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views held by the British merchants that if they are now forced to pay the penalty of their rashness their bankruptcy would in the long run prove of a benefit to the Tien-tsin market, and help towards the ultimate re-establishment of trade at that port on a healthy and normal basis.
I have, &c.
J. N. JORDAN.
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under issues of paper currency are attracting serious attention, and in our opinion it would be most injudicious for China to undertake additional responsibilities of a far reaching character, which would tend to make it still more difficult for her to put her financial house in order.
We are convinced that British interests would not be served by the adoption of the proposed remedy, and we would respectfully submit that no support should be given to it by His Majesty's Government.
I have, &c.
Inclosure in No. 1.
Sir,
China Association, Shanghae, to Consul-General Sir P. Warren.
December 11, 1908. THE documents referred to in Mr. Ker's confidential letter dated Tien-tsin, the 19th November, have been laid before my committee, and I have now the honour to comment on the suggested solution of what is called the problem of Tien-tsin dealers' indebtedness.
If it is proposed to adopt measures calculated to place import business at Tien-tsin on a sound footing, my committee hope that every assistance towards the attainment of that end will be given by His Majesty's Government, but after a careful examina- tion of the proposals made in the Tien-tsin memorandum and the statement which accompanied it, we are of opinion that the solution suggested therein is no real remedy for the unsound state of affairs which has grown up in the import trade at the northern port.
The origin of the trouble has, of course, been the development of the system of delivering goods to Chinese on credit; that method of trading has long prevailed at Tien-tsin, but only in recent years has it developed into the large proportions which have now brought about a crisis. My committee is of opinion that extensive trading on this basis is unsound, as neither foreign firms nor foreign banks can follow their securities after the goods have passed into native hands. The financing of internal trade can only be done safely and efficiently by native banks who know their customers and who can follow the security.
It has been pointed out frequently that the Tien-tsin trade must expand as long as foreigners were prepared to deliver goods on credit, that the system involved increasing liabilities, but that when those liabilities became too great, and endeavour was made to curtail them the soundness or unsoundness of the system would be tested.
We have now arrived at this stage; liabilities amounting to 7,000,000 taels are admitted to be outstanding against goods delivered to Chinese on credit, and it is not improbable that a considerable proportion of that amount will prove to be irrecover- able, unless further liabilities upon a large scale are incurred. In other words, much of the 7,000,000 taels will only be paid out of proceeds of new deliveries. The Tien-tsin memorandum proposes that the Chinese Government should accept responsi bility for this large amount, and, in addition, for a further liability for 7,000,000 tuels worth of goods imported by firms on Chinese account, and still lying in stock in the importers' godowns. As far as we understand the suggestion, it is that the Chinese Government should deliver the goods in stock to the dealers on credit, and continue to carry on trade on terms of credit through the medium of a local government bank. The so-called profits to be derived from advancing large sums on credit to the native dealers would, it is stated, be available to recoup the bank for the heavy liability which, under the scheme, it would gratuitously undertake.
It is far from improbable that these profits would be other than paper profits; there is nothing to show that the experience of the bank would be different from that of the merchants, who have themselves in the past carried on this plan of financing We are of opinion that in the end irretrievable disaster would overtake the bank whose unsecured liabilities would probably be greatly in excess of the amount which has now to be dealt with.
In the meantime the whole trade of the north would be carried on under an unsound system; legitimate business on a cash basis would be paralysed; trade which had been built up on a cash basis at Shanghae would be diverted to Tien-tsin to be carried on under credit; the final crash would be merely postponed, although in all probability it would fall on different shoulders.
The Chinese Government has financial problems of its own to solve; the gravity of the currency problem is increased every year; even now the liabilitics incurred
Q
F. ANDERSON, Chairman.
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