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With the exception of the flour mills, to which I shall allude later, there seems to be no enterprise conducted in the town calculated to lead to the development of the district, nor is there any considerable trade between the Russians and the Chinese except in so far that a few thousand Chinamen are engaged in supplying the necessities of the residents in the railway territory. In fact, the general impression one takes away is that the whole town is living on the railway, that is, on the Russian Government.
M. Dard estimated the loss for the Railway Administration on last year's working. at 7,000,000 roubles, exclusive of the cost of the guards, which he put at 15,000,000' roubles. Matters were, however, he stated, improving, and in the course of a year or so the Administration hoped to be able to balance their accounts, with the exception of the military expenses. These were to be cut down, a number of the guards being transferred to the Siberian establishment and quartered in the neighbourhood of Vladivostock.
The commercial depression which Sir Alexander Hosie noted on his visit to Harbin in October 1907 still prevails. Failures are of common occurrence, and it is difficult to find capital for any new enterprise. There is at present not a single bean mill either in Harbin or Fu Chia Tien, and it appears impossible to get capital subscribed to build one, though the bean growers in the district have offered to supply beans and to accept payment for them in beancake or oil. Similarly the proposed sugar beet factory at Ashiho, to which I alluded in my despatch No. 57 of the 29th ultimo, is still awaiting the necessary capital for its erection.
The only industrial establishments in Harbin which seem to give promise of any considerable future success are the flour mills. These were started during the Russian occupation, and at the time of the Russo-Japanese war received a considerable impetus. Huge profits were made for a time, but no effort was made to build up adequate reserve funds; consequently, when the war came to an end, and, further, the with- drawal of the Russian troops was carried through far more quickly than local opinion thought possible, the mill-owners found themselves in a precarious position. They had been trading on borrowed capital, and in addition to their other difficulties after the cessation of the war they found trouble in persuading Chinese agriculturists to accept reasonable prices for their grain; a bad harvest in 1907 made it impossible for them to continue to pay the interest on their loans, and the Russo-Chinese Bank has recently foreclosed on the mortgages it held on the mills. A new Syndicate has recently been formed under the supervision of the bank which will run the eight principal mills as a Joint Stock Company.
At present three or four only of the eight mills are working, but M. Dard assured me their prospects are improving daily. At present they supply mainly the Eastern Siberian market, the flour making its way by river steamers down the Sungari, and up the Amur as far as Blagovestchensk. Efforts are being made to capture the Chinese market, and M. Dard informed me that they have reasonable hopes of being able to compete favourably with American and Japanese flour. Of the excellence of flour I think there can be little doubt. Personally I have no hesitation in saying that the bread in Harbin is better than any I have tasted outside Europe, and it would seem that the cost of production must be considerably less in Manchuria than in America or Canada or in the Hong Kong or Shanghae flour mills.
In Mr. Fisher's opinion, however, at the present moment American flour could compete even in Harbin if it were not for a differential rate on the railway. He stated that whereas the freight per pood (36 lb.) from Harbin to Vladivostock for Russian flour was 15 copecks, a charge of 45 copecks was made on American flour from Vladivostock to Harbin. Mr. Fisher, however, admitted that, provided the mills were properly managed, there could be no question of competing against them in Manchuria, and that they would have a great chance of capturing the general Far Eastern market.
Two American capitalists, Mr. Fisher informed me, who recently visited Harbin, were greatly struck by the prospects of agricultural development in Northern Manchuria. They saw, however, that it would be impossible for them to compete against the Russian mills unless they could secure for themselves equality of treatment by the Chinese Eastern Railway. Consequently they approached the Railway Company with the view of persuading them to take a 25 per cent. interest in the enterprise. The question was referred to St. Petersburgh, with the result that the Railway Administration declined to take any part in the scheme.
