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who are acquainted with the details of the trade should open their own branches, certainly in Shanghai and Hong Kong, and possibly in Tientsin and Hankow, and should conduct an Eastern merchant's business. It is contended that the sale of piece goods alone would not be sufficient to defray the expenses of a separate establishment, but it must be borne in mind that many manufacturers of machinery, hardware, &c., in the United Kingdom are at present withholding their agencies and representation in China on account of the paucity of available British firus with adequate facilities. For many years past there have been practically no additions to the British firms established in China, and the prospects are exceedingly promising for a young energetic house with adequate capital and credit, experienced management, and knowledge of the market. There is no doubt whatever that such a firm would be in a position to secure valuable agencies from British manufacturers.
While strongly opposing the continuation after the war of the present trading with the enemy "legulations in China as being against our interests in the broadest sense, I would recommend that H.M. Government should bring the strongest possible pressure to bear on firms and institutions in this country to induce them to place their agencies in China in British hands. The number of British agencies held by German firms in the Far East before the war was considerable, and these agencies would materially assist the formation of new British hongs if promised to them. It is realised that in exceptional cases, such as occasionally arise in shipping and insurance, the granting of an agency to a German firm secures additional foreign business to the home shipping or insurance company, which it would otherwise not have obtained. These instances would have to be taken on their merits, but, on the whole, the principle should be adopted of British agencies for British goods, and official pressure should be brought to bear to enforce this.
Questions of Finance and Credit with Special Reference to the Need for Improved Facilities for the Finance of Industrial and Engineering Contracts involving Deferred Payments.
This difficult question may be divided into two separate and distinct branches:—
(a) Ordinary or commercial finance and exchange; and
(b) Special or long term finance.
(a) Commercial Finance.-There is ample evidence to prove that the financial and exchange requirements of merchants in the conduct of their ordinary business, whether in the export or the import trade, are adequately provided by the liberal facilities granted by the three British Exchange Banks operating in China. These banks, and particularly the Hong Kong and Shanghai Banking Corporation, and the Chartered Bank of India, Australia and China, finance the great bulk of the foreign trade of China, and their liberal and far-sighted policy is reflected, not only by their hold on the British trade, but by the extent to which they financed the trade of merchants of other nationalities operating on the China coast.
It has been the policy of British Exchange Banks to discourage long credit and to encourage the conduct of business on a cash basis. This appears to have been a sound policy, the wisdom of which has been borne out in crises such as the Tientsin débâcle of 1908. The credit granted by German merchants, mainly due to assistance rendered by their home banks and by the London Accepting Houses, has rendered business somewhat difficult of late years, and-as has been stated in the Report on China, page 201-it is hoped that in future the London Accepting Houses may be induced to insist upon a strict adherence to the terms of their letters of lien.
It is practically impossible to lay down general rules, still more to legislate, as to the length of credit to be granted in a given market. The whole question depends on the nature of the business, and the individual financial standing and reputation of both the merchant and his buyer. While the suggestions of the China Association with regard to standard periods of usance for drafts, &c., &c., are legitimate matters for the careful attention of British Chambers of Commerce in conjunction with the banks, it is difficult to see how any agreement arrived at can be enforced against a wealthy firm which carries its own goods, and, therefore, has a perfect right to dispose of them on whatever terms it thinks fit. It is certain that, as a general proposition, legislation or assistance by H.M. Government in this connection is neither feasible nor desirable.
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(b) Special or Long-term" Finance.-One of the most serious handicaps to British progress in the past has been the entire lack of any means for financing deferred payments on important Chinese Government and private contracts for public works, plant, machinery, and supplies. As the China Association clearly
state :-
"In such cases as concessions for railways, enterprises of this magnitude can only be financed by the eventual issue of public loans, but considerable outlay is often necessary before the stage is reached when a public issue can be made; in other cases such as contracts for ships, for machinery on a large scale, for electric lighting and power plants, &c., financial facilities which would enable the contractors to accept terms of deferred payment are often necessary to secure business in competition with Germans. In other directions advances made to viceroys and local governors by Germans and Japanese are believed to have resulted in large orders and concessions. German and Japanese Governments have given strong support to their Both the nationals in transactions of this nature, have made it their business to safeguard these advances, and to see that they were not made in vain."
Our German competitors have usually been able to arrange this finance through the medium of their manufacturers in Europe-such houses as Messrs. Krupp, the A.E.G., and Siemens-Schuckert being enormous concerns, with the closest connections in German finance circles. In this country, however, there is much greater difficulty. The majority of our manufacturers utilise the whole of their resources in the organi- sation and running of their own works, and it is too much to expect them to finance their clients in addition, nor is such a method an economical one. Exchange Banks do not care to lock up their funds for any period beyond the usance The British of the bills drawn against actual shipments, and, as the chief manager of the Hong Kong and Shanghai Bank remarks: "Such contracts should be financed by the local "banks of the country from which the goods are supplied, or by the local banks of "the consuming country. In the case of China the latter course is hardly possible
as yet, as the country has not the necessary banks.”
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The Joint Stock Banks in the United Kingdom have not cared to invest any portion of their vast resources (which consist, in the main, of deposits at call or short notice) in such long-date paper, when they can rapidly turn over their funds in the London market in discounting the fine paper of foreign banks, and in arbitrago transactions. Hence has arisen the deadlock, with the inevitable results that British industrial interests have suffered, and that the German firms in China have secured an undue share of the large industrial contracts which have been offered.
Various remedies are suggested. The China Association advocates the formation of a British International Corporation on the lines of the American Institution founded in 1915. Such a corporation would undertake financial operations which might be considered to be outside the sphere of ordinary banking transactions. The British Engineers' Association is prepared to resuscitate the scheme for a British Engineers' Trust, whereby the collective guarantee of the members of the association would be pledged by the trust in order to borrow the funds required from British banks,
am strongly of opinion that a British trade bank, as adumbrated by Lord Faringdon's Committee, would exactly meet the case, and would satisfy all parties. I know of no other country to which the remarks and recommendations of the Committee apply with greater truth and force than in the case of China. Such a Trade Bank would have many advantages :-
(a) It would provide a medium for the finance of large Chinese Government and
private contracts involving deferred payments.
(b) It would be able to encourage with advice and financial assistance, young energetic firms who might, under these circumstances, decide to start business on their own account.
(c) It need not interfere, in any way, with the work now being done by existing British Exchange Banks in China, but on the contrary would be a valuable complement to their activities, and would be able, with their co-operation, to take over those new transactions which, owing to length of time, magnitude, and other reasons, they might not be prepared to undertake themselves.
(d) The presence in China of a highly-qualified representative of first-class standing with possibly one or two younger men who might assist in the
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