HG1224 U7 Cornell University Library HG 1224.U7 Chinese currency and finance, 3 1924 014 053 981 iBtetD gorfe &>tatt CoIIese of Agriculture iSft Cornell ^HnibetiBiitp Stiiaca. £. 9. ILftrarp DEPARTMENT OF COMMERCE BUREAU OF FOREIGN AND DOMESTIC COMMERCE PHILIP B. KENNEDY, Oinctor SPECIAL AGENTS SERIES-No. 186 CHINESE CURRENCY AND FINANCE BY A.W.FERRIN Trad* CommUalonMr PRICE, 10 CENTS :^ Sold by the Superintendent of Documents, Gorenuaent Printing Office Washington, D.C. WASHINGTON GOVERNMENT PRINTING OFFICE 1919 Cornell University Library The original of tiiis book is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924014053981 DEPARTMENT OF COMMERCE BUREAU OF FOREIGN AND DOMESTIC COMMERCE PHILIP B. KENNEDY, Director SPECIAL AGENTS SERIES— No. 186 CHINESE CURRENCY AND FINANCE BY A.W. FERRIN Trade Commissioner PRICE, 10 CENTS Sold by the Superintendent of Doctiments, Government Printing Office Washington, D. C. WASHINGTON GOVERNMENT PRINTING OFFICE 1919 <^ / O f f JZ. I CONTE NTS. Page. Letter of submittal 5 Inti-oclliction : The Republic of China 7 Chinese currency 9 Introduction 9 The tael 9 Official taels 9 Sycee " shoes " 10 Great variety of taels 10 Mutual relations of taels 11 The dollar 11 Historical survey 11 Provincial dollars 12 "Big money" and "small money" 12 Republican dollars 12 The Yuan dollar 13 " Chopped " dollars 14 The "cash" 14 General characteristics of coin 14 Changing values of "cash" 14 Copper cents 15 Paper money 15 Historical survey 15 Currency loan 16 Government banking institutions and their relation to note issues 16 Expedients to support value of notes 17 Metallic reserve as solution of difficulty 17 Desirability of unification on silver basis 18 Ranks and banking 20 Introduction 20 The Bank of China 20 The Bank of Comnmnicntions 21 Other Government banks 21 Private commercial banks 22 Foreign banks 22 The "Pour-Power Group" 23 The American banks 23 Foreign exchange in China 25 "Telegraphic transfer rate" 25 The position in Shanghai 2a Contrasted position of foreigners and Chinese with respect to gold and silver 26 Function of exchange banker as intermediary 27 Phenomenal rise in value of silver 27 Effect on Chinese Government finance 28 Effect on foreigners in China 28 Need of currency reform emphasized 28 3 •* CONTENTS. Page. The gold-exchange standard 29 Way in which system has been worked out in Philippines 29 Exportation of pesetas , 29 Flow of dollars to China 30 Proposal for gold standard 30 Gold reserve fund 30 Provisions for maintaining parity 31 Paper money 31 Exchange operations 32 Feasibility of adopting system In China 32 The plan of 1918 32 Summary of monetary situation 34 Chinese Government finance 35 Introduction 35 Budget drawn up by Ministry of Finance 35 Ten ordinary sources of revenue 37 1. Land tax 37 2. Customs revenue 37 Historical survey 37 Receipts for 11 years 39 List of treaty ports , 39 Native Customs 40 Foreign obligations secured upon Maritime Customs re- ceipts 40 Boxer protocol 41 3. Salt Gabelle 41 4. Taxes on commodities, including likin 43 5. Regular and miscellaneous taxes 44- 6. Regular and miscellaneous duties 44 7. Income from Government Investments 45 8. Miscellaneous income of Provinces 45 9. Income of central administration 45 10. Income received directly by central Government 45 Summary of situation 46 Extraordinary revenues 46 China's Government debt 46 Appendix: National Currency Law of China 56 LETTER OF SUBMITTAL. Depaetmekt of Comsierce, Bureau of Foreign and Domestic Commerce, WasJihiffton, August 15, 1919. Sir: There is submitted herewith a report on currency, banliing, and exchange in the Republic of China and Chinese Government finance. It was prepared by Mr. A. W. Ferrin, who is now a trade commissioner stationed at Melbourne, Australia, but who acted for a time in the capacity of commercial attache at Peking. As a result of his studies and investigations at the Chinese capital Mr. Ferrin is exceptionally well equipped to prepare a monograph of this char- acter. The intricacies and complications of the Chinese currency situation are very numerous, and they ordinarily occasion serious perplexity on the part of persons unfamiliar with them. In the present report Mr. Ferrin has attempted to make tlie subject in its salient features clear to the lay reader, rather than to produce a scien- tific treatise for the use of experts, who already have detailed mate- rial in Wagel's, Spalding's, and other works and in the reports of various Government commissions. Eespectfully, Philip B. Kennedy, Director. To Hon. WiLUAM C. Eedfield, Secretary of Corwmerce. 5 CHINESE CURRENCY AND FINANCE. INTRODUCTION: THE REPUBUC OP CfflNA. The Republic of China, which extends from 53° to 16° north latitude and from 74° to 1M° east longitude, covers nearly one-tenth of the habitable globe, and its estimated population of 340,000,000 constitute nearly one-fourth of the world's inhabitants. It com- prises the 18 Provinces of the old Chinese Empire — ^Anhwei^ Chekiang, Chihli, Fukien, Honan, Hunan, Hupeh, Kansu, Kiangsi, Kiangsu, Kwangsi, Kwangtung, Kweichow, Shansi, Shantung, Shensi, Sze- ch^yan, and Yunnan ; the three Provinces of Shengking, Kirin, and Heilungkiang, which made up the former viceroyalty or Manchuria ; Sinkiang (Chinese Turkestan); Tibet; parts of Inner Mongolia; and includes some shadowy rights in Outer Mongolia, which was tributary to the Chinese Emperor. The main industry of the Republic is agriculture, with vegetation varying from subarctic to tropic, but within its 35 degrees of lati- tude and 60 degrees of longitude China possesses mineral wealth of cAery kind to an unknown amount, timber and other resources to a substantial degree in certain Provinces, and in general all the essen- tial elements of a great industrial country, of which not the least is a vast, industrious, frugal, and virile population. Its 2,150 miles of coast line (excluding indentations), its many capacious harbors, its 16 great navigable ri\'ers (of which one, the Yangtze, is 3,158 miles m length and another, the Hwang Ho, 2,700), and its myriads of lakes and canals make China a commercial area of wonderful possibilities, which will be increased almost in- credibly by the expansion of railways (now totaling only about 6,000 miles) that will come with the world's recovery from the Great War. China has a marvelous past — ^more than 4,000 years of recorded civilization — but it has an even greater future, dimly but none the less certainly foreshadowed at this time. The introduction of free- dom and progressive ideals is sure to awaken the Chinese to the more rapid development of their great endowments that modern civiliza- tion demands. A question of commanding, if not actually of primarj', importance in the progress of the great nation is the fiscal (which includes the currency) problem. At the moment, China's Government income falls below its ex- penditures by $100,000,000, and the Pelring administration supplies the deficit by foreign loans. But the excess of expenditures over revenues is almost entirely due to the civil troubles since the birth of the Republic, and with internal peace and the elimination of ex- penditures in that connex-tion, China will have no difficulty in balanc- ing its accounts and meeting all its obligations at home and abroad. The reform of the Salt Administration under foreign direction, 8 CHINESE CUKRENCY AND FINANCE, which has increased revenues from that source to approximately $70,000,000 a year, the increasing collections of Maritime Customs clues (also under foreign direction), the raising of the tariff by inter- national agreement to an effective 5 per cent, the possible remission of the Boxer indemnity (which is the largest of China's foreign debts), the probable reform of the wine and tobacco administration, the commercialization of the railways, and other processes of ref- ormation that are already in sight will go far to solve China's finan- cial difficulties. Its embarrassment can not be more than temporary, and even in the midst of war its credit has been sufficient to induce, a neighboring power to advance the funds required to meet the cur- rent deficit. Efforts are being made also, in connection with the fiscal reforms already mentioned, to establish China upon a stable currency basis, but this reform, though theoretically simple, is con- fronted with practical difficulties that can be overcome only by the combined and concentrated assistance of the great Powers interested in the commercial and political progress of the new Republic. CHINESE CURRENCY. INTRODUCTION. China vras for a time on a gold basis 11 centuries before Christ. It has used inscribed coins for 3,000 years and paper money for more than 1,000. Still, with all its centuries of financial and monetary experience, the nation has not evolved a medium of exchange that is current throughout its territories. Until very recently China "was theoretically a "copper country," but actually a silver country. From the third century B. C, when gold ceased to be a measure of exchange value, until 1915, the only coin legally recognized in China was the copper " cash," worth normally about one-twentieth of an American cent. With this coin — familiar to everybody, since it has been eminent as a Chinese curio — trade balances were settled, retail purchases were made, and wages were paid in a large part of the vast area of China. In the treaty ports and great commercial centers silver was used, and Government revenues were collected in silver as far as possible, at a ruinous ex- change rate for those who had to turn the copper into silver. But this silver was not coined. The unit of exchange in silver Avas the " tael." A tael is not a piece of" money ; it is an ounce of silver. China is a country of magnificent distances, and customs vary throughout its whole extent. An ounce in one place is not necessarily an ounce in another. Also, the silver that weighs an ounce may be purer in one place than in another, or, if not purer, different in color or in some other way. Consequently a silver tael does not mean the same thing in Peking as it does in Tientsin, and a Tientsin tael is not the same as a Shanghai tael. Almost every trad- ing center has its own tael ; sometimes more than one kind of tael is recognized in one town. THE TAEL. OFFICIAL TAELS. It is an interesting fact that in China the Government exercises little control over business. The Government fixes the " Kuping " as the standard tael of the public treasury, but the business men use it only in certain transactions with the Government where that standard is specifically required. Similarly, the " Tsaoping " is the Government standard for land taxes in certain Provinces and the "Haikwan" the tael for customs dues, but business men use them only in these connections in certain places. And stranger still, even the Govern- ment standard taels are different in different localities. The Kuping of Peking differs from that of Paotingfu, which, in turn, is different from that of Kiukiang, and that of Kiukiang from those of Wenchow and Huchow. Some of these Kupings and Tsaopings form the standard of their localities, but only because they are adopted by the local business men, often with some modification made by them. 127488°— 19 2 9 10 CHINESE CUEEENCY AKD FINANCE. SYCEE "SHOES." The standard of a locality is that tael in terms of which all whole- sale business is transacted, the value of all other moneys quoted, and exchange on other cities conducted. Frequently it is only a nominal or bookkeeping unit. Sometimes it appears in sycee " shoes " of 50 taels — strangely shaped castings of silver of the standard fineness, which had their origin in the days when the Mongols under Genghis and Kublai Khan and their sons and grandsons overran China and introduced the use of silver in ingots each weighing 60 ounces. Wliy the silver is called " sycee " no one seems to know exactly, the most plausible explanation being that it is the Cantonese pronunciation for the two words " si ssu, meaning fine silk, because the silver in the " shoe " can be drawn into fine threads without breaking. The " shoe,'' though used in large transactions, is still not a coin, but a definite weight of silver, cast into that shape for convenience in handling and to avoid the necessity of frequently testing and weigh- ing, though as a matter of fact even the mark of a recognized mint does not always save the "shoe" from the scales of the skeptical recipient. Besides the payment of obligations to the Government, one of the chief uses of the sycee "shoe" is in the making of bank clearings, there being nothing in China to which Americans would give the name of clearing house. Each bank has its own " shoes " made in one of several mints that are authorized to do this kind of business — small workshops where natives melt up the bar silver and transform it into the size, shape, and weight that will make it acceptable by one bank from another. The banks import the silver in bars or buy it from bullion dealers, " sending it to the mint (often on wheelbarrows) to be made into sycee shoes as needed. Ari-iving at the mint, the silver is melted over a charcoal fire, fanned by a hand bellows, and then poured into molds, from which it emerges in the "shoe" form, to be placed in strong boxes and returned to the bank on the coolies' bamboo pole, in the wheelbar- row in which it came, or on a native cart. One might think that the transfer of bars and boxes of silver through the streets of a Chinese city would tempt brigandage, but the "shoe" weighs nearly 4 pounds avoirdupois, and there are 50 in a box. A robber would not get far with box or bar. Besides, the sycee "shoe" is essentially a bank token, and no merchant would accept it from an unvouched-for customer and no bullion dealer would be likely to buy one from anj'body but a bank. In fact, the theft of sycee is far less frequent, in Shanghai at least, than was that of gold coin in the days when bank balances were settled in New York Ijy the daily transfer of bags of gold. GREAT VAEIETY OF TAELB. It is stated by H. B. Morse ("Trade and Administration of the Chinese Empire") that no fewer than 170 different taels are known, and Prof. D. K. Lieu, of Tsinghua College, in an article in the Chinese Social and Political Science Eeview for June, 1918, gives a table enumerating and describing 67 well-recognized standards, A\ith their values in terms of one another. For example, in the metro- CHINESE CCT.EEiSrCY AND FINANCE. 11 politan Province of Chihli it takes 1,002 Tientsin tael< or 1,023 Paotingfu taels to make 1,000 Peliing taels. In nortliern Manchuria 996 Harbin taels or l,00i Heilungkiang taels make 1,000 Peking- teals, though the money really used is pai3€r, representing subsidiary silver, translated by bookkeeping into treasury taels. And so on through the 18 Provinces, Manchuria, and Chinese Turkestan. It is not to be wondered at, in view of these widely differing stand- ards, that the business of changing money is both popular and profit- able, nor need one marvel at the Chinese adage that if one starts across China with any amount of money 10 exchanges will eat up one's capital, without having purchased a thing, for the money changer is always on the right side of the market. MUTUAL RELATIONS OF TAELS. The three generally official Government taels — the Haikwan, or customs, tael ; the Kuping, or treasury, tael ; and the Tsaoping tael, which was used in commuting the " tribute in kind " before its aboli- tion — are related to the Shanghai tael, in which commercial trans- actions with the outside world are largely carried on, as follows : 100 Haikwan taels=111.40 Shanghai taels. 100 Kuping taels=109.60 SUaugliai taels. 100 Tsaoping taels=107.75 Shanghai taels. 1 Shanghai tael=523.93 grains of pure silver. THE DOLLAR. HISTORICAL SURVEY. Though the tael is still used probably more than any other unit, not excepting the copper "cash," it has had (in the treatj' ports especially) to meet for 200 years the gradually encroaching dollar, or " piece of eight." The dollar is supposed to have been first introduced into China by Spaniards from the Philippines in the reigns of Charles III and Charles IV, and it became very popular, particularly at Canton, which was the only port open to foreign commerce during the second half of the seventeenth and the first half of the eighteentii century. During the Napoleonic era, 75 per cent of the foreign trade of China is said to have been paid for in Spanish dollars, tliough, according to S. R. Wagel ("Chinese Currency ") the Chinese officials attempted to stop their influx. It is further asserted by Wagel that private Chinese mints of the time coined some dollars of their own in imita- tion of the Carolus, but they were alloyed too heavily and depre- ciated so much that the Government had to forbid their issue. The Carolus dollar increased in popularity until 1854, when the familiar jMexican dollar came in, followed by the American trade dollar and other foreign dollars. The Mexican dollar has retained its prestige to this day, and is still largely in circulation, while the quotation of prices " Mex." is veiy common. As early as 1887 the Chinese began to talk about standardizing the dollar, and in 1890 opened the Canton mint, where a dollar was coined that was expected to oust the Mexican; but the people con- tinued to use the Mexican dollar as a standard and to accept the new one only by weight and not by count. The Canton mint tlien turned its attention to tlie manufacture of subsidiary coins. 