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The skeleton of the present agreement was put together during the visit of Ts'ai Nai-buang to Hong Kong in September last. At that time the combine were not at one in their views. On the one side were the speculators and the owners in India, for whom certain firms were agents, who were inclined to trust to the May agreement and to hold out for better terms. On the other side were the firms of long standing in the trade which were anxious to terminate the trade as speedily as possible on terms which could be regarded as favourable.
Ultimately wiser counsels prevailed and the agreement was successfully concluded on Ta'ai's return from Canton. His task here was by no means easy, and he appears to have overcome oppositions through the influence of General Lung, to whom he made generous largess and lavish promises.
The present agreement provides for the taking over of 1,200 chests at an average price approximately of 850. ex duty and surtax and arrangements are made in clause 6 so that delivery of the total quantity may be completed not later than the 31st March, 1917, the date of the termination of the May agreement. One half of the security mentioned in clause 9 has been deposited in the Hong Kong and Shanghai Bank.
Several ill-considered schemes were put forward at the outset as the basis for a monopoly for the disposal of the stocks acquired under the agreement, but a monopoly company with a capital of 2,000,000 dollars has now been established. Shares to the value of 1,200,000 dollars have been bought by native opium dealers and officials in the know, and I am informed on good authority that the civil and military governors have each invested 200,000 dollars in the venture. The remaining 800,000 dollars l not been taken up but it is understood to be reserved for the provincial Government without payment. The company is, in fact, a joint official-merchant undertaking, so familiar and frequently so lamentable a feature in Chinese enterprise. The opportunity for piling up regulations has not been let slip, and no less than three sets have been issued within a fortnight dealing with the licensing of dealers, sales of opium, and permits for smokers. The result is that no one knows precisely the rules under which the monopoly will be conducted.
I have been in touch with a Chinese merchant at Hong Kong who holds 200,000 dollars of scrip for himself and his friends and is also interested in the trade to some extent. He has a good business reputation and has been frequently consulted by both parties to the agreement and was offered a post in the administration of the monopoly but declined it. He tells me that it was first of all proposed by the monopolists to limit the number of selling licences and reserve these for their friends and relations. This has been dropped and his own scheme will be given a trial for three months. The scheme places the preparation of the drug in the hands of the monopolists, and a staff of boiling and testing experts has been engaged. As regards distribution, this varies according to the locality. At Canton and Fatshan the company itself regulates the sales by means of licensed shops (80) which pay a deposit of 1,000 dollars and a fee of 100 dollars. The vendor is allowed 2 per cent. of the fixed price, 15 dollars per Chinese ounce, and is liable to a fine should his sales fall below a fixed minimum. The rest of the province is divided into 62 divisions, 12 first class and 50 second class. Each division has been advertised for open tender, which will be given to the bidder offering to dispose of the largest quantity within three months. The licence fee for a first-class is 500 dollars, and for a second-class division 300 dollars. The successful farmer must pay cash for his stocks and deposit an additional 10 per cent. as security for his contract, He may open an unlimited number of shops in his division. There are no restrictions against smoking, and even the farce of a medical certificate will be dispensed with in practice.
It is estimated that 1 chest will yield 1,000 Chinese ounces of prepared opium so that the price realised per chest will be 15,000 dollars. This should bring the monopolists a net profit of about 1,500,000 in sixteen months, and it may be safely inferred that the temptation to mix the legitimate drug with the cheaper Yünnan article and to adulterate it with pigs' blood and lard will be too strong to resist, so that the prospective profits are even larger than the figure given above. Buyers for share in the monopoly scheme have been tumbling over one another in eagerness, and the present prices are quoted 100 per cent. above par.
The weak spot in the monopoly is not a scarcity of demand or any fear of popular disapproval but the competition of snuggled opium. I am informed that the amount available for smuggling within the next year is about 1,500 chests of uncertified Indian opium via Magao, Kwangchowwan, and Tongking, 500 from Formosa, and 1,000 from
Yünnan.
In addition, there are 100 chests of Yunnan opium at Pose and 100 at Nanning, The smuggling danger is a real one for the monopolists as the price is so much lower. General Lung has, however, assured his friends that he can and will deal with this danger effectively by means of gun-boats and military patrols. As a token of his earnestness in the new scheme it is interesting to note that the smuggling depôt and opium dens at the Canton cement works under the control of his brother have now been suppressed.
In conclusion, I have the honour to report that there has been no popular protest against the introduction of the monopoly and the legalisation of opium smoking within the province.
I have, &c.
E. C. WILTON.
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