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established in China, and selected by the Governments of the two countries. No sooner had that decision been taken than the advance of the Nationalist Government from Canton to the Yang-tsze emphasised the partition of China between two rival Governments, and made it impossible to secure the selection of a board by one Govern- ment without antagonising the other. Thus, political conditions in China have prevented our plans from being carried into effect. China has been torn by civil wars, and for a period was swept by a wave of communism and of bitter anti-British agitation. There was no Government with whom we could discuss the many culturai and mutually beneficial projects that had been mooted, or with whom we could arrange the appointment of trustees, without risk of becoming involved in the domestic feuds that distracted the country. Suddenly (June 1928) all this was changed by the triumph of the Nationalist party and the establishment of a National Government in Nanking. Nothing is ever certain in China, but there seems little doubt that, though there will always be a large measure of local autonomy, the Nanking Government is accepted by the country at large, and may be accepted by us as the Government of a united China.
In
4. This being so, we are immediately confronted with a fresh crop of problems and difficulties. Our policy is once again in danger of being outstripped by events. The new Government is a Nationalist Government, and will only make good in so far as it lives up to Nationalist principles. It must assert a position of equality with foreign Powers and shake off the shackles of foreign tutelage and foreign privilege imposed upon China by the unequal treaties. The abolition of extra- territoriality may yet be some distance off, but tariff autonomy is to be achieved immediately, and China's next step will undoubtedly be to assume full control of the Customs Administration (not necessarily dispensing with the services of the foreign staff). The next advance after that will be to take back into her own hands the custody of her revenues and the liquidation of the obligations secured upon them, 5. The Boxer Indemnity was secured upon the customs revenues in 1901. 1912 China agreed to a temporary arrangement whereby those revenues were collected by the foreign commissioners, instead of as heretofore by the native superintendents, and banked in foreign custodian banks in the name of the foreign Inspector-General of Customs, instead of remaining as heretofore under the unfettered control of the Chinese officials. We must foresee the possibility or rather the probability-that in the immediate future China will declare that temporary arrangement at an end. We now receive the Boxer Indemnity instal- ments automatically from a foreign custodian bank. We shall then have to demand payment of them from a Chinese official. In these circumstances, our wisest policy would appear to be to reduce our commitments as much as possible. If we now set up elaborate machinery for putting the money under the control of trustees to be used for specific purposes, it may well turn out that instead of promoting friendly relations and a good understanding between the two peoples it may prove a potent source of friction and ill-will. As a matter of fact, in the case of the remission
of other indemnities, there has already been friction over the Russian and Japanese and even the American arrangements. All the Powers have in principle given up their indemnities, and the Chinese have become accustomed to regard the money as theirs rather than ours. They may find it galling to their pride to be under compulsion to pay it even to a board of trustees. If the custodian banks were abolished and China refused to pay any more instalments, we should have no means whatever of forcing her to do so (even if we thought it wise to try), and we should be faced with the task of liquidating an impossible position.
6. The question then arises, is there any way of returning this money to China and yet at the same time achieving our original object of impressing her imagination and gaining her friendship by a striking act of generosity? There is such a way if we can take a rapid decision and act on it quickly and dramatically. We should surrender all future instalments to China unconditionally by a simple resolution of the House of Commons, but we should not dull the edge of this piece of generosity by endeavouring to extract promises from China as to how she will use the money. We should tell the Chinese that we return the money unconditionally as a mark of our friendship, and we leave it to her unfettered discretion to decide how the money should be spent.
7. Sir M. Lampson has now replied to the telegram referred to in the first paragraph_above.*
His reply anticipates most, if not all, of the further points which, in the development of our policy, we would have put to him. If we hand the
* See Annex II and III, Peking telegrams Nos. 1158 and 1159 of October 18, 1928.
3
money back, he says, we should do it thoroughly and be quit of all future responsi- bility for its method of expenditure. This was the conclusion at which we ourselves had independently arrived. But he also sees strong arguments against our proposal, viz., unlikelihood (if funds are uncontrolled) that the money will be devoted to objects of mutual Anglo-Chinese benefit, and probable criticism in British circles against so generous a gift to China when so many British debts are still outstanding. Sir M. Lampson would like to defer giving a definite opinion until he visits Nanking. He thinks that this offer might be an invaluable lever in his commercial treaty negotiations.
8. Our own idea had been that the most effective way of carrying out our remission policy would be to authorise Sir M. Lampson, on the occasion of his visit to Nanking (if and when he goes-perhaps in a month or six weeks' time to sign the impending Tariff Autonomy Treaty), to make the announcement at the banquet to which he would be entertained to celebrate the signing of the treaty. The essence of this plan would be secrecy and dramatic effect. If it were possible, therefore, for Sir M. Lampson to make the announcement before the resolution had been passed in the House, so much the better; if not, then perhaps the resolution could be made to synchronise with the signing of the treaty.
9. It seems unlikely that the surrender of the Boxer Indemnity to the Nanking Government would be resented by any other part of China, even if separatist tendencies should once more appear. The provinces have long since ceased to regard the money being paid into custodian banks as belonging to them, but the Nanking Government's policy of centralisation of finances is likely to cause difficulties in regard to other revenues. If, therefore, the finances of the Central Government were strengthened without depleting those of the provinces, it seems probable that all parties would be equally pleased. Further, the stability of the Central Government will depend in some measure on the support and friendship of foreign countries, perhaps especially the support of Great Britain, and an action of this sort at the present moment would almost certainly be a very considerable help towards stability.
10.
There remains the question of the disposal of that part of the indemnity which has already been paid into the bank on account of "The China Indemnity Fund under the provisions of the 1925 Act. This question is not so urgent, since these funds can only be dealt with by the passing of an Amending Act. Lord Buxton, Chairman of the Advisory Committee, who has been confidentially consulted and who approves in principle of the foregoing proposal, is inclined to think that this portion of the fund also should be remitted unconditionally to the Chinese.*
11 Very roughly, the accumulated funds already paid amount to £2,500,000; interest thereon to £200,000; unpaid balance of the indemnity to £8,500,000 (spread over years 1928-45).
Far Eastern Department, Foreign Office, October 17, 1928.
ANNEX I.
Lord Cushendun to Sir M. Lampson (Peking).
(No. 256. Confidential.) (Telegraphic.)
Foreign Office, September 29, 1928. YOUR telegram No. 774: Boxer Indemnity fund.
In view (1) of the delay now inevitably involved before the passage of an Amending Act enabling a Board of Trustees to be established in China to carry out the recommendations of the Buxton Committee, and (2) of the difficulty of taking any more adequate action under the 1925 Act than possibly that of rendering some slight assistance to a few Chinese Government students at present stranded here without funds, I have been seriously considering whether there are any other means of putting the whole or some portion of the fund to immediate use.
I am advised that, while the portion of the indemnity fund already paid to the account of His Majesty's Government cannot under the terms of the 1925 Act be released without an Amending Act, the situation with regard to the as yet unpaid instalments is different; and it would be possible to remit these instalments to the Chinese Government in virtue of a resolution passed in Committee in the House * See Annex IV, minute of conversation with Lord Buxton.
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