30183
[This Document is the Property of His Britannic Majesty's Government]
REG 23 NOV 09
[October 14]
CHINA TRADE.
CONFIDENTIAL.
[38021]
No. 1.
SECTION 1,
་་「་
1
China Association to Foreign Office.-(Received October 14.)
Sir,
159, Cannon Street, London, October 12, 1909. THE association noted with satisfaction a recent statement by the Secretary of State that, in view of China's neglect to fulfil obligations which she undertook in the Shanghae Treaty of 1902, His Majesty's Government have no present intention of consenting to the surtaxes contemplated in article 8.
It has watched at the same time with growing anxiety a deterioration in the financial conditions of the Empire that appears remediable only by drastic reforms of the fiscal and administrative system of which it can perceive no indication.
The situation is indeed remarkably similar to that which existed in 1896, when the known intention of the Chinese Government to ask consent to an increase of customs duties led the association to examine at length, in a letter to the Foreign Office dated the 2nd November of that year, the conditions under which such an alteration might be admitted.
The whole question of hi-kin and terminal taxation was exhaustively discussed in letters to the Foreign Office in the following year, and a perception was, it is belicted, reached of the absolute necessity for relief if the resources of the country were to be developed and trade to attain its natural growth.
Note was at the same time made that the pledge of the li-kin of certain districts in Kiangsu, Kiangse, and Chekiang as part security for a loan of 16,000,000!., finally negotiated in 1898, implied the temporary confirmation of li-kin as a source of revenue, at the moment when its incidence was being so earnestly deprecated.
Except that the Chinese have come to welcome the improvement of communica- tions implied by the advent of railways, the situation appears to have deteriorated, in the interval, rather than improved. The incidence of li-kin has been aggravated rather than allayed; it has been pledged again as security for other loans; while the financial situation has been gravely compromised by the profuse issue of debased coin and of paper unsupported by metallic reserve.
Loans for the construction of railways have been freely forthcoming; but the conditions have been relaxed to a degree that would have seemed inadmissible a few years ago. For the loan raised to make the Imperial Northern railway the revenue was pledged; but in the case of later loans, that precaution has been abandoned in deference to avowed susceptibilities which may be less patriotie than they appear. The conditions embrace, we are assured in each case, an Imperial guarantee; but insufficient prominence is given to the consideration that the value of that guarantee is steadily declining. So long as it rested on the maritime customs it was valid, because the security was accessible and tangible. In so far as it is based on li-kin it is shadowy, because inaccessible. If default were made--and the strain on the provinces is great-foreclosure would be impossible.
Stress has been laid of late on the strain between Peking and the provinces. If it be true that tension has been aggravated, it is measurably due in all probability to the strain imposed on provincial finance by the allocation of provincial resources to the service of the debt; for it must not be forgotten that inland taxation is essentially a provincial resource.
Yet, pari passu with the weakening security, we are exacting less and less control over expenditure, though nothing in Chinese fiscal methods leads to the supposition that such checks are less necessary. On the contrary, recent disclosures of malversation by the Chinese management of the Tien-tsin-Pukou line establish the urgency of precaution; and if the solvency of China is a British interest it follows that we are interested in hindering peculation and waste.
Too facile loans are, it is contended, to be deprecated also from another point of view. The currency of China is as chaotic as her finance, so chaotic indeed that financial reform is conditioned practically on currency reform; for the tax-gatherer battens on alleged intricacies of exchange, and refuses to accept at face value
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