3
2
possible, of a lasting settlement that would conduce to the establishment of a strong and orderly Government in China. This meant that prior to tariff autonomy, and as one of the stages thereto, we were willing to grant, under suitable conditions, surtaxes higher than those contemplated at Washington (note: hence we get the and interim surtaxes), because it was felt that, phrases Washington surtaxes
if we were to have debt consolidation, some further revenue would be necessary in order to make possible any of those measures of constructive benefit to China which we, in particular, had in mind.
V.
The Tariff Conference opened on the 26th October last, and within three weeks was stampeded into agreeing to a resolution definitely granting China tariff autonomy on the 1st January, 1929. The same resolution contained an undertaking by China that she should abolish li-kin by that date, but the two were not expressed as being interdependent. This quasi-immediate grant of tariff autonomy-raising the prospect of vastly greater customs revenues flowing through foreign hands from the provinces to Peking-created an entirely new situation calling for a new orientation of policy. Certain other developments urged us in the same direction. There was a sudden leap in the estimate of the unsecured debt, which was now found to be about treble any figure previously mentioned; debt consolidation as proposed by the foreign delegations was based on rigid and absolute foreign control over the whole of the customs revenue (vastly increased by tariff autonomy as noted above), which raised in acute form the questions of provincial concurrence and danger to the Maritime Customs Administration; and finally it transpired that the Chinese were after all strongly opposed to any scheme of debt consolidation being brought within the scope of the Tariff Conference at all: they were willing to elaborate and put before their creditors a scheme for consolidating the unsecured debt, but they claimed that this was a matter which touched the sovereignty and independence of China, and should be dealt with outside the conference. This attitude of the Chinese coincided exactly with our original view. We now felt very strongly that the dangers involved in debt consolidation by the conference were graver than ever, and, as a result of an interchange of views, Sir R. Macleay gave us an assurance that the debt consolidation scheme would not form part of the treaty which was being negotiated by the He still considered it conference, but would be dealt with outside the conference. essential that it should be dealt with in some such way, and that we should lend our support in order to obtain the support of the other delegations for the scheme for the abolition of li-kin which had been elaborated by our delegation.
VI.
Up to the end of February the Chinese delegation had refused to discuss the Washington surtaxes because they feared that the Powers might hastily grant these surtaxes and then, having fulfilled the promises made at Washington, close the conference, and so cheat them out of the promised tariff autonomy. The conference. when it was not put into abeyance by civil war, was engaged in discussing the higher interim surtaxes, the purposes and conditions thereof, and the abolition of li-kin. while a debt consolidation committee was discussing that subject at meetings which were deemed to be outside the conference. Suddenly the Chinese, having apparently got over their suspicions, brought forward a resolution authorising the immediate levy of the Washington surtaxes. During March a sub-committee held six long meetings to try and settle the terms of this resolution, but utterly failed to come to It any agreement. The rock on which they split was purposes and conditions.'
purposes and conditions for the Washington was admitted by everybody that surtaxes (estimated to produce 36 million dollars a year) must necessarily be the same as for the interim surtaxes (estimated to produce 90 million dollars a year' These purposes and conditions had not yet been settled by the conference, and therefore, said the Japanese delegate, you cannot begin levying the Washingt surtaxes until they have been settled. The Chinese delegate wanted to begin the levy anyway, and agree on purposes and conditions later. Finally, at the sixth (and last) meeting he proposed that levy of the Washington surtaxes should begin with the understanding that, if purposes and conditions had not yet been agreed upon, one-third of the proceeds should be devoted to li-kin abolition, one-third to debt consolidation, and one-third to administrative expenses. This was refused.
K
C
The reason underlying this refusal was that the foreign delegations intended to insist that the "conditions" should include rigid foreign control over the whole revenue, and that the main debt, which would thus be included in the treaty presented to China for her purpose should be consolidation of the unsecured acceptance. In the eyes of the foreign delegations, conditions' synonymous with debt consolidation."
VII.
were, in fact,
Thus, everything centered round the question of conditions." Up to the grant of tariff autonomy and up to the moment when it became clear that the Chinese themselves would not consent to a debt consolidation scheme being imposed upon them by the conference, our policy was to concentrate upon a constructive li-kin abolition scheme which we hoped would be accepted (1) by China, and (2) by the Powers in return for our support to a debt consolidation scheme. The other Powers (especially America and Japan) concentrated their attention almost exclusively on debt consolidation so as to get their own debt secured. While they had little faith in the li-kin abolition scheme (and it is to be feared that it is, in fact, a visionary and impracticable scheme), they were prepared to accept it, and so was China. But, and here came the crux of the whole situation, the other Powers were determined that a debt consolidation scheme, with complete foreign control over China customs revenues, should be made a sine qué non before even the Washington surtaxes were granted.
VIII.
Desirable as conditions or guarantees of a constructive character may be in themselves, and sound though it may have been at the time, and in the atmosphere of the Washington Conference five years ago, to make it an essential object of our policy to secure such conditions, the altered circumstances seemed to make it clear that it would be dangerous to endeavour to insist on them now. Quite clearly we ought not to associate ourselves with any attempt to impose upon China a debt consolidation scheme as a condition precedent to the granting of either the Washington or the interim surtaxes. In the case of China we cannot escape from the difficulty that a condition always presupposes some form of foreign control over the revenue. Therefore, it was also clear that if we took up the stand that we
conditions cannot impose upon China
for the purpose of debt consolidation, we could not attempt to insist upon conditions for any other purpose. It seemed to us that the right line to take up was to say that we would agree to any proposal that might be acepted by China and the Powers, but that we would not associate ourselves with any attempt to impose it as a condition.
-<
៥៥
T
IX.
In April the Kuo Min-chun (Nationalist army) was driven out of Peking, the Chinese delegation melted away and the conference went into abeyance. Negotia- tions were continued between the foreign delegations with a view to arriving at agreement among themselves in the absence of a Chinese delegation on the subject of debt consolidation and the terms of a resolution authorising the levy of the Washington surtaxes.
X.
The British delegation had by now come round to the Foreign Office view as regards debt consolidation, though they still clung to "conditions in regard to the Washington surtaxes on the ground that China was not yet fit for complete liberty in tariff matters. Accordingly, in the course of the negotiations referred to in paragraph 9. Sir R. Macleay stated that his instructions would not permit him to participate in elaborating a joint statement to be tabled at the conference, which formulated a precise or concrete debt consolidation plan, and thus appearing to force such a plan upon the Chinese. In the view of His Majesty's Government it was for the Chinese to draw up their own scheme for dealing with their debts and submit it to the conference. He had, of course, no objection to the American or any other delegation suggesting a consolidating scheme to the Chinese, which the latter
B 2 [15319]
528
4/11