12 CHINESE CUKKENCY AND FINANCE. PROVINCIAL DOLLARS. Following the example of Canton, which was found to be profit- able, other Provinces set up mints, and dollars of varying appear- ance and quality were turned out in large numbers, of which at least 10 are still in general circulation. These provincial dollars, sup- posed to be each the equivalent of 72/100 of a Kuping tael, 900 fine, are known as the Kwangtung dollar, minted at Canton ; the Hupeh dollar^ minted at Wuchang ; the Fukien dollar, minted at Foochow ; the Kiangsu dollar, minted at Nanking ; the Chekiang dollar, minted at Hangchow; the Fengtien dollar, minted at Mukden; the Kirin dollar, minted at Kirin ; the Szechwan dollar, minted at Chengtu ; the Peiyang dollar, minted at Tientsin ; and the Ta-ching dollar, minted at Tientsin. Though supposed to be equivalent one with the other, these dollars are not always so, but are at a premium or discount with one another largely on account of the fluctuations of trade between cities and Provinces, as the different dollars appear to be more in demand near their places of origin than elsewhere. In Peking they are gen- erally mutually exchangeable with one another and with the new " Yuan." The Peiyang and Ta-ching or Dragon dollars are popular in the capital, where the Mexican dollar, which is being but slowly displaced by native coins, still circulates at par with tlie others. " BIG MONEY " AND " SMALL MONEY." The subsidiary coinage of the various dollars adds confusion to that already caused by the varying value of the dollars themselves, and has led to the use of the terms (mysterious to the stranger) " big money " and " small money." One would think, if unenlightened, that a dollar was " big money " and that dimes' and 20-cent pieces were " small money." But a 10-cent piece itself may be either big or small money. Ten dimes of the new Yuan coinage make a dol- lar, but it takes 12 Peiyang or Dragon dimes or six 20-cent pieces to make a dollar, and when one comes to " coppers " one finds that a dollar " big money " may mean 125 to 135 of these nominal cents. It is most puzzling to the stranger to be asked to pay 20 cents " small money " for an article in a shop, to hand the shopkeeper a Yuan 20-cent piece and receive, besides the purchased article, a couple of coppers in change, because a Yuan 20-cent piece is " big money." The anomaly of " big money " and " small money " is partly ex- plained by the fact that Dragon dimes, 20-cent pieces, and cents are not true decimals of a Dragon dollar, but are approximations made up from the decimals of a mythical tael. Ten cash make 1 candareen, 10 candareens a mace, and 10 mace a tael. A Dragon dime is 7.2 candareens, and a 20-cent piece is 1 mace 4.4 candareens. REPUBLICAN DOLLARS. With the downfall of the Manclius and the inauguration of the Republic, the provincial mints ceased to coin on their own account, though their dollars remained in circulation, and the right of coinage became vested in the central Government, which made Tientsin its principal mint. CHINESE CTJKEENGY AXD FINANCE. 13 A large number of coins have been issued by the Republic, but the chief republican dollars minted have been: (1) The Sun Yat Sen dollar, coined at Nanking, with a bust of the first provisional Presi- dent of the Eepublic. (2) The Li Yuan Hung dollar, coined at Wuchang, with a bust of the first vice-president (later President, after the death of Yuan Shih Kai) . (3) The Yuan dollar, coined at Tientsin, with a bust of Yuan Shih Kai. These three dollars are all the equivalent of 72/100 of a Kuping tael, 90 per cent silver and 10 per cent copper. (4) The Yuan, which also bears the image and superscription of Yuan Shih Kai, though the name is not that of the late President, but is the Chinese word for " round." THE YUAN DOLLAR. The lack of one standard coin universally used throughout China has been lamented from time immemorial by all foreigners who trade with that country, and by enlightened Chinese except those who profit by the complexity of exchange; and monetary reforms have been formulated by many men and many commissions — notable among them being the Jenks commission which was sent to China by the United 'States Government in 1903 — ^but political and other considerations maintained the status quo until the overthrow of the Manchus and the establishment of the Eepublic. After the proposal and rejection of several plans, a national coinage law was approved and promulgated in the third year of the Eepublic, providing for a silver coin to be called the " Yuan." This coin was made unlimited legal tender, and its coinage, except for a very small mintage fee, was free. The weight of this Yuan was fixed at 72/100 of a Kuping tael, 89 per cent silver and 11 per cent copper. The coins could not vary more than 3/1000 from this standard. Subsidiaries to the Yuan dollar are provided for — 50-cent pieces, 20-cent pieces, 10-cent pieces, 5-cent pieces, and 1-cent pieces. No 5-cent pieces have yet been coined, but the others are in circulation, all bearing the image of Yuan Shih Kai. It was also provided that wherever these dollars were in circula- tion the Government taxes should be collected in them instead of the white metal, but this law has not been very strictly carried out. In Manchuria, for example, all taxes are collected in terms of dollars, but are actually paid in subsidiary silver of other coinages (at the rate of 120 cents to the Yuan or " big " dollar) or in copper cash. The land tax is collected in dollars in Shansi and in taels in Shensi. The land tax in Szechwan is collected in dollars, military notes represent- ing taels, and in a mixture of the notes and silver called " common money." In Kiangsi, taxes are collected at some places in dollars and at others in taels. In Hunan the land tax is collected in depre- ciated Hunan notes representing taels. There seems to-be still, in spite of the new currency law, a lack of uniformity even in Govern- ment transactions. Dollars are, however,' largely used on the railways, though from time to time mingled with paper money, and it is largely through the railways that the Government hopes to make the Yuan the uni- versal standard. Nothing, probably, will do more to hasten the unification of the currency than the extension of tlje railway system of China, since the greatest obstacle to standardization of the dollar is the lack of communication in a great part of the country. 14 CHINESE CURRENCY AND FINANCE. "CHOPPED" DOLLARS. A curious element in Chinese finance is the habit of " cliopping " silver dollars. This does not mean the clipping or mutilation of tho coin, but the placing thereon, by a stamp, of a money changer's sign manual, or "chop, indicating that he indorses it as being what it purports to be. Even in so enlightened a port as Shanghai, with the possible exc'eption of the new Yuan which bears the indorsement of the great Republic, dollars are more acceptable to many persons if they have thus been "chopped" or guaranteed by some money changer whose reputation is known to all the quarter in which he operates. THE "CASH." GENERAL CHARACTERISTICS OF COIN. Concurrently with the use of bullion silver, measured by the vari- ous "taels," and with dollars and lesser silver coins, the circulation of the copper "cash," which most foreigners consider the typical Chinese coin, continues in the country districts, though it is so little used in the treaty ports that it has become there rather a curiosity than a medium of exchange. The term " cash " is believed to have been derived from a Sanscrit word meaning copper coin, and the coin itself is almost as old as Sanscrit, having been used as early as the T'sin Dynasty, 246 B. C. Originally made in the shape of swords, knives, bells, and other familiar objects, the ancient Chinese coin, which is known to have existed hundreds, if not thousands, of years before Christ, has been, within historic times, a flat, oval, or round copper coin, with a square or round hole in the center, by means of which large numbers of them are strung together. They are of brass and bronze as well as of copper, but normally of copper 50 per cent, zinc about 40 per cent, and the remainder tin and lead. They are generally stamped with the reign title of an Emperor, and cash can be picked up in China bearing the appellations of rulers who have been dead six centuries. For the Chinese themselves the cash is a most important coin, be- cause their personal and domestic transactions (outside of the cities, which are being modernized and are showing marked evidences of tho high cost of living) require the subdivision of money into its smallest possible components. CHANGING VALUES OF " CASH." The coin known as a cash is based on a decimal system which makes it theoretically one-thousandth part of a tael, although the ratio varies with the relative value of silver and copper. On some days, says Rodney Gilbert, a " string " of cash may consist of 100, on others of 90, according, apparently, to the disposition of the local bankers and the condition of the local copper market, and nothing amuses the Chinese ^dllager more than to argue with the money changer over the number of cash that happens at the moment to constitute a " string." Even more interesting to the ready reckoner on the Chinese " suan-pan," or counting machine, is a cash exchange operation in a place where one cash counts as two, or where there CHINESE CUEEENCY AND FINANCE. 15 are " big cash " arid " small cash," as with " big money " and " small money silver in more prosperous Provinces. To carr\' with one any considerable amount of money in cash requires the use of wagons or wheelbarrows, and one no longer asks questions as to the size of the fortune of a possessor of a Korean cash chest," as big as a Saratoga trunk, when pne realizes that relatively few dollars in cash would fill the chest to overflowmg. COPPER CENTS. To supply a more convenient but not too plutocratic substitute for the one thousandth part of a tael, the Chinese Government has from time to time, for long years past, coinjed copper cents professing to be the one hundredth part of a dollar. Some of these coins make that statement. Others are called 10 cash, but 10 cash may or may not make a copper, and 100 coppers apparently never make a dollar. The copper has proved a most useful coin in China's progress from cash to silver, but its usefulness was seriously curtailed by the rise in the value of copper metal after the outbreak of the European war. A^ast quantities of copper coins were exported from China in 1915, 1916, and 1917 to be melted up abroad, because the copper in them was of more value to manufacturers than their accepted value as a Chinese medium of exchange. The Government made laws to prevent this exportation, but they were not effective. PAPER MONEY. HISTORICAL SURVEY. Paper money has been in use in China longer^than in any other country in the world. M. J. Klaproth (" Sur L'Origine do Papier Monnaie") has 'translated ancient Chinese records showing the col- lection of imperial dues in money made of deerskin in 119 B. C. Similar skin money is known to have circulated widely in the reign of Wu-ti, of the Han Dynasty, and is stated by S. E. Wagel (" Chi- nese Currency ") to have continued in existence as late as the thir- teenth century A. D. Banks of deposit were founded by the Em- peror Hian-tsung, of the Tang Dynasty, who reigned from 807 A. D. He forced rich nobles and merchants arriving in the capital to deposit their valuables in public treasuries and issued paper receipts, which became negotiable and passed as paper money. Several pro- vincial capitals adopted tliis plan of deposit and receipts for the convenience of travelere, and it soon grew into an accepted custom for travelers to deposit goods and valuables in one provincial capital, taking the receipts with them to another, where they could be nego- tiated. These documents, perhaps, were more in the nature of bills of exchange than of true paper money, but they nevertheless an- swered the purpose of paper money in avoiding the carrying from place to place by individuals of large and heavy amounts of metal. The first Emperor of the Sung Dynasty, reigning circa 960, issued notes against the deposit of cash or merchandise that were redeemed in cash at government treasuries in various capitals, and Klaproth 16 CHINESE CUKRENCY AND EINANGE. states that a system of paper money was in existence in Szechwan Province as early as 1000 A. D. that closely resembled modern sys- tems-, " the issue of credit papers as currency without being guaran- teed by any mortgage or substantial pledge whatever." Marco Polo, the famous Venetian traveler, who was the trusted friend and advisor of Xublai Khan, in the thirteenth century, expressed in his romantic book of travels his admiration for the great Emperor's wonderful plan of obtaining riches for nothing by paying for them with scraps of paper, and all through the records of the Mongol Dynasty are found references to the use of paper money issued by the crown and circulating freely, though frequently at a heavy discount. The Mings also used paper money, which appears to have been first issued m 1367, and the Manchus followed their example, but by the time they came in (1644) the evils of an unrestricted issue of paper currency were evident and various Emperors made attempts to stop its use. Indeed, by the middle of the nineteenth century paper money was in such disfavor that it would probably have been abolished but for the outbreak of the Taiping rebellion, which dealt the throne the blow from which it never recovered, and which com- pelled the issuance of a vast amount of irredeemable notes for 1, 3, 5, 10, and 50 taels, silver, and 500, 1,000, 1,500, and 2,000 cash, copper. By 1861 these notes had fallen to 3 per cent of their face value and eventually disappeared from circulation. After this bitter experience the Imperial Government for a time left the issue of notes to native bankers and money changers, but later the impoverished condition of the imperial treasury compelled the Government to resort again to the dangerous experiment of fiat money, and new imperial and provincial notes were added to the mass of paper currency that was suffocating the commerce of the country. CUERENCY LOAN. To I'emedy the situation created by the overissue of paper, the Imperial Government in April, 1911, negotiated a loan for £10,000,- 000 sterling with an international group of foreign banks, of which £8,500,000 was definitely pledged to the redemption of notes and the reform of the currency. But the outbreak of the revolution in October prevented the flotation of this loan, and the £400,000 that had been advanced by the group for the suppression of plague in Man- churia was repaid from the proceeds of the Crisp loan in the same 3'ear. During the revolution the republican military authorities issued many military notes, which soon came to have little current value, and the new Republic (1912) found itself with outstanding paper estimated at close to $200,000,000 Mex. GOVERNMENT BANKING INSTITUTIONS AND THEIR RELATION TO NOTE ISSUES. It was partly for the purpose of attempting a conversion of some of this tremendous mass of depreciating paper money that the Bank of China was established in 1912, to take the place of the Ta-Ching Bank, which had been the official financial institution of the Manchu Imperial Government. During 1913 and 1914 some progress was made OHINKSE CUREENCY AND FINANCE. . 