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The attitude of the British Exchange Banks is expressed by Mr. Stabb as follows:-
There is no doubt that Germans have secured business by means of extensive credit. They were enabled to do this owing to the assistance rendered by German institutions, and in some cases by the London discount houses. The larger German firms with considerable capital were able to finance themselves to no small extent, and also to obtain reasonable facilities from British banks, but not to an extent which would have enabled them to give long credit beyond the life of a bill. British banks certainly discourage long credit, and endeavour to have business carried on as much as possible on a cash basis. Tientsin iş a good example of the unsoundness of long credit, and the disastrous consequences which generally result from the practice. So far as British exchange banks are concerned, facilities were not afforded to German firms which were not equally available to British ones,
The China Association deals with the subject at length, and is the only body which offers suggestions for the future. The Association writes as follows:-
Germans have the same facilities as our own people for obtaining a share of the trade between the British Empire and China. They have taken advantage of this favourable situation systematically to undermine the position of British merchants in our own trade (ie., the trade between Great Britain and China) by granting extended credit to the Chinese. This system has introduced unsound conditions into important sections of the trade on so large a scale that if British merchants had followed the German lead to the same extent all but the wealthiest firms would have been involved in serious financial difficulties during those periods of depression which so often recur in China. German firms in the past have been able to incur unduly heavy risks in granting credit, mainly owing to the system of financial facilities in vogue.
It is essential to the welfare and security of British trade in China that combined action be taken to prevent a return to the unsound methods fostered by the Germans of late years. The Board of Trade will be doing excellent work for British interests generally if it can assist in bringing about a general agreement to discontinue the financial facilities formerly given to Germans in China, which enabled them to conduct British trade on the unsound conditions which prevailed before the war.
The British Chamber of Commerce of China might be requested to appoint sub-committees to settle standard periods of usance for bills drawn either upon London financial houses, upon British banks, or upon Eastern exchange banks against shipments of British goods. That Chamber might also be asked to decide whether in the general interests of British trades any class of merchandise should be delivered on credit, and, if so, what the stipulated period of credit should be.
When it is laid down that, in certain branches of trade, it is not permissible to deliver merchandise on terms of credit, banks, financial houses and merchants should be asked to bind themselves to conduct such business only on a cash basis, if the merchandise is hypothecated either under letters of lien or for bills drawn against it. In those cases in which merchandise is permitted to be within the control of the consignee in China, notwithstanding that it is hypothecated as above, procedure for the preservation of the security intact might be laid down by the British Chamber of Commerce in agreement with the banka.
The question is a very thorny one, and bristles with difficulties. It will be treated under the second heading in this section.
7. In the case of large Government and Engineering contracts, valuable orders are frequently lost by British manufacturers on account of the disinclination of British banks to finance contracts involving deferred payments. Any remedy for this state of affairs, which may be suggested, would receive careful attention.
The three Chambers of Tientsin, Hankow, and Canton are in virtual agreement that engineering contracts are not lost solely for the reason that British banks are disinclined to finance contracts involving deferred payments. They point out that many such contracts could be secured by British firms if they were prepared to pay
the bribes and adopt other debasing methods, which are often the means whereby these orders are obtained by their German competitors. The Chambers, however, do not admit, except by implication, that the state of affairs adumbrated in the question does in fact exist, and refrain from offering any suggestions.
The Shanghai Chamber submits a most remarkable reply by declining to admit that such a state of affairs exists. As this view entirely at variance, not only with my own knowledge, but also with the opinions of such authorities as the British banks themselves, the British Engineering Association, and the China Association, it will be as well to give the Shanghai Chamber's statement in extenso :----
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It is generally held that this statement is not correct; that on the con- trary British banks have shown more willingness than those of any other nation to finance contracts; that the engineering work financed by the German banks in China probably does not amount to 1 per cent. of what has been financed by British banks directly or indirectly.
In their own and in the general interest it is clearly the duty of banks to make sure that a proposition is sound before they are willing to finance it, whether it be a contract for a cotton mill, or a packing credit for export cargo. German merchant houses were generally more willing than British houses to consider credit contracts, because they had to break their way into a new market. As a result they gathered experience of credit business and the British banks trusted them on account of that experience. Another reason why the British banks were inclined to finance German firms was because the latter were generally houses having their active and senior partners resident in China and so were prepared to take the most important decisions on the spot without interference from their partners at home. The management of many British firms on the other hand have not the same freedom of action. If a British bank at Shanghai, with the long experience and special knowledge at its disposal, is unwilling to finance a scheme, it is unlikely that any Govern- ment support would be productive of sound results. It has been suggested that an Industrial Bank (with or without a measure of Government support), should be established in England for the purpose of financing British business in China. Such a bank would be merely a competitor of the existing Far Eastern banks, but having less experience it is unlikely that it would be more open to proposals of a speculative nature. The existing Far Eastern banks are
merchant banks " to a far greater extent than any similar institu- tions in Europe. The existence of an Industrial Bank presupposes tangible security for industrial enterprise. So long as it is impossible for foreigners to own land outside the area of the Treaty Ports (under the present exterritorial régime in China) industrial development must necessarily be too restricted to encourage extension of credit facilities from any source.
Mr. Stabb, the chief manager of the Hong Kong Bank, than whom there is perhaps no greater authority on banking questions in China, writes:—
There is no doubt that the Germans secured a large share of engineering contracts owing to facilities given by their manufacturing and financial institutions in financing deferred payments. Engineering contracts settled
on a basis of deferred payments spread over long periods should be financed either by the local banks of the country from which the goods are supplied or by the local banks of the consuming country. In the case of China the latter course is hardly possible as yet, as the country has not the necessary banks. Exchange banks, like ourselves, can assist to a certain extent, but the life of our advance should be limited to the usance of the bills drawn against shipments, the finance of the deferred payments being a matter for arrangement by the manufacturer with his home bankers or by the importer.
8. An opinion as to the efficiency of British assistants as compared with their German rivals, together with suggestions as to what methods might be adopted, both at home and in China, to improve the education and training of the mercantile assistant in order to provide him with a deeper knowledge of the country and the market in which he labours,
The opinion of all the Chambers is lucidly expressed by Shanghai in the following terms :-
The efficiency of British assistants can probably be best gauged by the fact that they were employed as heads of departments in practically every
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