CO129-489 - Governor Sir Stubbs & Sir Clementi - 1925 [8-12] — Page 456

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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. Intact 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 the 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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