17 in redeeming provincial notes, particularly in Kwangtung Province, and military notes, notably in Chekiang and Anhwei, and substituting for them notes of the Bank of China redeemable in silver. Out of the proceeds of the Reorganization Loan of 1913, £1,000,000 was re- leased by the Salt Administration for the purpose of inaugurating a silver reserve. In 1915 the amount of paper outstanding was esti- mated (China Year Book) at $172,000,000. In October, 1915, the Bank of Comnmnications, the fiscal agent of the Ministry of Communications (which controls railways, tele- graphs, and posts), was made a national bank with power to issue notes — a privilege which, it had been understood, was to be restricted to the Bank of China. One of the reasons fqr this action was the fact that the Bank of Communications was controlled by a powerful political party that was not wholly in sympathy with the interests of the Bank of China. A movement toward the establishment of a monarchy, in November and December, 1915, had a material effect on the reserves of both banks and the redemption of their notes. Besides the Bank of China and the Bank of Communications, and four other central Government institutions that do not issue notes, China has 13 provincial Government banks, some with the note-issue power; 14 foreign banks that issue. notes in the treaty ports; and more than 4,000 native banks and money changers' institutions, most of which have notes outstanding. All the foreign and most of the native banks are solvent and sound, and their notes are as good as silver. EXPEDIENTS TO SUPPORT VALUE OF NOTES. Various expedients have been adopted to raise the \'alue of the notes of the Banks of China and Communications, which have at timas fallen below 60 per cent of their face value. At one time all pas- senger fares were made payable in Government bank notes at par; at anothei- time, half in notes and half in silver. At still another time it was ruled that fares amounting to even dollars should be paid in notes, but odd amounts must be paid in silver " big money." Similar rulings were made in regard to freight rates, though the proportion of notes acceptable for freight never exceeded 50 per cent. This expedient created something of a demand for the notes, and perhaps exerted some slight influence in keeping up their market value — it being the Government's idea that the use of notes on the railways carried the notes into the Provinces and lessened the demand for redemption in Peking. But as the railways, which are owned by the Government, have to pay their foreign interest and other obliga- tions in specie, the Ministr;^ of Finance had to arrange with the banks to cash at par a certain amount of the notes received by the railways. METALLIC RESERVE AS SOLUTION OF DIFFICULTY. The failure of all the expedients adopted to exert more than a >ery temporary influence is explained by the fact that the only real solution of the note problem is the creation of a metallic reserve of adequate proportions. That such a reserve need not be very great in percentage is believed by bankers and business men familiar with 127488°— 19 3 18 - CHINESE CUEEENCY AND FINANCE. Chinese customs and habits. The Chinese have been used to bank notes from time immemorial, and, largely because of the difficulty and danger of transporting specie, they would much prefer them to specie if they knew that they could be redeemed in specie when it is needed. Confidence is, of course, the main reserve of any note sys- tem, and if China could accumulate a sufficiently large amount of sil- ver to redeem all or a large part of the existing notes of the two Gov- ernment banks (some $100,000,000), it could then reissue these notes and issue two or three times as many more with little difficulty. Once confidence is established, a 25 per cent silver reserve might be all that would be required. But failing the creation of a sufficiently large reserve to restore, or rather to establish, confidence in the notes, and the suspension of new note issues until confidence has been established, all the expedients in the world will not materially alter the present unfortunate situation. DESIRABILITY OF UNIFICATION ON SILVER BASIS. The Chinese monetary situation has been the study of experts from all nations, and a gold standard is the dream of them all. But in the opinion of thei present writer, and in that of some of the best in- formed foreigners in China and of such eminent Chinese financiers as Liang Chi-chio, unification on a silver basis should precede any attempt to introduce a gold standard. With an adequate silver re- serve, probably not over $100,000,000, the Government bank notes could be raised to par ; taxes, railway charges and other dues to the Government could be made payable in terms of the Yuan silver dol- lar, and all silver received in the form of sycee " shoes," old dollars, or other shapes should be melted and minted in Yuans. In time, especially if the program of railway construction now contemplated is carried out, the Yuan would penetrate to the remoter parts of the country, accompanied, doubtless, by the Government bank notes, which should bei redeemable in Yuans, and the 170 or more " tael " standards would tend to give way to that of the national unit, the Yuan. The problem of foreign exchange, which will be commented upon later in this report, ought, in the writer's opinion, to await set- tlement until that of domestic exchange is settled. The present high price of silver in terms of gold excites the advocates of a gold stand- ard to haste, but China is still essentially a silver country, and the early introduction of gold is confronted with innumerable, and at present insurmountable, obstacles. After the unification of the silver currency of the country on the Yuan standard and the restoration of some sort of order in the paper- money circulation, the adoption of the gold exchange standard would not be difficult, and from the gold exchange to the actual gold standard the transition would perhaps be easier still. Unification of the currency on a silver basis, or on a gold basis for that matter, will of course require a large foreign loan — ^$100,- 000,000 Mexican has been suggested as the amount. The currency loan agreement of 1911, though made by the Six-Power Group with the Imperial Government, and suspended by the revolution, is held by the group of bankers to be still in force, or, at any rate, to have enough force to preclude the lending of money for currency reform CHINESE CURKENCY AND FINANCE. 19 by any capitalist other than those represented in the group. To this contention strength is added by the terms of the Eeorganization Loan agreement of 1913, which secured to the group the monopoly of lending money to China on the security of the salt taxes, which were stipulated as part of the security for the currency loan agreed upon in 1911. By the course of events, including the war and the consequent elimination of Germany and Austria from international finance, the Six-Power Group has been reduced to a group of four — Great Brit- ain, Russia, France, and Japan — and Russia must probably be re- garded as a silent member for some time. The group may, however, be increased by the reentry of the United States, which was origi- nally in the group but withdrew in 1913. It would seem to be obvious that, whether the old loan agreement is regarded as still in force or not, any loan for the reform of the monetary system of China should be made by an international group, and reforms made under the loan should be supervised by international authority. BANKS AND BANKING. INTRODUCTION. Banking is so inextricably involved with currency that in dis- cussing currency it has been necessary to introduce the two central Government banks before describing them. The opportunity is now presented to give a fuller account of these two banks and of the ex- isting banking system of China in general. Banking is one of the oldest and most widespread professions in China, since, until recently, there was no law requiring the incor- poration of a bank and anyone who wanted to engage in this busi- ness could do so. The number of small banks throughout the Re- public is more than 4,000. These small banks, however, do not re- semble very closely American banking institutions, their business being mainly that of remitting money from one center to another and issuing notes for purely local circulation. The fact that every Province — indeed every commercial center, even the small ones — has had a different monetary standard has created a great field for the buyer and seller of exchange and has made this kind of banking very profitable. So long as China's system of inland communica- tion remains undeveloped the exchange banker and the " cash shop " will flourish. A tael or a dollar must for a long time to come be one thing in one place and another thing in another place, and the banker who handles remittances between places with different kinds of money will continue to be a necessary and a well-paid agent. Prior to the end of the Manchu monarchy each of the thousands of banks stood pretty much by itself, though of course important cities had banking " guilds " and the guilds of different cities were in more or less close correspondence. Certain banks in certain cities, also, had regular business relations with certain banks in other cities. THE BANK OF CHINA. Before the establishment of the Republic in 1912 a start was made to put the banking business on a modern foundation, by the estab- lishment of the Ta-Ching Bank, and in addition by the passage of laws regarding provincial and other inland banks. The Bank of China was established under the Republic, succeeding the Ta-Ching Bank, or official bank of the Manchu Government. It was intended that the Bank of China should be owned jointly by the Government and by the public, each subscribing half of the 600,000 shares of $100 each (Chinese currency), and the private stockholders were to have an equal voice with the Government in the management of the in- stitution. It was soon found, however, that the capital allotted to the public would not be subscribed, and the bank opened August 1, 1912, with a nominal capital of $10,000,000, niostly subscribed by the Government and chiefly consisting of Government bonds. The actual cash capital at the beginning did not exceed $4,000,000. 20 CHINESE CTJKRENCY AND FINANCE. 21 Nevertheless, though hampered by lack of capital, the bank made rapid progress, and, after reorganization in 1913 to overcome and correct certain initial errors, its deposits rose in one year from $17,- 000,000 to $67,000,000. In 1913 it earned $280,000 net; in 1914, $1,400,000; in 1915, $2,600,000. It opened branches throughout the Provinces and did a large business m internal exchange. It acted as fiscal agent for the Government in the collection of certain inland taxes, and in general performed the functions of a government bank, as well as those of an ordinary bank of discount and deposit. In October, 1915, the erection of the Bank of Communications into a national bank took from the Bank of China some of its importance, but it continues to be an essential feature of the Chinese banking system. In 1918 shares were again offered to the public on a liberal basis. At that time (November, 1918) the regulations were amended, the article that delayed the formation of the directorate until the public subscription should reach at least 100,000 shares was abro- gated, and it was provided that shareholders might vote for directors and inspectors at once. The time was not propitious, however, financially or otherwise, for the full success of the plan and though the paid-up capital was increased to $12,279,800, not enough public subscriptions were received to enable commercial interests to outvote the Government. The Bank of China now has 111 branches, covering 15 Province,s of China proper, the three Provinces of Manchuria, and parts of both Inner and Outer Mongolia. It has the machinery ready for a large commercial banking business. THE BANK OF COMMUNICATIONS. The Bank of Communications was organized in April, 1914, as fiscal agent of the Ministry of Communications, and was made a national bank by presidential mandate in October, 1915. Its capital is 10,000,000 Kuping taels, of which 6,000,000 was subscribed by capi- talists and 4,000,000 by the Government. As has 'been stated already, it shares with the Bank of China the privilege of issuing Government bank notes, and, besides acting as fiscal agent for the railway, postal, and telegraph administrations, conducts a general exchange and banking business. It has 64 branches in China, well distributed, and two foreign branches, at Hongkong and Singapore. OTHER GOVERNMENT BANKS. Besides the Banks of China and Communications, four other banks may be called central Government institutions — the Bank of the Salt Industry, whose capital of $2,000,000 was subscribed by the Ministry of Finance; the Sinhua Savings Bank, with a capital of $1,000,000 raised by the Ministry of Communications; the Bank of Territorial Development, at present in suspension ; and the Minkhuo Industrial Bank. The authorized capital of the two last-named banks is $20,- 000,000 each, but little has been paid in, and the Bank of Territorial Development will probably be liquidated. There are also 13 provin- cial government banks. 22 CHINESE CUKEENCY AND FINANCE. PRIVATE COMMERCIAL BANKS. In the central Provinces there are six large private commercial banks, with no Government connections — ^the Ningpo Commercial Bank, the Sun Chun Bank, the Shing Nih Chartered Bank, the Yue Soo Im- perial Bank, the Kiangnan Yunning Bank, and the Chung Foo Union Bank. The two first named have their head offices in Shanghai, the others at Hangchow, Soochow, Nanking, and Tientsin, respectively. The Bank of Canton (Ltd.), in Kwangtung Province, with a regis- tered capital of $2,000,000, is also owned wholly by Chinese. In Shanghai is a savings bank operated entirely by Chinese on American lines, which has made remarkable progress, its deposits at the end of its first two years amounting to 16 times the original capital of the bank, which was $100,000. It has a " ladies department " and many other American features, including an evening school for the instruction of employees in the Chinese and English languages and in the theory and practice of banking. It has recently increased its capital to $300,000. Other banks exceed 4,000 in number and have a combined capital of more than $40,000,000. Money changers, too, whose number is legion, do a kind of banking. FOREIGN BANKS. While inland exchange is almost wholly in the hands of Chinese banks, Government, provincial, and private, the foreign exchange business is pretty well covered by 22 foreign and semif oreign banks, which operate from the treaty ports. They are: Chartered Bank of India, Australia & China British. Hongkong & Shanghai Banking Corporation British. Mercantile Bank of India British. Banque de I'lndo-Chlne French. Banque Industrielle de Chine French and Chinese. Banque Sino-Belge Belgian. Deutsch-Asiatische Bank (now being liquidated, after seiz- ure as a prix de guerre) German. International Banking Corporation American. Nederlandsche Handel-Maatschappij Dutch. Yokohama Specie Bank .Japanese. Bank of Taiwan Japanese. Bank of Chosen Japanese. Sumitomo Bank Japanese. Russo-Asiatic Bank Russian and Chinese. Asia Banking Corporation American. Philippine National Bank American. American Oriental Banking Corporation American. Raven Trust Co American. American Express Co American. Chinghua Exchange Bank Japanese and Chinese. Mitsui Bank Japanese. Mitsubishi Bank Japanese. The majority of these banks have their head offices in Shanghai, with branches m the other important ports, and in Peking. Most of them issue silver notes, which circulate at par in the city of origin, but one has to pay exchange on notes of one city in another city, even at the branch of the issuing bank. The reason for this is that a silver reserve is kept in each city of issue against the notes CHINESE CURRENCY AND FINANCE. 