were awarded by competition, and the savings resulting from this could be applied to the service of the indemnities. They also recognized the possibility of collecting the rice tribute in money and distributing to the Tartars the value of the rice which is given them, thus leaving the cost of transportation to be used for other purposes.

(j) Manchu pensions.—Sir Ernest Satow suggests the following scheme:

Capitalize the pensions granted to the Manchu soldiers and issue bonds bearing 55 per cent interest. The official figures for Peking alone are 5,760,000 taels, without taking into consideration the Manchu garrisons of the provinces, which appear to be of no military use.

If the bonds issued to the holders of these pensions represent one-half the value of the capitalized sum this plan would result in a saving of 2,830,000 taels.

Sir Robert Hart estimates the sum which could be raised from the suppression of the Manchu pensions at 3,000,000 taels.

Mr. Pokotilow advises against interference with the revenues applied to this expense as too closely affecting the internal organization.

Mr. Rump believes that these pensions could only be suppressed upon condition of sending the Tartars back to Manchuria and supplying them with the means of existence, the best plan being to give them lands.

The Chinese delegates do not conceal the fact that the Government would be obliged to reduce these pensions, but that it would have to use the sums thus economized for other pressing needs. Mr. de Mumm is of the opinion that the savings to be realized from the rice tribute and the Manchu pensions are resources which could only be utilized to replace, in favor of the Chinese Government, the revenues appropriated elsewhere to the payment of indemnities. He does not think it can be used as security for a loan, in view of the fact that it would be too difficult to collect it.

Finally, Mr. Pokotilow pointed out as resources the amount of the savings which China could realize from the military expenses and from the cost of the transportation to Peking of the money coming from this tax.

The following table recapitulates the resources of the second category:

Increase of customs duties.

	Minima.	Maxima.
To 10 per cent:	Taels.	Taels.
Salt tax	10,648,736	18,037,374
Pekin octroi	4,000,000	11,500,000
Rice tribute	170,000	500,000
Manchu pensions	1,000,000	8,000,000
Various economies elsewhere mentioned	2,830,000	2,830,000
General total	18,648,736	40,867,374

The third category of resources is the one which was withdrawn as not satisfying the conditions to be realized.

(l) Land tax.—Although this tax is the principal basis of the State revenue, it is sometimes abandoned by the Government when the crops are destroyed or threatened by public calamities. As this tax lacks stability Sir Robert Hart does not advise its appropriation. Mr. Pokotilow thinks that this tax is the last one to be resorted to, as it will be very difficult to administer. The Chinese delegates called attention to the law prohibiting the increase of the land tax.

(m) Likin.—The likin is a temporary tax, the suppression of which would be viewed with favor by the Chinese people and foreign commerce; consequently Sir Robert Hart thinks it preferable not to encourage its maintenance.

Finally a fourth category was pointed out as offering the Chinese Government the means for covering the deficiencies in its budget caused by the withdrawal of the receipts to be applied to the indemnities.

(n) Tax on dwellings.—The establishment of this tax, according to Sir Robert Hart, would give 20,000,000 taels per year by only imposing an average contribution of 0.05 taels on each inhabitant.

The Chinese delegates, appearing to confound this tax with the poll tax, declared the collection would arouse great difficulties among the people. A hundred years ago the Government attempted to impose a poll tax, but was obliged to give up the idea.

(o) Stamp tax.—The establishment of this tax would always furnish a considerable revenue—5,000,000 taels per year—according to Sir Robert Hart. Mr. Pokotilow sees in this a source of great corruption, and does not think that it could be levied outside of the open ports.

The Chinese delegates do not believe it possible to establish this duty except in the open ports.

(p) Native opium.—Sir Robert Hart estimates the quantity of native opium produced and placed in circulation at 150,000 piculs per year—at least three times the quantity of foreign opium. In fixing the duties at 60 taels per picul and in modifying the regulations 10,000,000 taels per year would be obtained.

According to Mr. Pokotilow it would be easier to administer the tax on opium than on salt. This duty is not high in theory, but it is enormously increased by the extortions of the mandarins.

