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the increasing centralization of authority in Peking, and the growing desire to profit by competition, may result in admitting British manufactures to a greater degree. At a recent interview I spoke at some length to Tieh Liang about the drawbacks connected with the present system of purchasing armament, and impressed upon him the uccessity of finding a wider market for obtaining his supplies.
Under the system hitherto in force, whereby each province had sole management, of its purchases of war material, it will be seen from the following incident that i was difficult for a Viceroy, with the best of good-will, to buy in the cheapest market. A technical representative of a British manufacturer showed to the Viceroy at Tien-tsin that the agency charges for packing freight and insurance, which had been originally calculated at 10 per cent. of the value of the consignment, and now stood usually at 15 per cent., were more than double of the actual expenses incurred, and served principally as a fund to be distributed as secret commissions to the subordinate officials concerned in the transaction. The Viceroy promised to reflect over the suggestion that he should obviate all this by purchasing direct from the manufacturers, but, after a few days' consideration, he decided that the existing scheme of things could not be disturbed.
In the supply of electrical plant and machinery of various sorts, the German agencies are also generally admitted to be in advance of their British competitors, and, in view of the rapidly growing demand for public lighting, water-works, steam. rollers, &c., in Chinese cities, it appears to me worthy of consideration whether a system of direct representation could not be instituted by British manufacturers in this branch of industry as well as in the arms and ammunition trade.
I would suggest, if you see no objection, that this correspondence might be communicated confidentially to the China Association, and, if possible, circulated in the same way amongst some of the leading firms connected with the China trade, in order that their views may be obtained as to what steps should be taken to acquire a larger share for Great Britain in this important branch of business.
I have, &c. (Signed)
Inclosure 1 in No. 1.
J. N. JORDAN.
Report by Sir A. Hosie on the alleged Monopoly by German Firms of the Trade with China in Arms, Ammunition, Materials for Arsenals, &c.
SOME twenty years ago an important British merchant firm in China represented a leading British armament firm, but did very little business. The latter being dissatisfied withdrew the agency. The merchant firm then obtained the agency of a leading German arms manufacturer, and engaged a clever German to manage the department, which was left entirely in his hands, without any supervision from the heads of the firm. After a few years the German left the firm, and started in business on his own account. The British firm, being left with nobody who understood the business, lost the bulk of the trade of the arms department. The German manu- facturer withdrew his agency, and handed it over to the late assistant of the British house. This man made such a success of the business that other German firms organized departments for dealing with the trade in arms, ammunition, war material, and machinery generally. They secured agencies for leading British and Continental manufacturers, and went into business with characteristic thoroughness. This special, department ( Technischesabteilung") of each firm employed a staff of trained engineers and experts, as well as experts from the German army to deal with arms and ammunition.
A number of these men were sent into the interior, of China for the express purpose of learning the language, with the result that to-day there are in each of these technical departments several men who can speak and correspond in Chinese. No serious attempt was made for many years by British merchant firms in China to contest the field, and when they did wake up to the fact that a lucrative business was being done in war material and machinery, they discovered that the German firms held a monopoly as well as the agencies for leading British manufacturers. Even then the British merchants worked in a half-hearted way, considering it quite sufficient to place inexperienced men in charge of a highly technical business.
As worked by British merchant houses in China, British manufacturers had reason to be dissatisfied with the results shown by such agents, and it is not surprising to
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find that agencies were cancelled and transferred to German merchants. It was at this time that the cry of bribery and corruption was first raised, while, as a matter of fact, the German firms had no reason to use these weapons against British firms as the competition by the latter was too feeble to be noticeable. It is quite true that high commissions are paid, but it is equally true that the system is not a monopoly of German merchants. When it came to competition between the merchants of the two nationalities the Germans had energy, method, trained technical knowledge, language, and commission to assist them against British commission alone. Another respect in which British merchants have failed and are failing in their dealings with the Chinese is their attitude towards the latter. They fail to maintain that close relationship with the Chinese which is so characteristic of Germans seeking business. There are, of course, failures amongst German firms to get or keep a hold of this business, and such failures are due to the same causes which have militated against British firms. There is a well-known German firm in Shanghae which, with a change of membership, rapidly lost a large connection which it held up to a recent date.
The holding of British agencies by German firms is undesirable; but British manu- facturers have in the past been compelled to adopt this method of doing business, the alternative being to have their own representatives in China and incur an expenditure which they did not see their way to meet. One great obstacle in the way of British manufacturers of arms, ammunition, and arsenal machinery and material is the employ- ment of Germans by the Chinese. These engineers are engaged for the Chinese by German manufacturers, and they have naturally a predilection for and an interest in the supply of German material with a bias against the manufactures of other countries. The experience of German engineers has been gained in the use of German material, and their previous associations make them favour German manufactures.
British firms and representatives of British manufacturers complain of the employment in China of two Germans, one in the army and the other as a general looker-on. In the case of ordnance the former finally decides on the merits or demerits of any guns submitted for trial by the Chinese War Department, and they allege that it is notorious that this man is interested in favouring the guns of a well-known German manufacturer, and that guns submitted by other makers are rejected, even if they give better results. They maintain that under existing circumstances they have no assurance of a fair trial.
German firms are in close touch with all the arsenals in China, and by giving long credits they usually succeed in securing a continuation of orders. High interest is, of course, charged on outstanding accounts. They make a point of sending agents into the interior, even into the remotest provinces, to visit arsenal authorities and advise them as to their requirements.
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Although German merchant firms hold almost a monopoly of the trade, it does not follow that they supply only German material, and I am informed by the representa- tive of a large British manufacturer that some of his best customers are Gerinans. am also informed that, owing to the number of hands through which arms, ammunition, &c., have to pass and the commissions which have to be paid to the heads of Government Departments, the laid-down prices frequently amount to three times the original cost.
ALEX. HOSIE,
(Signed)
Shanghae, February 17, 1909.
Inclosure 2 in No. 1.
Acting Commercial Attaché.
Acting Consul-General Ker to Sir J. Jordan.
(No. 11.) Sir,
Tien-tsin, February 1, 1999. IN reply to your despatch No. 3 of the 13th ultimo, I have the honour to report that there are no British firms at Tien-tsin engaged in the arms and ammunition trade. Messrs. Jardine, Matheson, and Co. (Limited) are agents for the Nobel Explosives Company (Limited), but the only goods of this firm that they actually handle are safety fuses for industrial purposes. Their agent here informs me that they have long since given up the attempt to get orders for arms or ammunition from Chinese Government Departments, recognizing the practical monopoly established by German firms. Some twenty years ago Messrs. Jardinc, Matheson, and Co. obtained the services of the late
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