23 issued there, and notes cashed in another city have to be sent back for redemption to the place where they originated. It is probable that this somewhat vexatious exchange charge will be eliminated in time. Besides issuing notes and buying and selling exchange, the foreign banks do a general discount and deposit business, and several of them have, jointly or severally, financial relations with the Chinese Gov- ernment. THE "FOUR-POWER GROUP." Shortly before the end of the Manchvi Empire, a syndicate of foreign banks was formed for the purpose of making joint loans to the Chinese Government, the first being the abortive currency loan of 1911, to which reference has previously been made. This group consisted originally of American, English, German, and French banks, represented by J. P. Morgan et al., American ; the Hongkong & Shanghai Banking Corporation, British; the Banque de I'lndo- Chine, French; and the Deutsch-Asiatische Bank, German and Austrian. Subsequently, before the reorganization loan of 1913 (£25,000,000 on the Salt Gabelle) was made, the Eusso- Asiatic Bank, representing Russian interests, and the Yokohama Specie Bank, rep- resenting Japanese interests, joined the group, making it a "six- power group," which was reduced to five by the withdrawal of the American banks. After the outbreak of the war, the group, which is still understood to exist as an entity, was further reduced by the elimination of Germany and Austria, though it is possible that with the restoration of peace Germany will attempt to regain its position therein. The group, at present of four Powei-s, hits made several advances to the Peking Government of a second reorganization loan, which has not been concluded. The Yokohama Specie Bank, acting as agent of the group, has advanced the money with the understanding that if the second reorganization loan is made, the advances will be re- paid therefrom; otherwise the advances will be considered as short- term loans by the Yokohama Specie Bank alone. THE AMERICAN BANKS. The newest of idke foreign banks operating in China is the Asia Banking Corporation, which was formed in 1918 by a number of the leading banks and trust companies in the United States for the pur- pose of operating in the Orient, with a capital of $2,000,000 gold and a surplus of $500,000 gold, which will be increased by subscription by the member banks as circumstances warrant. It opened its head office in Shanghai in February, 1919, and later branches in Peking, Tientsin, and Hankow. It will conduct a general banking and ex- change business and will probably participate in loans to the Chinese Government, to industrial undertakings, etc. The Philippine National Bank, with a capital of 20,000,000 pesos ($10j000,000 gold), a trifle over half of whicli was subscribed by the Philippine government, opened a branch in Shanghai early in 1919 for the purpose of transacting a general banking and exchange business. 24 CHINESE CURRENCY AND FINANCE. The International Banking Corporation, which is owned by the National City Bank of New York, has long been established in China, having branches in all the inaportant trade centers. The American Oriental Banking Corporation, and the Raven Trust Co. are affiliated, though independent institutions, founded in 1917 by Americans who had long lived and done business in Shang- hai. The American Express Co. began doing a banking business in Shanghai in 1918. Though these banks are rapidly developing a profitable discount business, which will be of great effect in the development of China commercially and industrially, their main function until recently has been the purchase and sale or foreign exchange. FOREIGN EXCHANGE IN CHINA. " TELEGRAPHIC TRANSFER RATE." The bulk of the foreign exchange business of China in past years has been done with London, mainly through Shanghai and Hong- kong, and by common consent the' unit has been the rate of tele- graphic transfers on London, which is based on the price of bar silver in London, a constantly fluctuating factor. The average fineness of Shanghai silver is 0.998— that is, 998 ounces of pure silver to 2 ounces of alloy in a 1,000-ounce bar — while the British standard is 0.925, or 925 ounces of pure silver to 75 ounces of alloy in a 1,000-ounce bar. This difference of fineness has, natu- rally, to be considered in arrivingat the price of silver in Shanghai, and the translation of the daily English silver price into Shanghai prices is, in detail, complicated; but Shanghai silver brokers have devised formulas that make the actual operation simple. One of these formulas, for instance, based on normal prewar freight, in- surance, etc., charges on shipments of silver from London to Shang- hai, produces a constant of 1.182. Having ascertained the price of bar silver in London, per ounce, the Shanghai bank clerk had only to multiply that price by 1.182 to get the theoretical telegraphic transfer rate. The transportation factor in the formula, of course, had to be altered from time to time during the war, with the great fluctuation of shipping charges, but whenever shipping charges are fairly steady for a reasonable period, a constant can be ootained that will multiply the London price into the theoretical " T. T." rate. This theoretical rate is " parity," and refers merely to the cost at which silver can be bought in London and laid down in Shanghai, including all charges for freight, insurance, etc. Whether the actual telegraphic transfer rate for the day is above or below this parity depends upon the demand for bills, just as the exchange rate of New York on London and vice versa depends upon which way the balance of trade is tending. There is a " silver snipping point " for China, just as there is a " gold shipping point " between gold-using countries. Merchants of one country will not buy bills of exchange on another if they can settle their balances more cheaply by shipping the actual silver or gold. Ordinarily the Shanghai banker can cover his drafts on London by remitting to London mercantile bills that he has purchased in China or elsewhere, but if for any reason the supply of such remittances falls short he resorts to silver shipments. The price of silver, there- fore, forms a limit above which, after adding importing charges, exchange can not rise, and below which, after deducting shipping charges, it can not fall. THE POSITION IN SHANGHAI. The position in Shanghai has been explained by the eminent east- ern banker, Sir Charles Addis, and summarized by W F. Spalding in his " Eastern Exchange," as follows : Should the supply of mercantile bills be less than the demand, there will be competition among the exchange bankers to buy them, and their silver price 127488°— 19 4 25 26 CHINESE CUREBNCY AND FINANCE. will consequently rise; or, to put it another way, exchange will fall. But if the supply exceeds the demand, then merchants will compete with one another for the privilege of selling their bills to the banks, and the price will fall— that is to say, exchange will rise. In either case the variation can not pass beyond the limits set by the " silver shipping points " ; yet within these limits the law of supply and demand has full play. Demand and supply, however, to be efEective, must be reciprocal. A demand for bank bills Implies a corresponding demand for silver which the merchants wish to sell. On the other hand, a supply of mercantile bills involves a supply of silver which the banks wish to sell. From this point of view, demand and supply are convertible terms, and it follows that the rate of exchange will be such as will tend to bring about a state of equilibrium between the two; that is, a state in which the demand for bills is exactly equal to the quantity offered. A rise in price of silver — that is, a fall in exchange — tends to produce a greater supply of mercantile bills and a less demand. A fall in sUver — that Is, a rise In exchange — tends to produce a less supply of mercantile bills and a greater demand for them. CONTRASTED POSITION OF FOREIGNERS AND CHINESE WITH RESPECT TO GOLD AND SILVER. In the settlement of international indebtedness it is not necessary for bott sides to draw ; one can draw, the other remit. And this is exactly what happens in the East. Shanghai draws on London for the cost of Shanghai's export and remits to London (or to New York,: Tokyo, or other financial centers) for the cost of its imports. Primarily the reason for this is that the exj)orter to China or the importer from China pays all his expenses in gold and wishes to deal in gold only. He therefore exacts payment for his goods in telegraphic transfers from China in gold or in bills drawn on China in gold, amounting to the same thing. And in paying for goods bought from China he also remits in terms of gold or is drawn on in gold. The Chinese merchant, on the other hand, has to pay all his bills in silver, which is the currency of his country, and he must be paid for his goods in that metal, though they have, on account of his foreign customer's desire for gold, been sold in gold. A solution of his prob- lem has been found in letting him draw on his customer in gold and settling the rate of exchange with the banker in China, who negoti- ates his bill. In paying lor imports, of course, he remits by tele- graphic transfer, or otherwise, in gold, settling the rate with his banker in China in the same way as before. Fluctuations in exchange between China and the gold-standard countries have been great in the past 10 years, during which the price of silver has risen from $0.53 an ounce in America to $1.01^, and these fluctuations have added enormously to the already numerous complications of financing trade between China and foreign coun- tries. It is self-evident that if the price of silver is low, in terms of gold, and the Chinese merchant is paid for his ^oods in gold, he will be able to convert that gold into much less silver than under reverse conditions. Also, if he pays for imports in gold when it is rela- tively high, he will have to give much more silver than when silver is high. A low value of silver favors exports and a high value favors imports of commodities. CHINESE CURRENCY AND FINANCE. 27 FUNCTION OF EXCHANGE BANKER AS INTERMEDIARY. When fluctuations are as frequent and as wide as they have been recently, the sale or purchase of goods " on time " becomes a great speculation. The Chinese merchant who should sell goods to Europe on a four-month gold bill would, if he acted entirely on his own re- sponsibility, have no idea how much silver he could convert that gold into at the end of four months. Conversely, if he purchased goods from abroad on a four-month gold bill he would be unable even to guess how much silver it would cost at the end of that four months to buy the necessary gold. He would be almost equally perplexed in dealing " cash against documents." It therefore becomes neces- sary for tne exchange banker as intermediary not only to quote daily exchange rates, for telegraphic transfers, but to quote forward rates, so that the merchant may settle once and for all how much he is to pay in silver for gold at whatever time the transaction in which he is interested is to be terminated. The speculation in exchange is transferred from the merchant to the more experienced banker, who, through his intimate knowledge of the factors affecting exchange, not only has a better chance of guessing what it will be one, two, three, or four months later, but is able to average his commitments so as to minimize the possibility of loss by a rise in exchange, and to magnify the possibility of a gain by a fall below the figures at which he has sold it to the merchant. So skillful, indeed, have the Shanghai bankers become in quoting forward rates that the profits from their exchange business are large. PHENOMENAL RISE IN VALUE OF SILVER. One of the great financial phenomena of the war period has been the sensational rise in the value of silver and the consequent fall in gold exchange. The decrease in the world's silver production of about $100,000,000 (United States currency) from the figures of 1911 (largely as a result of the Mexican troubles) ; the greater use of silver in the arts, resulting from the high earnings of people of the neutral countries in the first years of the war ; the great use of silver coin among soldiers in the field; the concentration of gold in America, forcing the wider use of silver currency in other coun- tries — these and other factors have combined to increase by 105 per (ent between 1908 and 1919 the value of the Haikwan tael, the greater part of the increase having taken place since 1915. The \ alues for the several years have been as follows : 1908, $0.65 ; 1909, $0.63: 1910, $0.66: 1911, $0.65; 1912, $0.74; 1913, $0.73; 1914, $0.67; 1915, $0.62; 1916, $0.78; 1917, $1.08; 1918, $1.19; July 1, 1919, $1,337. This means that Chinese merchants in 1919 are able to purchase, with the same amount of silver that they used in 1908, a great many more goods, and the rise in the purchasing power of silver should, according to ordinary expectation, have stimulated imports and de- pressed exports more than it actually did. The tightening of the money market due to the temptation to buy gold at favorable rates, the reluctance of Chinese emigrants to send money home at the unfavorable rate of gold, the decreasing tonnage of ships on the Pacific, the embargoes upon export of man-" articles from America 28 CHINESE CURRENCY AND FINANCE. and from Europe, prevented the rise in silver from having its full effect. Nevertheless, imports into China in the five years 1913-1917 averaged nearly 90,000,000 taels in value more than in the preceding five years, while exports averaged about 80,000,000 taels a year more. Evidently the economic law that trade is reciprocal and that exports and imports tend to balance proved stronger than the reputed tend- ency of high silver to depress exports as well as stimulate imports. The Chmese merchants were affected both ways by the rise in silver, profiting by the high price of silver in paying for their im- ports and suffering from it in the pay received for their exports, but the net result was somewhat beneficial commercially, and wholly so in its effect on Chinese Government finance. EFFECT ON CHINESE GOVERNMENT FINANCE. The Chinese Government receives its taxes and other dues in silver, and pays its foreign interest and other obligations in gold. The amount required annually for the service of China's known foreign debt in 1916 was in round figures $50,000,000 arold. which has been increased by at least $6,000,000 by borrowing since that date. Be- fore the rise in silver it took about $100,000,000 Mexican to pay the $50,000,000 gold interest obligations. In 1917 it took only $70,- 000,000 to pay the $50,000,000 due abroad, with a consequent saving to the Government of $30,000,000. And in the purchase of materials for the Government Railways, as well as in other ways, the Govern- ment profited likewise. In all its dealings with the outside world, to which it was a creditor, China enjoyed the unusual experience of receiving its income in appreciating money and paying its obliga- tions in depreciating coin. EFFECT ON FOREIGNERS IN CHINA. The rise in silver was not so pleasant to foreigners living in China and receiving their remittances from home in gold. For them the effect of the rise was to reduce their purchasing power by practically half, and foreign firms and Governments that were not already pay- ing their employees on a silver basis, Or in gold at a fixed rate of ex- change, were compelled to readjust salaries in order to enable their dependents to live at all. NEED OF CURRENCY REFORM EMPHASIZED. The confusion caused by the rise of silver (which would have been equally bad if silver had fallen, as it has done in times past) caused all the students of Chinese money, currency, and banking to reiterate their former arguments in favor of placing China on a gold basis ; but admitting, as the writer does, the desirability of bringing China into line with the other great nations in this matter, it still seems to him unwise to attempt the introduction of a gold standard until after the unification of the country's finances on a silver basis. Then, with the domestic financial situation reduced to some sort of order, progress should be made toward a gold basis, probably through the intermediate stage of a gold exchange standard. THE GOLD EXCHANGE STANDARD. " Oriental nations are loath to discard old currency theories," says W. F. Spalding ("Eastern Exchange"), "and the search for a system which would replace the silver standard with the minimum of disturbance to existing conditions has resulted in an expenditure of time and labor only comparable with the energy dissipated by the old alchemists in their pursuit of the secret of transmuting base metals into gold. Yet there are some countries which have crossed the Kubicon, and have boldly adopted a currency system which, if not entirely a gold standard, has at least a close resemblance to it." This system is the gold exchange standard, the object of which is the stabilizing of the country's currency in relation to other cur- rencies within certain fixed limits, all other aims being subordinated to this end. Und'^.r it, gold need not be in circulation at all in the country itself, whose paper, silver, or other money is kept at or near gold parity by Government control. WAY IN WHICH SYSTEM HAS BEEN WORKED OUT IN PHILIPPINES. The gold exchange standard system has been adopted in India, the Straits Settlements, Siam, the Dutch East Indies, and the Phil- ippines, and seems to be operating there with fair satisfaction to all concerned. The way it has been worked out in the Philippines is somewhat as follows : At the time of the acquisition of the Philippines by the United States the currency of the islands was in quite as chaotic a condi- tion as that of China now. The Philippines had maintained a sort of silver standard, but the main medium of exchange was not a Philippine or even a Spanish dollar or peso, but the Mexican, which