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delegation will bear in mind the desirability of guarding against discrimination in favour of either external or internal debtors, and they will not overlook the prior claims on customs revenues of the earlier and more reputable inadequately secured loans over those of the later unsecured loans and debts. It will also be a matter for consideration whether there should not be some devaluation of certain of the unsecured loans (in the event of their being given customs security), either by writing down the amount of their capital issue or by reducing their interest and extending their amortisation.
But if the surtaxes are to be levied with the object of increasing customs revenues for debt consolidation purposes. His Majesty's Government consider that it is all the more necessary to ensure that other measures are taken by the conference, which will be of more direct and permanent advantage to China as a whole and benefit Chinese and foreign commercial interests generally on broader lines. This object may, it is hoped. be achieved by insisting as far as possible on practical effect being given to the provisions of article 2 of the Chinese Customs Treaty, or, in other words, by devising and carrying out measures which will result in real progress being made towards the abolition of li-kin and the fulfilment of the other relevant conditions of the treaties of 1902 and 1903.
In discussing the question of guarantees, the British delegation will, of course, not lose sight of the fact that the more effective they become the nearer the Powers approach international intervention, a policy to which all the Powers are alike opposed, and also that the greater the success the greater may be the resentment of the rest of China at the extension of foreign control, which may be represented as having been extorted from a helpless and discredited Government in the face of an unwilling China. This resentment may be mitigated by making the Provincial Governments parties to this transaction, but even allocation on a provincial basis will offer no solution unless accompanied by satisfactory guarantees both by the Care must, of course, be taken that any Central and Provincial Governments. allocation on a provincial basis shall not be construed as implying the recognition by the Powers of the independence of the provinces.
There is a danger that in the not improbable event of the commission failing to obtain satisfactory guarantees that the increased revenues will be spent on the objects approved by the commission. there may, as a result of the pledges given at Washington, be a disposition to hand them over to the Chinese Government unconditionally
While His Majesty's Government are strongly opposed to such a course for the reasons already stated, they are not insensible to the fact that the Powers are more or less committed in principle to the proposed tariff increases, and that a refusal to grant them would probably be construed as a breach of faith, and possibly be resented even more strongly than the further extension of foreign control.
While His Majesty's Government are not averse to allocating to the Central Government an annual sum sufficient to meet the bare needs of administration provided such sum does not exceed an amount compatible with the primary object of the conference, they are not insensible to the difficulty which such a course presents as regards the application of the principle of provincial participation They trust, however, that some means may be devised by which satisfaction may be given to the provinces without making such an inroad into the increased revenues as to stultify the policy of the Special Conference.
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It has been suggested that possibly a way out of the dilemma might be found by granting the tariff increases, but holding them, wholly or partially, in trust for a better Government to come, a course which would have the further advantage of holding out to China a substantial inducement to put her house in order. solution on these lines would, however, raise embarrassing problems in connection with custodianship, and might well put an undue strain on the principle of foreign control of customs funds, a principle which only dates from the time of the revolution of 1911 and which has already been to a considerable extent impaired by the devotion of the customs surplus to the service of the internal loans in spite of the protests of the interested Powers.
It will be necessary to consider carefully the above points in the light of the situation on the spot, and the British delegates should use their discretion as to referring home for further instructions before committing themselves to public recommendations.
In connection with the allocation to the Chinese Government of any of the funds derived from the 24 per cent. surtax, attention may be drawn to the number
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of outstanding claims against that Government on the part of British, and no doubt other, nationals, in respect of damage arising from civil war, looting, brigandage, &c. Some of these claims, full particulars of which will be obtainable from His Majesty's Legation, have been admitted by the Chinese Government; but there is little prospect of securing payment of any of them unless the matter is dealt with in some form or other by the Special Conference. Many further claims considered by His Majesty's Legation as just, including all claims for damage through brigandage, or for damage to foreign property in the hands of Chinese agents, have been rejected by the Chinese Government as inadmissible.
It must be left to the discretion of the delegates to select the most appropriate course of action for dealing with this question of the claims (suggestions for the solution of which will be found in article 8 of the scheme contained in Annex (M)) and to consider whether they should take the initiative in bringing it forward. His Majesty's Government hope that opportunity may be afforded by the discussion of the claims question or otherwise to reach a settlement of the controversy regarding the foreign merchants' right to trade in the interior through Chinese agents, and to retain the ownership of their goods whilst in the hands of such agents. His Majesty's Legation will be able to furnish full information on the subject of this controversy and possible methods of settling it, but it would be desirable to ascertain, as far as may be possible, the present views on the matter of the principal British firms engaged in the distributing trade.
VII. SETTLEMENT OF LONG-OUTSTANDING QUESTIONS AND CONTROVERSIES AFFECTING FOREIGN TRADE AND RESIDENCE IN CHINA.
His Majesty's Government trust that the conference will also afford an opportunity to settle a number of questions affecting foreign trade and residence in China which have in some cases been outstanding for decades between the Chinese Government and the Powers, having in the main arisen out of conflicting interpretations of the old treaties, and which have for long been a fertile source of annoyance and hindrance to British merchants and of friction between the British and Chinese authorities. The following is a rough list of these questions, full particulars regarding which will be obtainable from His Majesty's Legation at Peking, and suggestions for the solution of which will be found incorporated in the scheme enclosed in Annex (M) :—
Transit pass procedure generally and the revision or abolition of the so-called "Chinkiang Rules.'
Repacking and processing privileges as applied to transit pass goods. The levy of production, and destination and consumption, taxes, inspection fees, and other irregular dues on goods under transit pass.
The taxation of steamer-borne traffic by the military authorities on the Upper Yang-tsze and other inland waterways.
The obstruction by the provincial authorities, and especially those of Hupei. to the navigation by foreign launches of waterways already opened to Chinese launches.
The treaty port area question.
The opening of new places to foreign residence and trade.
The settlement of outstanding claims and the principles on which such claims are to be presented in the future.
Foreign trading rights in the interior.
The opening of Peking to foreign residence and trade.
The levy of the Peking octroi on foreign goods.
The 20 per cent. consumption tax on cigarettes.
The prohibited list (of articles the import of, and trade in, which may
be prohibited by the Chinese Government).
The trade in rice and grain.
The movement of silver dollars from port to port. The import of explosives for industrial purposes.
The export of live-stock.
Discriminatory treatment of foreign goods (e.g.., as regards railway rates).
It is, of course, scarcely to be expected that opportunity will be afforded of dealing with all these and kindred questions, but the more of them it may be possible to settle the better.
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