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is for machinery and equipment of all kinds and descriptions, and we shall have no adequate share in supplying that demand unless credit facilities are arranged with suitable buyers.
230. At the Conference of Industrial and Commercial Experts held at Nanking in November, 1930, an economic policy for China was promulgated. This policy emphasises amongst other things, the full economic and industrial development of China and indicates various directions which this development should follow. China has, in fact, set her face towards industrialisation. She has learned well of her near neighbour, Japan, and plans her industrial development on similar lines. There is, however, this difference, that, in order to implement her programme, China must be almost entirely supported by foreign credits. The Chinese Government recognise this, and the President of the Republic, in addressing the Conference, stressed the importance of encourag- ing foreign capital to build up Chinese industry.
That the leading men of China support the Government in its economic programme was demonstrated to us. In our inter- views with bankers, economists, educationists and officials, it was urged upon us that the most effective way of helping China and increasing British exports was to turn our attention to sell- ing on long terms of credit machinery and equipment to China so that she might become industrialised and a greater international trader.
231. When we remember the conditions under which Chinese workers labour in the factories and mills already established, the long hours, inadequate wage rates, the low standards-comparable with the worse conditions of factory life in England at its origin -we realise that problem which Great Britain has to face with its higher standard of living. It cannot, therefore, be denied that the extension of credits to China to promote manufacture there would, in many instances, be using British capital to equip a competitor who might oust us from her own and other markets, as Japan has done. Further, the payment of interest on invest- ments in China would be made in goods competing with our own, and in this respect would further reduce our productive power in our home market. Yet no legitimate complaint can be made on these grounds against British capital seeking investment abroad so long as British industry is afforded equal opportunity to secure the use of British capital on as favourable terms as those obtained by foreign industrialists. British capital, like British goods, is a commodity for sale. It should suffer no restraint which manu- facture is not called upon to bear. It should have that freedom of movement which we claim for British commerce.
The possi- bility that British capital invested abroad may equip another nation to compete with us in the home or world market does not, in itself, constitute a case for restraining or preventing such use of British capital. National capital can know no more limited
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frontier than does trade. For Great Britain to withhold avail- able capital from China or elsewhere on the ground that wage rates are lower or taxes less burdensome there, would be to play into the hands of other nations with the capacity to lend to China, and so to worsen our own condition. The denial of free move- ment to British capital is no solution of the difficulty. The real solution lies in the attainment by Great Britain of skill and effi- ciency in production which will be no less than those of any competitor.
THE SILVER QUESTION.
232. There exists in China to-day one outstanding problem which faces all nations desirous of selling their goods in the China market. The deplorably low silver values, and the consequently much reduced buying of the vast populace, are factors contribut- ing to restrict the increase of imports into China from foreign countries. Finding it increasingly difficult to buy (for payment in gold) goods from abroad, China will be driven to discover ways and means of producing her own requirements. Should she con- tinue to remain on a greatly depreciated silver basis, for some years, it is obvious that she will of necessity not only quickly enlarge her industrial capacity and manufacture goods now made in foreign countries, but will be able to export many of such goods to markets abroad now being served by Great Britain. The potentiality of China with her cheap labour, low standard of living and depreciated currency is too obvious to require special emphasis. Once a country is driven in on her own resources there arises the possibility of a market being permanently lost. The first and foremost problem for Great Britain is that of sup- plying China with manufactured goods but it does not stand alone. Any falling off in trade automatically brings about a corresponding reduction in the income of British ships from freight, and, concurrently, a reduction in insurance premia pay- able to British companies.
233. Consideration of China's currency problem in another direc- tion seems desirable. With every move downwards in silver values China has to bear increasing financial burdens arising from the payment in gold of interest on foreign loans. She has to meet these obligations by imposing new duties which in their turn further restrict imports. China's funded debt due to foreign countries in principal and interest on 1st January, 1931, stood at £202 millions. In addition, there is a considerable floating debt. A very large portion of these obligations is due to British subjects and institutions. If silver falls still lower or even remains at its present level, payment of interest on foreign loans might be affected much damage to British interests being caused.
234. Certain proposed remedies for the decline in the value of silver do not meet China's case. Financial silver producing
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