has been so much in evidence all through the East, and still circulates extensively in China. The " Mex." dollar was subject to distressing fluctuations, and the Spanish Government made many vain attempts to stabilize it by prohibiting further importation and by other means. Gold was quite driven out of circulation in accordance with Gresh- am's law, which declares that worse money always drives out better. Finally a Filipino peso was invented, and some were coined, but though they were lighter than the Mexican and therefore not so liable to exportation as bullion, not enough were minted to fill the needs of commerce, and they circulated side by side with the Mexican dollar. EXPORTATION OF PESETAS. Subsidiary coinage consisted chiefly of Filipino and Spanish pe- setas. The Spanish peseta, normally worth about 20 cents American, had more prestige in exchange than the Mexican dollar, and while, as a local subdivision of the Filipino peso or its equivalent Mexican dollar, its gold value was, at one time, only 10 cents, its gold value in Spain did not fall below 15 cents. This situation tempted shrewd 29 80 CHINESE CURRENCY AND FINANCE. bankers to collect all the Spanish pesetas in the Philippines and send them to Spain, where they were worth 50 per cent more than in the Philippines — a profitable transaction which almost entirely drained the Philippines of small silver coins. Into the vacuum thus created American silver coins flowed after the American occupation. The American coins were of a value about twice that of the corresponding Spanish or Mexican coinage, but it proved difficult to make the natives see the difference, and currency fluctuations were extreme until a commission met and made the Mexican and Filipino dollars receivable for Government taxes at the rate of $2 Mex. to $1 American. FLOW OP DOLLARS TO CHINA. This plan worked well enough until the Boxer outbreak in China, when there was a great demand for silver in the Empire to pay the troops of the Western Powers sent there to suppress the Boxers. Mexican dollars flowed from the Philippines to China until their local market value rose to considerably more than the commission's fixed figure of 50 cents gold. Even a suddenly imposed export, duty of 10 per cent failed to check the exportation of Mexican coins, and the effect on Philippine trade was dismal. But after the Chinese demand for silver slackened in time the Mexican dollars, falling be- low a gold value of 50 cents, began to flow back to the Philippines and to drive out the American coins that had crept in during their absence. PROPOSAL FOR GOLD STANDARD. Experts were then sent out froni the United States to consult with the Philippine officials, and from these conferences emerged a bill which was presented to the House of Representatives, providing for a gold standard in the Philippines. The United States Senate did not agree with the House committee, and preferred the substitution of an American-Filipino silver dollar for the circulating Mexican. A compromise was eventually effected, providing for a 50-centavo piece of 192^^ grains of silver 900 fine, 20-centavo pieces, and 10- centavo pieces. The new coins made some headway, but the situa- tion continued to be unsatisfactory, and in 1903 the American Con- gress passed a bill providing a monetary unit for the Philippines of 1 peso, gold, weighing 12,% grains ^ fine, which was to become the unit of value when the Philippine government had ready for or in circulation not less than 5,000,000 of the 75,000,000 silver pesos (416 grains, 900 fine) which were also provided for in the act. The silver pesos were made legal tender and were declared to be at par with the gold peso and equivalent to 50 cents gold, American. Gold coin of the United States at the rate of $1 to 2 pesos was also made legal tender in the islands. GOLD RESERVE FUND. The government of the Philippine Islands was authorized by the act to issue temporary certificates of indebtedness at 4 per cent interest, redeemable in gold coin of the United States or in lawful money of the Philippine Islands, the proceeds of these certificates to be used for the maintenance of the parity of gold and silver pesos. CHINESE CURRENCY AND FINANCE. 31 Six months later, Congress passed the gold-reserve act of the Phil- ippine Commission. Under this act all funds in the insular treasury, which were the proceeds of the certificates of indebtedness mentioned above, all profits of seigniorage, all exchange profits made by the insular government on transactions with the United States, and all other receipts in the insular treasury accruing from the exercise of its functions of furnishing a convenient currency for the islands were made a separate and trust fund. PROVISIONS FOB MAINTAIIONG PAEITY. For the purpose of keeping the gold and silver pesos at par, and of keeping the currency equal in volume only to the requirements of trade, the insular treasury was authorized : (1) To exchange on demand at the insular treasury for currency offered in sums of not less than 10,000 pesos, or United States cur- rency in sums of not less than $5,000, drafts on the gold-standard fund established in the United States or elsewhere, charging a pre- mium of three-fourths of 1 per cent for demand drafts and 1^ per cent for telegraphic transfers; to direct the depositaries of the funds of the Philippine government in the United States to sell upon the same terms and in like amount exchange against the gold-standard fund in the Philippine Islands. (2) To exchange at par, on the approval of the secretaries of finance and justice. United States paper currency for all kinds of Philippine currency, and the reverse. (3) On like approval, to exchange for Philippine currency United States gold coin or gold bars on sums of not less than 10,000 pesos or $5,000, charging for the same a premium sufficient to cover the expense of transporting gold coin from New York to Manila. (4) To withdraw from circulation Philippine currency exchanged and deposited in the Treasury. (5) To withdraw from circulation United States paper currency and gold coin and gold bars received at the Treasury m exchange for Philippine currency. The last two provisions also include authority to reissue the Phil- ippine currency and United States gold as dictated by the needs of trade. The act has been amended technically, but not fundamentally, from time to time. It was found necessary in 1906, owing to the unforeseen rise in the price of bar silver, to lessen the silver content of the silver peso, in order to prevent its being melted down and exported to China as bullion. The silver peso was then fixed at 20 grammes 800 fine (16 giammes of pure silver and 4 grammes of alloj^ and the 50-centavo, 20-centavo, and 10-centavo pieces at 10, 4, and 2 grammes, all 750 fine. A course of progressive taxation on all but the new coinage, begun in 1904, soon drove all the Mexican, Spanish, and other old coins out of circulation. PAPER MONET. Under the Spanish regime, the issue of notes was a monopoly of the Banco Espafiol Filipmo, now the Bank of the Philippine Islands. The note privilege has since been transferred to the Philippine Na- 32 CHINESE CURRENCY AND FINANCE. tional Bank — organized in 1915 (with a controlling interest in its 20,000,000-peso capital owned by the government) to act as fiscal agent of the government. The Philippine National Bank notes are issued under stringent provisions as to reserve, which prevent any tendency to depreciation such as is manifested by the notes of the Bank of China and the Bank of Communications. The insular treas- ury is authorized to issue silver certificates, but the silver exchanged therefor must be retained in the treasury; and the certificates are essentially cash and are paper money in form only. United States paper money circulates at $1 to 2 pesos. EXCHANGE OPERATIONS. The authority given to the insular treasury to buy and sell ex- change was not intended to give it a monopoly of that business, but only to enable it to use the exchange market in order to keep the peso at an approximate parity with its legal gold equivalent, and the banks continue to do the bulk of the exchange business. The gov- ernment rate of three-fourths of 1 per cent for mail transfers and IJ per cent for cables (originally 1^) constitutes a minimum, above which the exchange market is competitive among all the banks. Under the acts of March and October, 1903, the government is in a position to buy or redeem surplus currency at fixed rates whenever there is a large demand for foreign remittances, and to direct its de- positary in New York to sell exchange on Manila, which the insular treasury cashes in Philippine currency whenever' the need for addi- tional currency in the islands arises. The parity of the gold and silver, pesos is thus maintained with a small use of gold, and silver remains essentially the circulating medium of the islands. FEASIBILITY OF ADOPTING SYSTEM IN CHINA. The gold exchange standard has worked so well in the Philippines, India, and elsewhere in the East that it would appear feasible to adopt it in China, though the adverse trade balance at the present time might seem to be against it. An excess of some $100,000,000 of imports over exports forecasts a heavy drain on a gold exchange stand- ard fund deposited abroad, but with the return of normal conditions in the world at large, China's exports should tend to balance its imports, and any adverse balance that may remain will probably be corrected by the investment of American and other capital in China. If, for instance, China should in any year have a balance to pay abroad of $100,000,000, that $100,000,000 might easily be offset by investment funds sent to China, which would mean a supply, of sufficient New York (or London or other) bills of exchange to avert the necessity of China's drawing on its gold reserve in those centers. THE PLAN OF 1918. The management of the Bank of China has for some years past been trying to work out an exchange plan which somewhat resembles the gold exchange standard, and that idea was probably behind the recent proposed issue of Bank of China notes convertible into notes of a certain Japanese bank, which in turn are convertible into gold CHINESE CUKBENCY AND FIHANCE. 33 in Japan, and the appointment of a currency reform bureau to intro- duce the new notes. But the 1918 plan, which involved a loan of 80,000,000 yen from banks of an individual Power was nebulous and aroused the instant opposition of the international banking group, which holds that the currency loan agreement of 1911 binds China to borrow for this purpose only from the group. The 1918 plan also contemplated the appointment of an individual foreign adviser on Chinese currency reform, which elicited protests from all the allied powers. At present the 1918 plan, which was never well defined, appears to be in abeyance. SUMMARY OF MONETARY SITUATION. What is needed is a thoroughgoing reform of the whole Chinese monetary system under competent direction, the directors to be international and to have ample powers. By engagements of long standing, cemented by the loan agreements of 1895, 1896, and 1898 and by the Boxer indemnity agreeinent, the Maritime Customs have been administered by foreigners to secure the payment of interest on foreign obligations ; and by the terms of the Reorganization Loan of 1913 foreigners have practical direction of the Salt Administration. The revenues from both these sources have been substantially increased by foreign management, and the surplus from the two sources over the amount required for the payment of foreign obligations secured upon them has been an important part of the Chinese Government's free income in the past three years. The security offered for the currency loan of 1911, which was not floated, was a salt surtax over all China and the wine and tobacco pro- duction and consumption tax of Manchuria. By the terms of the Reorganization Loan of 1913 China agreed to borrow in future on the security of salt only from, or with the consent of, the international group, and recent loans by the Yokohama Specie Bank on salt surplus have been made by it as agent of the group. So, whether the currency option of 1911 is considered still alive or not, everything points to an international currency loan. The remission of the Boxer indemnity, if such an act were deemed practicable, would relieve the Salt and Maritime Customs Administra- tions of an annual interest charge of about $12,000,000 and a total capital burden of about $300,000,000. The Boxer indemnity payments have been postponed for five years from 1918, but the indemnity still stands; the postponement means only that China has until 1945 to complete the payments, instead of until 1940. The recent revision of the Chinese tariff by international agreement will, it is estimated, increase the Maritime Customs receipts by $8,000,000. Sir Robert Hart estimated many years ago that the land tax, now yielding about $90,000,000 a year, could be made to yield five times that amount if efficiently collected ; and Sir Richard Dane has stated that the Wine and Tobacco Administration, now producing a compara- tively small revenue, can be made to yield as much as the Salt Admin- istration — more than $70,000,000 in 1918, in spite of the retention of some of the taxes by certain Provinces. The security for a currency loan, or a second reorganization loan, which would include funds for currency reform, can assuredly be found. 34 CHINESE GOVERNMENT FINANCE. INTRODUCTION. Until the Manchu conquest (1644:) Chinese Government finance was not unlike that of an individual who gets what he can and spends what he must and by some kindly dispensation manages to make both ends meet without knowing just how he has done it. At the beginning of the Manchu regime the total cash revenues of the Imperial Government were less than 20,000,000 taels (30,000,000 silver dollars) , or about half the 1917 receipts of the Maritime Cus- toms alone; but the expenditures of the central Government were correspondingly modest, and in spite of costly wars and other ex- traordinary drains the Imperial Treasury during the first half of the second century of Manchu rule showed a steady cash balance of 60,000,000 to 70,000,000 taels. From 1740 to 1790 revenues aver- aged 40,000,000 taels and regular expenditures 30,000,000. Nothing like a modern budget was known, and the system of taxation and remittance of taxes to Peking was of an intricacy to encourage all kinds of irregularities; but the Government at that time and for 60 years afterwards had little difficulty in finding either the funds normally needed or those demanded by special events. In 1850, however, came the great Taiping rebellion, which de- stroyed nearly a third of the nation's population, devastated 12 of the richest Provinces, strained the resources of the Government to the breaking point, and initiated the series of calamities that i;esulted in the expulsion of the Manchus from the throne in 1911. Of these calamities the worst, after the Taiping rebellion, were the war with Japan in 1894 and the Boxer rising of 1900, the first of which saddled the country with a foreign debt of £48,000,000 sterling, the latter with the Boxer indemnity of 450,000,000 taels. The Manchu Dynasty failed under the repeated blows of adversity, but an independent China survived, and with the advent of the Republic a start was made in 1912 toward putting the Government on a business basis. The reforms contemplated by the founders of the Republic have been slow of realization, but since the second year or the Republic a regular budget has been published in silver dollars, and it is now possible to know something of the financial status of the Government and to forecast to a certain extent future receipts and expenditures. BUDGET DRAWN UP BY MINISTRY OF FINANCE. Following is the budget as drawn up by the Miuistry of Finance for the second, third, fourth, and fifth years of the Republic; no budget was made up for the sixth year (July 1, 1917, to June 30, 1918), the budget for the previous year being continued by pro- mulgation ; 35 36 CHINESE CUKRE]SrCY AJfD FINANCE. REVENUES. Classes ol revenuo. July, 1913, to June, 1914. July, 1914, to June, 1915. Jan., 1916, to Dec., 1916. July, 1916, to June, 1917. I. OKDINAEY, 10. Land tax CuatonM revenue Salt revenue Taxes on commodities, including likin Regular and miscellaneous taxes Begular and miscellaneous duties Inconie from Government investment Miscellaneous income of Provinces Income of central administration Income directly received by central Government Total , Chinese dollars. 79,180,723 66; 970, 003 77,401,266 36,876,823 33,726,227 3,173,530 7,849,579 12, 723, 427 Chinese dollars, 76,859,060 78,773,341 84,879,873 34,175,656 28,000,424 4,947,281 4,063,483 6,133,694 4,620,786 29,611,340 Chinese dollars. 