PUBLIC RECORD OFFICE
Reference :--
mmmmm.C.O.882/11
PUBLIC RECORD OFFICE, LONDON
ALLY WITHOUT PERMISSION OF THE BE REPRODUCED PHOTOGRAPHIC- COPYRIGHT PHOTOGRAPH-NOT TO
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Financial Measure—(b) Partial Moratorium.
69. The Chinese registered banks were in a weaker position A certain amount than the European banks for various reasons.
of over-trading had taken place among the former as a whole; and although their resources were quite large and adequate to the ultimate satisfaction of all depositors, the trouble at the There is start of the crisis was to find immediate liquid assets. reason to suppose that some at least of the registered banks would have been compelled to suspend payment in June, and the same applies to the native banks. It was necessary to gain time. To compare for a moment small things with great, the Chinese banks at that time were in the position of the London Joint Stock banks on the 1st August, 1914. But whereas in London the lucky accident of a Bank Holiday (extended for two days) enabled the Treasury to provide new currency, and to guard against any possible run, we in Hongkong were obliged openly to suspend payment by means of a partial moratorium until help came. This, therefore, is not strictly comparable with the general moratorium Our moratorium declared in England on the 6th August, 1914.
lasted from the 22nd to the 29th June, and on the latter date the Chinese registered banks re-opened for business, having mobilised their own resources, and were able to meet all obliga-
tions.
70. The moratorium was suggested to the Government by the Hon. Mr. Chow Shou-son on the evening of the 21st June. On the previous day (Sunday) a general moratorium had been men- tioned at Government House when the Hon. Mr. D. W. Tratman, Mr. A. G. M. Fletcher, Mr. Chow Shou-son and I were present; but no decision was reached. The request made by Mr. Chow was for a partial moratorium applying only to Chinese banks. He tried to see me in my office at 5.30 p.m. on the 21st, but I had left for home. However, when I heard of the decision next morning, I informed him and the Assistant Colonial Secre- tary that I supported the measure.
71. Although I gave my support to a moratorium on this occa- sion, I may perhaps be allowed to point out some of the dangers which always attend the taking of such an extreme measure. These dangers must be borne in mind if a similar occasion arises in the future; and the effects of the financial situation, as it then A mere mechanical imitation is, must be carefully considered.
of precedents may lead to grave results.
72. The moratorium at all times is a dangerous device. If it became the regular practice to declare a moratorium in every financial crisis, the natural check to over-trading, namely, the It is only fear of the resulting crisis, would become too weak. justified by political disturbance so unexpected and of such inten- sity that no ordinary exercise of business caution or foresight would be sufficent to meet it; and this was our case in June. Granted that in this case the moratorium saved some of the Chinese registered banks and many of the native banks from the necessity of suspension in June and July, it nevertheless com- pletely disorganised the financial fabric of the Colony. occurred immediately before the June Settlement fixed for the 23rd (a time probably chosen purposely by our cunning enemy), and made it impossible for that settlement to be carried through,
It
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since the bulk of Stock Exchange transactions had hitherto been financed by loans from the banks; and all the banks, including the foreign banks, suddenly withheld the financial support already promised. This action created very widespread apprehension of ruinous losses among the Chinese merchants and traders of all classes. In fact there was a Stock Exchange panic, and the settlement had to be postponed-a step whose justification is still a matter of controversy. It is true that but for the postponement there would have been wholesale failures which would have spread through the community in the well-known way in which a Stock Exchange crisis passes into a general commercial crisis. Still the postponement made it easy for many to dishonour their contracts, and the result was a state of chaos in the share market, which still exists. In passing, I should like to add that it is open to question whether bankers were justified in withholding their support from the Stock Exchange at a time when such support was more than ever necessary for the general good of the com- munity.
Financial Measure-(c) Government-Guaranteed Loan of $6,000,000 to Native Banks.
73. The native banks are distinguished from the Chinese registered banks by their methods of doing business. Until about six or seven years ago their modus operandi were to receive current and fixed deposits, and use the funds thus obtained to finance native trading operations of their clients. This type of business calls for personal acquaintance with the parties being financed, and is sound and safe enough when carried out on the usual Chinese lines and with due caution. But the native banks had been tempted by the profits to be got from working on Western lines, and consequently used their funds to finance share and property transactions. The excessive speculation in shares and property of the last two or three years has been due to the large influx of money from Canton and South China, generally for safe investment in the Colony. The native banks had financed such transactions in excess of prudent limits, so that when an organised run was made on them at the end of June, they were unable to meet all their obligations, the securities held by them being unrealizable at the moment. In this sense they had been over-trading, and in spite of the support which was extended to them by the two leading English banks-the Hongkong and Shanghai Banking Corporation and the Chartered Bank of India, Australia and China-by a loan of $6,000,000 (backed by Govern. ment guarantee) on the 29th June, seven of them have since failed. 74. On the 2nd, 3rd, and 4th July the native banks gradually re-opened, and the Order declaring the partial moratorium was repealed on the last date. In the interval from the 4th July to the 18th September there were sporadic attempts to damage their credit, in the course of which seven, as referred to above, had to' suspend payment,
Financial Measure—(d) £3,000,000 Trade Loan.
75. The boycott has paralysed our trade. Even if it were lifted to-day the merchants would be obliged in some way to find money
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