It appears to me that the future agricultural development of Northern Manchuria, and the possibility of any extensive market for British goods coming into existence
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- depends so largely on the establishment of an efficient flour and bean mill industry in Harbin, that it is greatly to be regretted if such enterprises are to remain a monopoly in Russian hands, and it would seem even to the interests of the Russian Government to encourage Chinese settlers in their sphere of influence in Manchuria. Yet under the conditions obtaining at Harbin, it would be difficult to persuade a British or American capitalist to invest money there.
That differential treatment prevails on the railway seems beyond question; by this I mean secret differential treatment by the Railway Administration, not merely the favourable conditions one acquainted with Russian methods could obtain at the expense of a foreign competitor by a skilful distribution of presents. For example, Mr. Fisher told me there were three rates for flour from Harbin to Vladivostock; 15 copecks per pood for the mills in the Russo-Chinese Bank combine, 18 for mills outside the combine, and 25 copecks for any one else. To obtain proof of this statement would of course be difficult, but in the same way as Mr. Parlett suspects that there is some mysterious connection between the Mitsui Bushen Kaisha and the South Manchurian Railway, so I feel convinced, from the general impressions I gathered at Harbin, that the Eastern Chinese Railway Administration would find its way to differentiating in favour of any firm they desired to assist. In fact, it appears incontrovertible that, with the main railway of Manchuria in Russian hands in the north and in Japanese in the south, there can be no certainty of equality of commercial opportunity. It is from this point of view that the extension of the Chinese line is a question of great commercial, as well as of political, importance.
A certain quantity of British piece-goods and miscellaneous articles are being sold, both in the Russian Settlement and in the Chinese town, chiefly in the latter; these are brought up mainly by cart from Newchwang.
There is no one, however, particularly interested in pushing British goods, and I should not be surprised if the arrival of the Mitsui Bushen Kaisha, who have recently established themselves in Harbin, led to the Japanese cottons obtaining a monopoly in Fu Chia Tien market. German and Russian cottons are sold for the most part in the Russian Settlement. I made inquiries with the view of ascertaining whether there was any possibility of a market for steam-ploughs in the district, and was forced to a negative opinion. The northern agriculturist has not the capital to invest in expensive machinery, and, besides, labour is so cheap that it would be hardly economical. An American firm recently sold machinery worth 40,000 taels, say 6,000, to a Chinaman in the neighbourhood of Mergen. The ploughs left the railway at Tsi Tsi Har en route for their destination in charge of an American mechanic, they got hopelessly stuck in the mud near the bank of a river, and whilst the party were waiting for the frost the mechanic disappeared, and, it is said, the ploughs remain by the river until the present. Except that the American firm obtained payment for their goods, this experiment is hardly more encouraging than that of the British firm of Messrs. Wilson and Co. That there is a good and increasing market for the ordinary horse-ploughs is true, and several of German manufacture have been sold in Harbin. The Germans have also been experimenting with steam-ploughs, but, Mr. Fisher thought, had not obtained any orders.
Mr. James Brown, the agent of the British American Tobacco Company, told me that he had formed high expectations of Harbin as a distributing centre for his goods; but it was too early for him to speak with any certainty, as they had not yet explored the district. This firm have shown great capacity and energy in their transactions in Manchuria. They have established depôts in the principal towns along the railway, a large factory has been built in Mukden which will be in working order by next spring, and an exploring party has been sent out to make a six months' journey in the interior. Direct encouragement is given to their employés to speak and to read Chinese as far as to understand accounts, and there are three or four amongst them who have a first- class knowledge of the colloquial language.
It may be of interest to note that the Tobacco Company are attempting to import goods for their branches north of Kuangchentzu viâ Vladivostock.
The branch of the Maritime Customs established at Harbin has not yet published any statistics. M. Konovaloff hoped that figures for the September quarter would be published shortly; these, however, would only include the goods arriving við Manchuria and Pogranitchnaya stations. No check is taken of goods arriving from the south.
I have, &c. (Signed) R. WILLIS.
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