95,972,818 71,320,970 84,771,365 40,271,368 32,341,704 14,067,574 2,621,261 6,927,694 1,635,464 76,306,927 317,900,577 351,064,937 428,237,145 n. EXTRAOEDlN.tKT. Land tax Customs revenue Taxes on commodities Regular and miscellaneous duties Income from Government investment Miscellaneous income of Provinces Income of central administration Income directly received by central Government. Miscellaneous income of central Government Loans Advances from banks Total. 3,322,889 1,254,280 6,054 132, 829 634,093 10, 115, 868 1 230, .108 2154,269 2,368,749 629,716 10,391 364,021 1,675,024 1,406,077 1,480,696 847,369 18,716 4,496.333 16,703 338,253 1,359,698 17,051,808 223,370,000 25,082,398 20,000,000 239,130,590 31,436,376 45,609,665 Chinese dollars, 90,105,784 73,056,663 96,767,010 42,719,194 34,768,432 6,448,685 2,083,401 5,101,531 1,374,648 36,684,311 388,009,60 6,751,464 706,885 21,026 3,911,410 8,361 91,610 2,248,438 23,510,969 8,100,000 24,291,468 16,187,305 84,828,955 Grand total of revenue. 557,031,167 382, .501, 313 471,846,710 472,838,585 EXPENDITURES. Classes of exi>enditure, by ministries. July, 1913, to June, 1914. Julv, 1914, to Jime, 1915. Jan., 1916, to Dec, 1916. July., 1916, to June, 1917. I. ORDINARY. 1. Foreign Affairs.. 2. Interior 3. Finance 4. War 5. Marine 6. Justice 7. Education 8. Agriculture and Commerce 9. Communications 10. Mongolian and Tibetan Affairs. Total n. EXTRAORBINARY. 1. Foreign Affairs 2. Interior 3. Finance 4. War 6. Marine 6. Justice 7. Education 8. Agriculture and Commerce 9. Communications 10. Mongolian and Tibetan Affairs. Total Grand total of expenditures. Chinese dollars. 3, 293, 116 39,618,149 210,345,180 136,864,494 7,665,881 14,671,826 5, 207, 216 6,083,386 934, 877 Chinese dollars. 4,229,629 42,672,290 r 23, 383, 898 [ 29,960,079 134,061,795 4,802,660 7,268,459 3,276,904 2,276,537 1,935,660 1,065,344 Chinese dollars. 3,276,677 49,653,982 \ 53,531,625 135,813,986 17,101,779 7,665,772 12,611,683 3,762,244 1,577,408 947,230 Chinese dollars. 4,446,548 42,570,10* 61,792,970 156,606,047 7,304,135 9,337,166 4,433,893 2,734,790 1,633,606 1,044,218 423, 684, 122 254,922,955 285, 942, 286 291,803,470 1,013,223 4,263,860 171,568,614 26,910,518 1,307,014 370,312 1, 701, 635 959,735 467,843 98,564,793 3,626,282 10,000 826, 141 2, 106, 864 175,302,789 6,438,727 102,758 45,572 226,724 376,792 112, 783 40,000 1,846,786 3,117,770 162,397,633 10,711,333 847,434 28,610 594,943 1,279,496 116,833 94,278 208,562,764 102,101,075 185,577,150 181,035,114 632,236,876 367,024,030 471,619,436 472,838,584 > Contributions. ' Salt revenue. CHINESE CURRENCY AND FINANCE. 37 The figures in the above table, which was compiled by the Ministry of Finance, are estimated, and the comparison of years is inexact, because in 1915 Yuan Shih Kai changed the fiscal year to coincide with the calendar year ; but the table gives an approximation of actual receipts and expenditures, and shows the relative importance of the various taxes as income raisers. TEN ORDINARY SOURCES OF REVENUE. The history of the 10 ordinary sources of revenue, with some remarks as to the possibility of their expansion, follows : 1. LAND TAX. The land tax is of the remotest antiquity and formerly produced two-thirds of the cash revenues of the Imperial Government. It arose from the fact that the Government was founded on conquest and all the land was considered the Emperor's property. But in China this theory was never pushed to extremes, and the use of the land was left to the occupants, with full rights of possession, the technical proprietorship of the Emperor being recognized by payment of an annual tax based on the rental value of the land. In 1713 this rental value was fixed by the Emperor Kang-hsi in a decree which declared that it should stand for all time. Consequently the land tax of to-day, three- fourths tael per 6 mow (1 English acre), is, in theory at least, based on the assessments of 1713, when about 100,000,000 English acres were under cultivation. Authorized reduc- tions in the assessments have been made from time to time on account of insurrections, floods, and other calamities, subject to restoration after the effects of the calamities had been repaired ; but these reduc- tions have been by no means canceled, and a vast amount of land, particularly in the parts of China most ravaged by the Taipings (Anhwei, Chekiang, Honan, Kiangsu, Kiangsi, Kweichow, Szech- wan) is to-day undervalued on the basis of 1713. A complete re- valuation of all lands in China under existing conditions would, despite the recent effects of civil war, undoubtedly result in a very material increase in the proceeds of the land tax. But the greatest evil of the present land tax is not the obsolete assessment. It is the manner in which that assessment has been evaded by the irregular exactions of tax gatherers. While the land tax reinains nominally as fixed in 1713 and the proceeds that reach Peking are calculated on the old assessments, the " increments " added to the nominal and legal tax by local and provincial authorities have increased the actual amount collected from the landholder by as much, in some instances, as 500 per cent. 2. CUSTOMS REVENUE. HISTOBICAL SURVEY. The collection of duties on commodities crossing the water and land frontiers of China is of almost equal antiquity with the land tax, but the customs did not become an important source of revenue until the sixteenth and seventeenth centuries, with the development of maritime trade. 38 CHINESE CURRENCY AND FINANCE. The same looseness of method that characterized the collection and remittance of the land tax involved in obscurity the customs receipts of old times, and it is probable that no official ever knew how much was actually collected or how. But since 1854 the maritime customs have been collected by a highly efficient force. The reorganization of the maritime customs was due primarily to the Taiping rebellion of 1850-1864. In September, 1853, the Taipings, who had marched out of Kwangsi and had made their devastating way down the Yangtze Valley, captured the native city of Shanghai. The loyal Chinese officials fled to the foreign settlement, which was under the guns of protecting warships, and the customhouse was closed. The foreign merchants did not wish to pay duties to un- authorized officials. So they decided to declare their goods at their respective consulates, and deposit bonds to cover the duties until the loyalist customhouse should be reopened. This business proved rather more than the consular officials could handle, and on June 29, 1854, an agreement was signed between the Taotai of Shanghai and the British, French, and American consuls, providing for a board of three foreign inspectors who should assume the responsibility of collecting duties for the time being and attempt to build up a permanent and efficient corps for the future. The first three inspectors were British, American, and French, but as the British inspector was the only one who spoke Chinese, he naturally took the lead, and the development of the service has con- tinued under British inspectors general, with an understanding (reached in 1898) that the chief inspector shall continue to be British as long as the British trade in China predominates. The district inspectorships, and other positions in the service, are divided as equally as possible among citizens of the trading nations. So well had the Maritime Customs service been organized by 1S96 that when China needed foreign assistance in liquidating the obliga- tions incurred in the war with Japan, including an indemnity to Japan of 230,000,000 taels, the foreign bankers were only too glad to advance the money needed, in three loans of £16,000,000 sterling each, and made the Maritime Customs receipts their security. And again, when in 1901 the powers imposed upon China the Boxer in- demnity of 450,000,000 taels, they found acceptable security for its payment in the Maritime Customs receipts, with the salt tax as a secondary security. It was agreed in the protocol of 1901, covering the Boxer indemnity, that the tax of 5 per cent ad valorem on imports and exports which had long been settled upon by international agreement, should be converted into specific duties on the basis of merchandise valuations of the years 1898, 1899, and 1900, and that the schedules should ba levised every 10 years, in order to keep the specific duties as near as possible to equivalents of 5 per cent ad valorem. No revision took place in 1911, on account of the revolution, but on January 5, 1918, a tariff commission composed of representatives of the Chinese Gov- ernment, the Maritime Customs Administration, and each of the powers trading With China, met in Shanghai for the purpose of re- vising the schedules so that they should yield an effective 5 per cent on current values. It was expected that the work of this commis- sion, which completed its labors in December, 1918, would, result in an increase of at least 25 per cent in China's Maritime Customs revenues, which were, in 1917, 38,000,000 taels. CHINESE CUKEENCY AND FINANCE. 39 RECEIPTS FOE EOIVBN TTEABS. For the 11 years ending with 1917 the receipts of the Maritime Customs were as follows: Years. Import duties.! Export dufies.2 Coast trade duties. TonBage dues. Transit dues.s Opium likin. Total. Inward. Outward. 1907 1908 1909 1910 1911 1912 1913 1914 1915 1916 1917 Baikwan taela. 14,879,247 13,134,509 14,084,736 14,087,232 14,742,801 16,045,202 19,938,860 18,202,741 14,367,221 15,226,056 16,161,139 Baikwan taela. 9,454,648 10,983,485 12,335,675 13,128,635 12,622,759 13,809,148 13,948,315 13,047,670 15,439,709 16,542,614 16,381,663 Haikwan taela. 1,76«,982 1,856,605 2,016,506 2,123,798 2,035,694 2,334,927 2,439,166 2,235,710 2,617,713 2,399,406 2,351,340 Haikwan taels. 1,321,192 1,264,915 1,276,218 1,329,024 1,346,385 1,371,614 1,534,878 1,481,949 1,194,959 1,132,890 994 231 Baikwan taels. 1,631,383 1,387,069 1,409,892 1,486,778 1,289,991 1,312,271 1,668,395 1,736.616 1,519,507 1,341,948 1,373,861 Baikwan taels. 438,017 403,890 510,925 577,389 578,039 653,333 621,106 684,627 769,433 845,333 711,509 Baikwan taels. 4,370,877 3,871,422 3,905,965 2,839,023 3,664,166 4,424,117 3,819,133 1,598,213 939,164 287,064 215,706 Baikwan taels. 33,864,346 32,901,895 35,539,917 35,571,879 36,179,825 39,950,612 43,969,853 38.887,525 36,747,706 37774311 38 189 449 > Inclusive of opium. 2 Under this head are included export duties on Chinese produce lor home consumption carried Irom port to port la vessels of foreign type and Junius licensed to trade under the treaty tariff. 3 Transit dues are explained on page 43, under the beading " Taxes on commodities." The Haikwan (customs) tael, which has been adopted at all treaty ports for the payment of duties and to measure the value of foreign imports and exports, is 581.77 grains troy of silver. Owing to the continual fluctuation of silver as measured by gold, the exchange value of the tael is fixed annually by the customs authorities. These fluctuations create the anomaly that the actual siher receipts of the customs, though giving a basis of comparison of actual trade year by year, do not give a true picture of the trade situation. The receipts for 1917, for instance, were only 413,000 taels more than for 1916, but the exchange, or gold, value of the receipts was greater than in 1916 by £1,977,461, or about $9,600,000. LIST OF TREATY PORTS. Maritime Customs dues are collected at the following 48 " treaty ports," which have been declared open by a series of treaties made be- tween 1843 and 1918 : Manchuria : Aigun, Sansing, Manchouli, Harbin, Suifenho, Huncliun, Lung- chingtsun, Antung, Tatungkow, Dairen, Newchwang. Cliilili: Ohinwangtao, Tientsin. Sliantung: Chefoo, Kiaochow. Kiangsu : Shanghai, Soochovv, Nanking, Chinkiang. Kwangtung: Canton, Kowloon, Kongmoon, Lappa, Pakhoi, Samshul, .Swatow. Fukien : Amoy, Foochow, Santuao. Chekiang: Hangchow, Ningpo, Shasi. Hupeh: Hankow, Ichang, Shasi. Kiangsi: Kiukiang, Lungchow, Nanning, Wuchow. Hunan : Changsha, Yochow. Anhwei : Wuhu. Yunnan: Mengtsz, Szemao, Tengyueh. Hainan : Kiungchow. Tibet: Yatung. _ ^^nic.^^am. In addition to the treaty ports, 16 cities in Manchuria, 5 in Shan- tung, 5 in North Chihli, 3 in Kwangtung, 2 in Tibet, 1 in Mongolia, 1 in Turkestan, and 1 in Kiangsu have been declared " open to trade." LIBRARY KfOV 4 1S43 40 CHINESE CUKEENCY AND FINANCE. NATIVE CUSTOMS. At the treaty ports, as well as at all important stations on the coast and alongside the maritime customhouses, are native customhouses, which collect duties on goods carried by sailing junks not licensed to trade by the tariff treaty. The receipts of the Native Customs for the four years 1914-1917 have been as follows : 1916 Newohwang . Tientsin Chefoo Ichang Shasi Eiukiang Wiohu Shanghai Ningpo Wenchow Santuao Foochow Amoy Swatow Canton Kongmoon. . . Wuchow Kiungchow.. Pakhoi Baikwan taele. 161, 414 > 1,000,412 65,628 66,415 17,056 385,695 429,762 217,888 101,742 32,357 70,489 196,736 82,278 75,339 261,868 94,342 95,106 26,282 7,693 Baihwan iaela. 171,702 11,109,345 72,681 61,560 16,713 407,932 637,064 228,155 104,553 38,802 76,098 179,051 81,765 111,596 261,757 94,975 98,593 25,051 7,185 Baikwan taeU. 122,897 11,091,237 85,837 60,641 11,709 384,435 740,448 213,895 137,177 39,020 82,712 182,190 77,050 115,638 216, 469 37,781 117,240 20,687 9,583 Baikwan taek, 144,845 •999,053 81,058 55,404 11,382 347,068 686,430 229,952 125, 160 48,584 84,48t 243,507 71,551 122, 546 285,103 69,037 135, 671 25,bS4 Total 3, 389, 102 3,784,548 3,746,646 3,776,284 1 Not including tbe outward transit dues collected on behalf of and remitted to the Maritime Customs. By the Peace Protocol of 1901, the foregoing native customhouses being within 15 miles of a treaty port, have been placed under the supervision of the foreign commissioner of customs of that port, with the result that a regular tariff has been substituted for the irregular levies of native customhouses. At other points the Native Customs continue to be administered by Chinese officials, and lack of proper statistics prevents an accurate statement of their receipts. Th? average amount of Native Customs receipts remitted to Peking in the four years 1914r-l7 has been about $7,500,000. If administered simi- larly to the Maritime Customs, the Native Customs, which have been pledged as security for a number of internal loans and as part secur- ity for certain foreign loans, could undoubtedly be materially in- creased. FOEEIGN OBLIGATIONS SECUEED UPON MARITIME CUSTOMS RECEIPTS. The foreign obligations secured upon the Maritime Customs re- ceipts are: Loans. Original amount. Outstanding June 30, 1917. Bate. Franco-Russian loan of 1895. Anglo-German loan of 1896. . Anglo-German loan of 1898. . Boxer indemnity of 1901 /Fr.400,000,000 \ £15,820,000 £16,000,000 £16,000,000 ;TIs.46O,0O0,0OO \ '£08,500,000 £9,408,269 Per cent. 4 £10,073,536 £12,650,946 5 £62,728,600 ' Includes a loan of £1, 000,000 for adjustment of exchange. CHINESE CURRENCY AND FINANCE. 41 In considering the payment of foreign obligations out of the Maritime Customs receipts it must be remembered that the foreign charges are payable in gold, while the customs receipts are in silver. The recent sensational advance in the value of silver as measured by gold has been of very great advantage to China, as it has been able to buy more and more gold with a given amount of silver. Thus the customs receipts of 1917, 38,177,000 taels, had a gold value of £8,241,857, or more than £2,000,000 above the annual foreign charge on the Maritime Customs, while the receipts of 1916, 37,764,496 taels, was worth, at the average rate of exchange for that year, only £6,264,496, or not very much more than was required to pay the foreign charges for that year. Silver is not likely to decline mate- rially while war conditions prevail, but it should not be forgotten in estimating China's financial future that its present favorable status is due somewhat to the abnormal value of silver. BOXEB PEOTOCOL. By the terms of the Boxer, or Peace, Protocol, and those of the Keorganization Loan of 1913, the Maritime Customs receipts and the salt tax were made interlocking securities; that is, if the Mari- time Customs receipts fail to meet the charges on the customs (as has happened in several years), the salt tax can be drawn upon; conversely, if the customs receipts exceed requirements and the salt receipts fall short, the customs surplus can be used to pay interest on the Reorganization Loan, which is primarily a charge on the Salt Administration. The high relative value of silver in 1917, together with the fact that China ceased to pay interest and installments to Germany and Aus- tria after its entrance into the war, enabled China to pay, with the £8,241,857 sterling receipts of the customs, not only the interest and installment due on the English part of the loans of 1896 and 1898. the Franco- Russian Loan of 1895, and the Boxer Indemnity, but, for the last six months of the year, to pay all the interest on the Reor- ganization Loan. And, after this, the customs still had a surplus of 10,000,000 taels, of which 2,000,000 was released to the Chinese Gov- ernment and the balance paid into the salt account as reimbursement of contributions previously made by salt to the payment of the Boxer Indemnity. In January, 1918, as a result of the entrance of China into the Great War, all the Entente Powers but Russia agreed to a postpone- ment of Boxer payments for five years, and Russia agreed to a one- third reduction, thus lightening China's annual financial burden by about £2,000,000. This action was a postponement, not a remission of payments, so it will not cause any reduction in the end in the obligations of the Maritime Customs. 