mers in China find themselves brought closer every day to the British manufacturers. Under the old system in Hongkong, there stood between the manufacturer in England and the consumer in China a number of more or less costly intermediaries. Whilst the area for the consumption of foreign goods in China has been extending, owing to the tranquillity of the country and the quiet development of its internal resources, the cost to the consumer of such goods has been declining, for many reasons, of which the increased number of Chinese merchants in this Colony is one, and hence the great increase in the general trade.
33. Even in the short time that I have been here, the business premises of some well-known European and American firms have been purchased by Chinese.
1881
Opium:
34. Last year, the number of chests of Opium brought to Hongkong from India was 87,747, the estimated value of which was $58,248,235. The greater part of this is taken to the Treaty ports in foreign steamers, some of it is carried coastwise in Junks, and a small quantity is prepared in the Colony for the Opium smokers.
35. The Hongkong Government gets, at present, $205,000 per annum from the Opium farm, which is practically levying an ad valorem tax on it of more than a hundred per cent to the consumer.
36. By the Opium smuggling from Hongkong into China, the Government of China loses, at least $250,000 of revenue per annum.
37. Three years ago, I reported to Her Majesty's Government that the Opium smugglers, who make this Colony the base of their operations, are a desperate class. I transmitted Police reports showing that they fit out here with the necessary armaments and proceed to do battle with the Chinese revenue cruisers within sight of the Colony. In these battles, sometimes revenue officers are killed and sometimes the smugglers. The latter will refit here or at Macao after a skirmish, purchase cannon and ammunition, and again attack the Chinese cruisers. A few months ago, wounded men of both sides were brought to our hospital.
38. In this way, Hongkong and Macao maintain a sort of chronic Opium War with China, on a small scale.
39. I hope that some just scheme by which the Chinese Government may get their lawful revenue, will be soon carried into effect, for the existing system is injurious to legitimate trade, and endangers the friendly relations it is the true interest of this Colony to maintain with China.
+
Crime, Prison Discipline and Flogging.
44
40. In acknowledging the receipt of a despatch from my predecessor on certain matters of prison discipline, Lord Carnarvon instructed me, in June 1877, to review the whole question of prison discipline in Hongkong, and to make such proposals as would place the system upon a sound basis for the future. In doing this, I found that, in 1875, Sir Arthur Kennedy had appointed a Commission on the subject, in consequence of the large number of old offenders brought before the Magistrates; and in September 1876, he had reported to the Secretary of State that the returns for 1876 would show a "serious increase of crime in Hongkong." On visiting the gaol, I ascertained that the Chinese prisoners were kept in associated cells, that there was no attempt at a reformatory discipline, that the turnkeys and guards were not well suited for such posts, and that, for some years, an experiment had been tried in dealing with crime and criminals according to a system unknown in any other part of the Empire. The history of this experiment is not without some general interest, and it explains, to some extent, the proposals I made, and which Her Majesty's Government have sanctioned.
41. The treatment of criminals in Hongkong had been carefully considered by one of the ablest of my predecessors, Sir Hercules Robinson. He pointed out the defects, as to size and locality, of the old prison in the centre of the Town of Victoria. He recommended the building of a new prison on an island in the Harbour, on a site that admitted of extension and of large yards suitable for reformatory labour. He also recommended a definite system of remission of sentences according to a scale to be communicated to the prisoners. Lord Cardwell approved of the Governor's proposals.
42. In three years, a gaol was built on Stone Cutters' Island, and the conditions on which prisoners could earn the remission of a small part of the sentences were also sanctioned by Her Majesty's Government and duly notified to the prisoners. The new gaol was barely finished, when Sir Hercules Robinson was transferred to Ceylon, but the definite scale of remissions of sentences had been worked successfully from 1864 to the end of 1866.
43. In the Governor's Blue Book Report for 1866 (presented to Parliament in 1868), Sir Hercules Robinson's successor mentions that he took on himself, in October 1866, the responsibility of abandoning the new and extensive gaol just completed on Stone Cutters Island. About the