The Chinese officials are not of this opinion. They estimate, on the contrary, that it is very difficult to reach native opium, which, being produced everywhere, escapes all surveillance.

Regarding these three taxes, Sir Robert Hart observes that they would be badly received, owing to their innovation under foreign pressure, and could even arouse hostile feeling among the population.

Mr. Pokotilow considers these receipts as very uncertain, and he thinks that at the most they could only be suggested to China as a means to furnish new resources in exchange for those that will be taken from her.

One of the financiers consulted pointed out that the foreign capitalists, from whom the money which China needs would have to be borrowed, would prefer one single revenue of known yield, and would probably not accept as security a number of small revenues offering a certain guaranty, but coming from various sources. According to his idea, it would be better to appropriate one revenue already known and endeavor to increase its income.

If foreign finance views it in this light, the first category and resources, f, increase of customs to 10 per cent, and salt tax, would fulfill these conditions, and for this latter even it would be necessary to clearly state that it is a question only of the likin on salt actually under foreign control. All these resources could be managed by the maritime-customs administration. If the enormous deviation which separates the minimum and maximum valuations is noted, one is lead to ask if it would not be possible to find in these resources alone the sums necessary for the service either of one single loan or of individual loans.

According to an opinion given to the commission, the brokerage, commission, issue, and other expenses for a Chinese loan would amount to about 23 per cent of the nominal loan, but in the case of a loan guaranteed by all the powers, or of individual loans contracted by each, these expenses would be considerably decreased. To count these expenses at 5 per cent would be to estimate them at a very high sum, and very probably above the real value.

The amount of the indemnities being provisionally fixed at £65,000,000, the Chinese loan at 5 per cent would amount to £85,000,000, while the loan guaranteed at 4½ per cent by all the powers would at the maximum amount to £70,000,000. It is even permitted to hope that it can be contracted at 4 per cent. The money lenders would perhaps consent to defer the liquidation of their capital until the foreign control over the new revenues had increased their yield, and until the extinction of the old debt would have increased the disposable funds mentioned in paragraphs A and B. If this could be done, then China would only have to provide for the present for the payment of the interest at 4 or 4 per cent on £70,000,000, or £3,150,000, or £2,800,000, or 20,200,000 taels, or 18,180,000, at 3.90 francs.

In paying the expenses of the Peking College and the Chinese legations abroad from the general revenues of the Chinese Government we can dispose of at least 1,522,000 taels oh the customs and likins under foreign control; the increase of the tariff to 5 per cent would yield a mininum of 2,500,000 taels; the native customs 3,000,000 taels; total, 7,022,000 taels. There then remain to be found 11,158,000 or 13,178,000 taels, according to whether the loan is contracted at 4 or 4| per cent. But these estimates are based on the minimum calculations, and should these figures be exceeded in practice, as seems probable, the disposable amount, estimated by the commission at 7,022,000 taels, would easily reach 9,000,000. To find the 18,000,000 or 20,000,000 necessary the following methods remain:

Increase the customs tariff duties to 10 per cent if all the powers consent, which would give a minimum excess of 8,000,000 taels, and extend the measure taken for the 1898 loan; that is to say, place some new likin districts under the control of the maritime customs. Profiting by the experiments already made, 18,000,000 or 20,000,000 taels could thus easily be obtained.

Another system would consist of adding the salt duty to the 9,000,000 taels, which the commission believes it can count upon at the present moment.

The liquidation at one-half per cent per year, necessitating 2,300,000 taels, would begin as soon as the disposable funds would permit of so doing, which doubtless would not be long delayed.

Before concluding, the commission feels it should mention Mr. Rockhill’s proposition to make China pay a lump sum of £40,000,000, which the interested powers would divide equitably among themselves in the ratio of their expenses and losses. If the commission has not expressed itself regarding this proposition it is because it was not discussed, as the diplomatic corps to which it was proposed, decided not to examine it until after learning the results of the investigation recorded in this report.