3. SALT GABELLE. From time immemorial the salt trade has been treated as a Govern- ment monopoly in China. It was not, however, so administered as to yield the maximum return until the Reorganization Loan of 1913, by the terms of which the Salt Gabelle (the Gallicized name of the Salt Administration) was reorganized and the collection of its revenues placed under expert direction. 42 CHINESE CUEEENCY AND TINANCE. Formerly China was divided, for purposes of administration of the salt monopoly and tax, into 11 salt areas and the areas subdivided into a great number of districts in an attempt to equalize as far as possible the natural conditions in various places. Since the Govern- ment not only taxed salt but acted as middleman between producer and retailer (frequently as transportation agent as well as whole- saler), and in some places handled the whole salt business from the well, lake, or sea to the consumer's table, it was necessary to make a schedule of such charges as the traffic would bear. A high tax on salt near the sea, for example, and a consequent high price to the consumer, would set everybody to evaporating his own salt, and the prevention of illicit manufacture would cost more than the revenues collected. In places where no salt was produced a high tax could hardly be evaded, but too high a tax would lessen consumption and so cut down the Government's receipts. Such considerations as these made the Salt Administration a highly complicated affair, and resulted in a set of schedules beside which the proverbial Chinese puzzle was simplicity itself. What the average salt tax was for the whole country is as difficult to deter- mine as the aggregate receipts from taxes and the public sale of salt. The individual tax ranged from $0.66 silver to $5.09 per picul (133 1/3 pounds), according to the location of the consuming district. As to the revenues collected, the most that was ever received in Peking in one year, according to investigations made before the Reorganiza- tion Loan was signed, was 13,000,000 taels. When the new Chinese Republic in 1913 approached the intemationaF bankers for a loan of £25,000,000 with which to reorganize the nation's finances, the salt revenues were offered as security, subject to some small underlying liens, which included the contingent liability under the Boxer pro- tocol. The bankers demanded as essential to the loan a complete reorganization of the Salt Administration. This demand the Chinese Government conceded, and in December, 1913, provisional order No. 43 was promulgated, providing for a central administra- tion under the Ministry of Finance, with two chief inspectors, one Chinese and one foreign. The foreign inspector (an Englishman) has largely controlled the collection of the salt tax since that date, and has had charge of the payment of the obligations secured upon the salt receipts. The Chinese still control entirely the production and sale of salt, in regard to which the foreign inspector is merely and adviser. Much progress has been made, however, in the direction of abolition of the monopoly of salt and the introduction of free trade. It was proposed in the Reorganization Loan agreement that a flat tax should be adopted, $2 for one half of China and $2.50 for the other, but that was soon found impracticable and the old system of rates was retained, with modifications that tended to make the tax more equitable. In 1917 the net salt revenue paid into the "group " banks (repre- senting the Reorganization Loan syndicate) was $70,627,249, silver, as compared with 13,000,000 taels (about $20,000,000 silver) , the amount returned to Peking during one year (an especially unfavorable year) previous to the reorganization. As was stated in the previous section, the surplus receipts of the Maritime Customs for 1917 paid most of the obligations primarily CHINESE CtTKEENCY AND FINAIfCE. 43 chargeable on the salt revenues : so the final free surplus from salt in 1917, after all charges and the maintenanCfe of a fixed reserve of $10,000,000, was $68,613,370, which was released for the general use of the Chinese Government. The salt revenues, charges upon them, and releases for the four years since the reorganization have been as follows : Items. 1914 1915 1916 1917 CHAEQES AND OBLIGATIONS. $2,700,025 13,605,834 99,561 725,974 4,075,179 2* Chinese Indemnity of 1901 $23,787,463 149,343 731, 128 2,998,885 6,'932,263 $10,071,371 150,610 725,976 2,383,368 11,580,682 3. Hupeh provincial Donds of 1909 $50,048 4. nhihliprnvinfisilhnnflsnf IQin 725,974 6. Chinese Government 5 per cent gold Crisp loan of 1912 : 1,740,888 6. Chinese Government 5 per cent gold reorganization 5,620,392 376,094 7. HnknanE railwfty IoHnnf1911 ,. . Total 21,106,573 34,599,082 24,911,907 8,513,396 31,304,818 27,523,066 52,266,185 68,613,370 4. TAXES ON COMMODITIES, INCLUDING LIKIN. The taxes in this category include production and consumption duties of various kinds and taxes on connnodities in transit, com- monly called likin, a word that means " a contribution of a thou- sandth " or one-tenth of 1 per cent. The likin tax was one of the evil results of the Taiping Eebellion, for the suppression of which the invention of new taxes was made necessary, and it has constituted one of the principal factors hampering the growth of China's inland commerce. Likin barriers are placed along all the highways of commerce, including the railways, and, though an official tariff said to average 3 per cent is in existence, they levy upon passing com- modities irregular tolls that not only dam the stream of business but raise, very materially, the prices of those things that manage to get over the obstruction. It has been officially stated by the Min- istry of Finance that lumber coming down to Peking from the Upper Yalu pays likin tolls totaling 17 per cent, in addition to which it must pay the Peking octroi of 3 per cent before it goes through the city's gate; and it would not be at all difficult to find instances of even higher taxation on commodities moving from one place to another. Even between Tientsin and Peking — ^two great cities only 80 miles apart, and the former the port for the latter — a likin bar- rier exists at Fengtai which, together with Peking octroi, tends to reduce the business of the capital to a minimum. The larger traders have combined, through their guilds, to effect some sort of an arrangement with the collectors. By these arrange- ments an amount representing usually 3 per cent at the point of departure and 2 per cent at each inspection station is paid through the guild, it being the practice to limit the amount collected in one province to 10 per cent. Foreign goods have a decided advantage in regard to likin through the treaty provisions providing for the issuance of transit passes. Foreign goods may be shipped into the interior to nontreaty ports 44 CHINESE CURRENCY AND FINANCE. by paying 2^ per cent ad valorem, in addition to the import tax of 5 per cent. The treaties have been interpreted by some of the powers to mean that the transit pass frees the goods from all inland taxa- tion, but the Chinese have refused to concede this, maintaining that the treaties do not forbid the imposition of a destination or landing tax. This point is still at issue and is not likely to be settled soon. The transit pass is, indeed, a subject of continual contention between the customs authorities and foreign merchants, but in spite of the many complications that seem to attend its use it is of such value that dummy foreign firms are frequently formed for the sole purpose of lending their names to Chinese merchants, enabling them, if they are clever, to secure transit passes and thus escape the greater part of the likin burden. Investigations have been made, with ensuing reports and recom- mendations, and all kinds of diplomatic attempts have been made to obtain the abolition of the likin. This was, indeed, provided for by the Mackay treaty of 1902 with Great Britain. The proceeds of the likin are employed in so many different ways, including their use as part security for loans to the central Government as well as pro- vincial loans, that this obnoxious tax seems almost invulnerable. The likin, if abolished, would need to be replaced by some means of raising at least as much revenue as the likin now provides, prob- ably at least 40,000,000 taels a year; this might be done by the imposition of a surtax on the Maritime Customs, but the political perils of making so radical a change in internal administration seem for the immediate future insuperable. Everybody, foreigner or Chinese, who is interested in the growth of China's trade favors the elimination of the likin, and some day it will undoubtedly be removed. 5. REGULAR AND MISCELLANEOUS TAXES. The taxes indicated in the above heading include tax on title deeds, wine tax, tobacco tax, tax on cattle, tea tax, business tax, mining tax, shop tax, butcher tax, pawnshop tax, sugar tax, timber tax, fishing tax. 6. REGULAR AND MISCELLANEOUS DUTIES. Among the duties indicated in the above heading are wine and tobacco duty, grain duty, silk duty, butchery duty, house duty, com- modity duty, salt duty, cattle duty, tea duty, tax-certificate duty, ship duty, rough-cloth duty, shop duty, duty on weights and meas- ures, wagon duty, sugar duty, oil duty, business duty, salt liquor duty, cotton duty, camel duty, bamboo and timber duty, sulphur and niter duty. It would appear from the lists under headings 5 and 6 that the Chinese are the most miscellaneously taxed people in the world, but happily each of the taxes mentioned above is m itself very small, and even in the aggregate they do not mean a large amount to the individual. The greatest evil of these miscellaneous impositions is in the lack of system with which they are levied and collected. The Chinese themselves admit that Chinese taxation needs radical revision, which would not only ameliorate the condition of the people CHINESE CUEEENCY AND EINANCE. 45 by equalizing and lessening their burdens, but would unquestionably increase the. Government's revenues. It is obvious that such a list of heterogeneous taxes as that given above must necessitate a vast amount of costly and unnecessary official work. Of the 36 taxes and duties enumerated above, the wine and tobacco tax is the only one that produces a large revenue, and the return from that is much smaller than the revenues of the Government monopoly of the sale of wine and tobacco, which are carried in the budget under the head of " Income received directly by the Government." The wine tax (the wine and tobacco tax) bureau has been pledged as part security for the Banque Industrielle loan of 1913, and the wine and tobacco tax for the so-called American (the Continental & Commercial Savings & Trust Co, of Chicago) loan of November, 1916. This latter loan was for $5,000,000 gold, with option to the bank of lending an additional $25,000,000 gold on the same security. It was proposed when the negotiations for the Chicago loan were under way that the collection of the wine and tobacco taxes and the operation of the Government wine and tobacco monopoly should be combined under one bureau and the whole administration thereof reformed in some such M^ay as the salt administration was reformed at the time of the Eeorganization Loan of 1913. , Figures were pre- sented at that time by the Ministry of Finance showing that the combined revenues of the wine and tobacco tax and the wine and tobacco monopoly could very easily be made to exceed $25,000,000 a year. Since then it has been declared freely by the foreign chief inspector of the Salt Gabelle that a thorough reform of the wine and tobacco administration should result in a net revenue even greater than that from salt, which exceeds $70,000,000 a year. 7. INCOME FROM GOVERNMENT INVESTMENTS. This income is composed of revenues of a few factories owned by the State (the largest of which is a paper mill at Hankow), of divi- dends on certain shares in industrial enterprises, and of rent from State land. The items are all small and are at present negligible. 8. MISCELLANEOUS INCOME OF PROVINCES. This income comprises fees of various kinds, interest on official funds, etc. 9. INCOME OF CENTRAL ADMINISTRATION. This income is made xvp of similar items and the profits of the Bureau of Engraving and Printing. 10. INCOME RECEIVED DIRECTLY BY CENTRAL GOVERNMENT. As before stated, this income includes the revenues of the wine and tobacco monopoly ; it also includes surplus earnings of the Gov- ernment Eailways and revenues from stamp duties, all of which are important enough to have been used as security for foreign loans from time to time, as will be seen in the table beginning on page 48. 46 CHIKESE CtFEKESrCY AKD PINANCE. SUMMARY OF SITUATION. No budget has been published for the year from July I, 1918, to June 30, 1919, but the ordinary revenues have been semiofBcially estimated at about $600,000,000 and the total expenses of the Gov- ernment at about $600,000,000, leaving $100,000,000 to be raised by extraordinary means. The fact that China in these years of worldwide financial disloca- tion and of disturbances within its own borders can not make both ends meet by ordinary taxation is no indication of banin-uptcv- China's resources are vast, and a very large increase of its ordinary revenues upon the return of peace is not only possible but quite feasible. A thorough reform of the Chinese system of taxation skould result in revenues approaching the amount above indicated without adding anything to the burden of taxation borne by the people. It is certainly quite within reason to anticipate that the land tax can be made to yield double its present revenue, that the returns of the wine and tobacco tax and monopoly can be more than doubled, and that, with the development of industries, the in- come of the railways and other productive Government property will become very important features of the budget of ordinary revenues. The preliminary report of the Ministi'v of Communica- tions for 1917 shows a pro'fit of $20,000,000 on all'the Chinese Gov- ernment Railways. EXTRAORDINARY REVENUES. The extraordinary income of the Chinese Government, which is estimated in the 1916-17 budget at $84,828,924, consists of supertaxes of a nature similar to the ordinary taxes, and of loans and bank ad- vances. These last two items are, naturally, the large ones. When an individual or a nation whose resources are known to be great, but nonliquid, is temporarily embarrassed, he or it can usually find plenty of bankers ready to assist, at a rate measured by th© urgency of tlie necessity. And this has been the experience of China, even in the midst of the greatest crisis of all history. CHINA'S GOVERNMENT DEBT. The history of China's Government debt is interesting enough for a volume, interwoven as these financial operations have been with international politics. Some idea of China's career as a borrower can be obtained from the tabulation of loans beginning on page 48. From the date of the first foreign loan, 1875, to the period of the Chino- Japanese war, England's predominance! in foreign relations with China is evident. All loans between 1875 and 1895 were English, with one exception. Tliey were all small and were promptly paid when due. The disastrous war with Japan, resulting in an empty treasury and an indemnity of 230,000,000 taels to pay, brought offei-s fi-om all the Powers that were anxious to obtain favors from China. Russia came forward with a loan of 400,000,000 francs, in which loan France par- ticipated; England and Germany followed with two joint loans of CHINESE CUEEENCY AND FINANCE. 47 £16.000,000 each, equaling 400,000,000 francs. And, later, Russia ob- tained Port Arthur, Germany Kiaochow, France Kwangchow, and England Weihaiwei. Then followed the era of railway development, each European Power contending with the others for railway contracts and spheres of influence Railway borrowing continued after the restoration of friendly relations with the Powers following the Boxer Rebellion. The circumstances of the loan negotiations that ac- companied the birth of the Republic were not particularly advanta- geous to Chinese interests, but the great Reorganization Loan of 1913 involved the reform of the Salt Administration. A new economic epoch appeared to be dawning for the ancient empire become repub- lican, when the European war broke out, and European financial assistance was rendered impossible for the next few years. Japan alone, of all the world Powers, remained in a position to extend the helping hand, and since 1914, with the exception of one small loan from America, China's borrowing has been from its island neighbor. The estimated aggregate of Japan's loans to China up to January, 1919, is $300,000,000. Beginning on the next page is a list of what are believed to be all the foreign loans to the central Government of China from 1875 to July 1, 1918. 48 CHINESE CUEEENCY AND FINANCE. !3 i o o no on o o o o o o ppnnnR o o aa S o o o o ^M ! OS is a 03 I X] ■ ® G X! ■ ■ ■aafflo •mH . OS 4J s^^ a +a so -^ -d 02 s mW K H .o ft: M H 4J O .2-° coo TpHOlOigciCOHOS 030 OAOnnGiOscQOa a a « o illil "C 5 s 'C ® 03 Ph EcoaO '3 ® «^ CO "S !='£ Sn = 60 .iilfl t^ lU V Q s a t, u afl H 00 CO 00 00 00 05 goo OOOi OCOO 0OO0I>.tD(Dr- S t* o ss So O CD oi-- 0 itt- P5OU5OC0 Oioo^o^~»o^- - - ''til - . »0 _-0 Q O sjsi s 3q~ S 0 (O fM ««) "*»0 to r- 00 OS rH i-t rH tH T-t f-t .1 a §* gs rt E o 'S*^ as.s III 1 1^ it I" -00.2 .3 ■■gis a i§2«a-a :gm la - -J P kT P 03 XI 3 Pi O N '^ ;3;fS sssa t-- i^ 00 00 ^^ s '"' '^ " 1-1 " ■"* - OS 03 OS S^OS 03O> Is Is K" gagS nScS C30SC30S C30>D30S lit i mm 2 I'SSSSg' I»l 0Q&< o - gas. swi 5 as " |i a-23 ll 2al O o rs o •i 5-3 M ".a U) , ID R il§i n a S « 52 CHINESE CUEEENCY AND FINANCE. ^■3 fk a, •a d 4-) a o O Q o O M W O S-c CQ o fi- 3 I I'l iS S H q rt |H !" >4 CHIITESE CTJKKENCY AND FINANCE. 63 No record of an internal Chinese loan In the imperial days is ob- tainable, • extraordinary expenditures having been met by special taxes and assessments. In 1911 the revolutionary government at Nanking contracted an internal loan of $6,367,640 at 8 per cent, for military purposes, which was assumed by the Republic and which has been more than half paid off. The Republic in its first year also made a " public loan " of $4,006,920, repayment of which was begun in 1916. The first important domestic loan was that of the Third Year of the Republic, $24,000,000 at 6 per cent. This loan was originally for $16,000,000, but was oversubscribed by $8,000,000, and the author- ized amount was accordingly increased. It is a general obligation of the Government. This loan was followed by that of the Fourth Year of the Repub- lic, $24,000,000 at 6 per cent, secured upon the Native Customs, with the management or the interest, repayment etc., intrusted to the Inspector General of Maritime Customs. It was floated through the Hongkong & Shanghai Banking Corporation. In 1916 was issued the internal loan of the Fifth Year of the Re- public, $24,000,000 at 6 per cent, a general obligation of the Govern- ment. In 1916 also there was authorized the internal loan of the Seventh Year of the Republic, $45,000,000 at 6 per cent, in connection with the Short-Term Loan of 1918, $48,000,000 at 6 per cent. The Short-Term Loan of 1918 is secured by the revenues of the Martime Customs released by the postponement for five years of the Boxer Indemnity payments. It is for five years, with monthly drawings. The Internal Loan of the Seventh Year of the Republic is for 20 years, and is secured by Native Customs revenues. The peculiar feature of these two loans, which were opened to public subscription May 1, 1918, is that each subscriber to the short- term loan must subscribe to an equal amount of the long-term issue. It was announced that at the first drawing of the short-term bonds, July 1, 1918, bonds amounting to $4,800,000 were drawn and re- deemed. It was understood that the proceeds of these two loans would be used to repay to the Banks of Communications and of China ad- vances made by them to the Government amounting to about $90,000,000. It is therefore immaterial, in estimating the domestic debt of the central Government, whether the two bond issues of 1918 or the debts to the banks are included. The above figures are in Chinese dollars. In June, 1919, there appeared a proposed plan for the military and civil reorganization of China, as drawn up by Mr. Chu Chi Chien, a former Minister of the Interior, who headed the northern delegation to the internal peace conference at Shanghai. In his statement there was included the following table of foreign and domestic loans (including payment of principal and interest) from July 1, 1918, to June 30, 1919 ; it is reproduced here simply as com- ing from Mr. Chu Chi Chien, and neither the author of the present monograph nor the Bureau of Foreign and Domestic Commerce as- sumes any responsibility for the accuracy of the figures. 54 CHIBTESE CUERENCY AND FINANCE. DesigaatioQ of loans. Amount. FOEEIGN LOANS. Anglo-German loan contracted by the late Ching Government. . .. - Supplementary Anglo-German loan contraeted by the late Ching Government Busso-Freneh loan contracted by the late Ching Government crisp loan contracted by the central Government Beorganizatian loan contracted by the central Government Banque Indiistrielle loan, by the central Government British Chioese Corporation loan, by the central Goivernment Advances by Banque Indu^rielte de CMne to central Government on account of Ctung-Yu Eailway Shinya Corporstion loan, by the central Government Chicago Banlcloan, by the centra] Government Telegrai* loan Advances OB account of Kirin-Hweinlng Eailway Forest loan Advances for Manchurian and Mongolian Railway Advances for Tsi-Shun-Kao-Hsu Railway Advancesctf second reorganization loan Fayment of indemnity to Spain ?3ymen1i of indemnity to Holland Payment of indemnity to Sweden Payment of indemnity to Bossia Miscellaneocisexpensesiiiconnecticai with payment of indemnities Debts of Ministry of Navy to Sir Armstrong Whitworth ebt of Ministry of Agriculture and Commerce to Samuel & Co Debt of Ministry of Fmance to Russo- Asiatic Bank Debt (tf Ministry of Finance to the Industrial Bank of Japan and Men Bank Debt of Ministry of Finance to Mitsui Bussan Kaisha Debtof Ministry of Finance to the Exchange Bank Debt of Ministry of Finance to the Septuple Banking Group Debt of Ministry of Finance to the Quadruple Banking Group ^ Debt of Minlatry of Finance to Eanqne Indnstriellede Chine on account (^Ching-Yu Railway. Debt of Ministry of Finance to Banque Industrielle de Clnne for interest on Pukow loan, ■ secured- by Government Treasury Mil Debt of Ministry of Froancet o Banque Industrielle de Chine for advances against promissory notes Issued by the Commercial Guarantee Bank of Chihli Debt of Ministry of Finance to the Russo-Asiatio Bank for advances against promissory notes issued by the Commercial Guarantee Bank of CluhU. Debt of Ministry of Finance to Exchange Bank Debt of Ministry of Education to the Russo- Asiatic Bank Debt of Ministry of Navy to Ansaldo Works. Other indebtedness Total foreign loans. DOMESTIC LOANS. Debt of Ministry of Finance to the Bank of Communications for handling the Limghai Railway loan Commercial d«30Sits and shares of the farmer Tithing Bank Government Treasury bill issued to former resident-general at Altai. Government Treasury biUissuedtothe Far Eastern News Agency Qovemment^Treasury billissued to the Bank of Territorial Developmait Govemment Treasiuy bill issued for const ruction in the President's Office. Government STreasury bill issued for advances made to the forruer Bm'eau of Merit Investi- gation Debt of Ministry of War to the Transportation Bureau at mUitary headquarters, Hankow, secured by Government Treasury bill Debt of Ministry of War to the First Division, secured by Govemment Treasury bill Debt of Ministry of War to Chang Tsung CUaug, secured by Government Treasury bill Chinese dollars. 7,735,616 6,681,856 6,346,426 2,005,000 10,025,009 1,503,760 180,459 2,023,276 240, ooa 482,400 960,00(1 560,000 1,800,000 640,000 640,000 1,280,000 8,283 53,497 34,176 5,546,395 9,772 712,000 206,337 668,962 468,732 528,941 478,894 135,759 87,600 165,409 82,800 137,323 82,800 933,035 282,726 593,651 1,667,200 995,676 34,708 298,700 4,140,000 64,000 414,000 883,600 849,400 3,304,a95 309,602 743,765 412,189 960,000 290,000 240,000 1,473,909 71,001,606 225,000 91,424 37,979 84,800 120,000 80,446 8,087 20,000 100,000 100,000 CHINESE CURKENCY AND FINANCE. 55 Designation ot loans. Amount. Debt of Ministry of Navy to Eiangnan Dock, secured by Government Treasury bill Debt of Ministry of Navy to Kailan Mining Co., secured by Government TreasMy bill Debt of Ministry o! Navy to Kailan Mining Co., secitted by Government Treastury bill Debt ot Ministry of Navy to Kiangnan Dock, secured by Government Treasury bill Debt of Ministry of Finance to Temples in Peking and Jebol, secured by Government Treasury bUl Debt of Ministry of Finance to Mongolian princes, secured by Government Treasury bill Eedemption ol 8 per cent Military Bonds , Redemption of Patriotic Bonds Redemption of First Year 6 per cent Bonds liedemption of Third Year Domestic Bonds Redemption of Fourth Year Domestic Bonds Redemption of Fifth Year Domestic Bonds Redemption of Seventh Year Domestic Bonds Redemption of Seventh Year 6 per cent Bonds Total domestic loans CIrand total Ctiinese dollars. 300,000 106,766 190,430 127,812 34,568 83,787 1,969,692 379,308 1,563,811 4,026,637 9,196,783 5,543,838 16,848,000 2,700,009 43,939,159 114,910,763 Appendix : NATIONAL CURRENCY LAW OF CHINA. Following is the text of the national currency law of China, adopted in January, 1914: Aetict,e 1. The right of minting and issuance of national currency shall be- long solely to the Government. Art. 2. The unit of the national coin shall be called Yuan, and the Yuan shall contain 6 mace, 4 candareens, and 8 li (Kuping weight) or 23.97795048 grams of pure silver. Art. 3. The different kinds of national coins- are as follows : A. Four kinds of silver coins — (1) 1 Yuan; (2) J Yuan; (3) 20-cent piece; (4) 10-cent piece. B. One kind of nickel coin — 5-cent piece. C. Five kinds of copper coins — (1) 2-cent copper piece; (2) 1-cent copper piece; (3) 5-li piece; (4) 2-li piece; (5) 1-11 piece. Art. 4. The value of the national coin shall be in decimal progression. One- tenth of a Yuan shall make a chu or a 10-cent piece. One-hundredth of a Yuan shall make 1 feng or cent, and one-thousandth of a Yuan shall make 1 li. Art. 5. The weight and fineness of the coins shall be as follow^: 1. 1 Yuan, gross weight 72 candareens, with 90 per cent silver and 10 per cent copper. 2. 50-cent piece, gross weight 32.4 candareens, with 70 per cent silver and 30 per cent copper. 3. 20-cent piece, gross weight 12 candareens, with 70 per cent silver and 30 per cent copper. 4. 10-eent piece, gross weight 6 candareens, with 70 per cent silver and 30 per cent copper. 5. 5-cent nickel piece, gross weight 7 candareens, with 25 per cent nickel and 75 per cent copper. 6. 2-cent copper piece, gross weight 28 candareens, with 95 per cent copper and 4 per cent pewter and 1 per cent lead. 7. 1-cent copper piece, gross weight 18 candareens, with fineness same as 2-eent copper piece. 8. 5-li copper piece, gross weight 9 candareens, with fineness same as above. 9. 2-li copper piece, gross weight 4.5 candareens, with fineness same as above. 10. 1-li copper piece, gross weight 2.5 candareens, with fineness same as above. Art. 6. No restrictions shall be placed upon the use of the 1-Yuan piece. The amount of 50-cent pieces involved in one transaction shall not exceed $20. The amount of 20-cent and 10-cent pieces involved in one transaction shall not exceed $5. The amount of nickel or copper pieces involved in one trans- action shall not exceed $1. This restriction shall not be applied to the collection of taxes and the exchanges in the nationar banks. Art. 7. The designs of the national coins shall be promulgated by a provi- sional order. Art. 8. The ratio of the difference between the weight of silver coins and that of the legal tender shall not exceed 3/1,000. The ratio of the difference between the total weight per 1,000 pieces of the silver coins and the legal weight of that amount of coins shall not exceed 3/10,000. Art. 9. The ratio of the difference between the fineness of any piece of silver coins and the legal fineness shall not exceed 3/1,000. Art. 10. When on account of wear and tear, 1 Yuan silver piece loses 1 per cent of its weight, it may be exchanged at the Government bank for a new dollar. When, on account of wear and tear, the 50-cent silver piece and other kinds of coins lose 5 per cent of the legal weight, they may be exchanged at the Government banks for new coins. Art. 11. When a coin Is found to be mutilated purposely, no one shall be compelled to accept it. Art. 12. When the Government consents to coin 1 Yuan silver piece for those who give to it silver bullion, 6 11 per Yuan shall be charged as minting fee. Art. 18. This law shall be in force on the day of its promulgation. 56 CHINESE CUEEENCY AND FINANCE. 57 REGULATIONS FOR THE ENFORCEMENT OF THE CURRENCY LAW. Aeticle 1. The national coins must be used as medium in tbe transaction of any financial dealings in the country. Special regulations in the currency regu- lations must also be observed. Akt. 2. The Government shall exchange the silver dollars coined by the old mints with the national coins and remint the dollars. Within a certain period, the old dollar shall possess the same value as the national Yuan, but as to the length of that period, a provisional order shall be issued to fix it. Akt. 3. The Government shall replace all the old silver pieces of the different denominations, old copper pieces and cash, with the national coins. After recall- ing them, the Government shall remint them, but vrithin a fixed limited period the old coins shall be allowed to be circulated at the market prices. If the old coins are used to pay taxes, every month all the public offices shall issue notices fixing the current rate at which the offices shall receive old coins. The offices shall take as the current rate an average of the rates of exchange during the previous month. The period for the circulation of the old coins shall be fixed by a provisional order. Abt. 4. If taxes are remitted with silver bullion, or if anyone wants the Gov- ernment to mint silver coins for him, In the calculation $1 shall contain 65.4 candareens. Bullion of other fineness and weight shall be converted according to a table to be attached. Akt. 5. In the public offices where the receipts and expenditures are calcu- lated in taels, the amount should be converted into the term of Yuan in accord- ance with article 4. At places where the receipts and disbursements consist of copper coins and cash, the public office shall report to the Ministry of Finance the actual sum of receipts and disbursements with the request for permission to convert the coin into the term of Yuan. Abt. 6. In the collection of various revenues and taxes, articles 4, 5, and 6 shall be observed. In the calculation, the li shall be the smallest of denomina- tions. All the decimal fractions of the li shall be treated thus : When the figure is 4 it shall be discarded, and when it is 5 it shall be considered as 1 to be added to the other integers. Akt. 7. When the debts among the people themselves are calculated in the term of taels, they should be converted into the term of the national coin. Where the old subsidiary coins are involved, article 5 shall be observed in the conversion into the national coins. If the sums in the deeds, contracts, and promissory notes are not converted into the term of Yuan, and if any lawsuit arises, the exchange rate on the day of the promulgation of these regulations shall be considered as a standard. Akt. 8. Within the domain of China no one shall object to the use of the national coins. Akt. 9. If anybody disregards article 4 of the law for the national currency, and article 8 of the regulations for the enforcement of the law of the national currency, the concerned may bring a lawsuit against him and, when convicted, a fine of from $10 to $1,000 shall be Imposed on the offender. Any official or any member connected with the Government enterprises who commits the same offense is liable to pay a fine of from $50 to $3,000 after the same procedure has been observed, Akt. 10. The area and the date for the enforcement of these regulations shall be fixed by a provisional order. o