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the commercial counsellor's last report, the customs service has been shaken to its foundations, and co-operation with the Powers has brought little but disappointment and distrust.
14. You have asked for my observations on the Governor's despatches, with particular reference to the prevention of smuggling and the relations between the Hong Kong Government and the Maritime Customs, and I hope you will not think that I have seized this excuse for airing my views on other matters in an unwarrantable manner. The prevention of smuggling and the relations between the Hong Kong Government and the Chinese Customs can, however, only be placed on a mutually satisfactory footing by agreement between the parties concerned. Any such agreement will in turn depend on an agreed tariff, and I fail to see how that can be attained without entering into negotiations with regional authorities. that is not done before long, the Southern Governments will certainly try to raise the import duties by unilateral action, and then the calamitous situation foreseen by Sir Cecil Clementi will inevitably come about,
If
15. Granted the possibility of negotiating with the Canton Government, I am afraid that I have not sufficient technical knowledge to make suggestions regarding the manner in which the functions of the Customs in Hong Kong territory can he arranged to meet the new situation, and I do not possess the correspondence regarding the proposed Anglo-Chinese Convention referred to in paragraph 15 of the Governor's despatch of the 12th August. But, in any case, it seems obvious that unless a preventive cordon is to be drawn round the boundaries of Hong Kong, the Colonial authorities will have to allow the Chinese dues to be collected inside the Colony, or co-operate in some other way with the Maritime Customs to safeguard the Chinese revenue, and it will be necessary to modify the exclusive attitude, of which an example is given in the recommendation and resolutions of the Hong Kong Chamber of Commerce quoted in paragraph 9 of the same despatch. If the requisite amount of goodwill is shown, these are matters which it should not be difficult to arrange with the assistance of the Kowloon Commissioner, and a solution of the problem should give the Colony an appreciable hold on the Canton Government, who would thus be dependent to a certain extent on Hong Kong for the protection of its
revenue.
16. Finally, at the risk of being tedious, I would like to adduce, in support of my argument for regional agreements, extracts from two statements recently made by the United States Senator Mr. Hiram Bingham. The first is taken from the North China Herald" of the 19th November, and I attach it as a separate enclosure. The other, from the "North China Herald" of the 12th November, I will quote here as follows:-
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I am in favour of assisting the Chinese to create strong regional Govern- ments. I do believe that there is little indication of anyone being able to effect the unification of China on a permanent basis. I do believe that the United States should commence to discuss with the de facto Governments the drawing up of new treaties, particularly pertaining to the tariff. I do not believe that extra-territoriality can be given up at present, but I should like to see treaties prepared looking towards its eventual abrogation, but making that abrogation dependent on greatly improved conditions in regard to Chinese courts and Chinese justice. I do not believe that the time has come, or is likely to arrive in the near future, when the concessions can wisely be given up or our gunboats and marines be withdrawn."
17. Mr. Bingham is, I understand, of the Republican party, and is in close touch with the President. He has recently completed a tour of the important cities of China and has interviewed most of the prominent figures on the political stage. His conclusions are those of a detached observer looking at the whole picture from a suitable distance, but to me, a working official who is close up against the petty local problems and irritations which beset a consul in China, his words seem full of plain common sense.
I have, &c.
J. F. BRENAN.
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Enclosure 2 in No. 1.
Statement by the Canton Representative of the Asiatic Petroleum Company. (Private.)
Oil Smuggling into Kwongtung.
THE 2 dollar per unit tax on kerosene and benzine has undoubtedly led to a great deal of smuggling from the free port of Hong Kong. There have been instances where cargoes of as much as 5,000 tins in one shipment have been seized on account of lack of tax stamps, and there can be little doubt but that smuggling goes on to an enormous extent. We have definite confirmation of a seizure of 5,000 tins of Standard Oil Company and other American oil in junks by the Ma Lau Chau (Macao) tax station within the last fortnight. We have received complaints from our up-country agents constantly in this connexion, and when one considers the length of the coast line of Kwongtung and the extent and intricacies of the delta waterways, which offer a great variety of alternative routes to any one place, and further, when we take into consideration the paucity of Chinese gunboats and One can easily imagine that for preventive patrols, this is not to be wondered at.
It is the easiest thing every cargo seized hundreds must evade the tax officials. possible for a few hundred tins to be shipped by junk from Hong Kong to inland points without passing near any customs or tax bureau stations.
The Canton authorities are fully alive to this question, and in June of this year (before the tax was farmed) Mr. Ching Ting-ku, head of the Central Customs Administration, approached the writer and asked for our co-operation to prevent the smuggling of untaxed oil from Hong Kong to Kwongtung, which they considered After a long discussion Mr. Ching was causing them enormous loss of revenue. offered, in consideration of the three companies (ie., Standard Oil, Texas Oil and ourselves) agreeing to stamp all Hong Kong supplies destined for China before leaving Hong Kong godowns, he would guarantee to exclude from the area under his control all other kerosene imported into Hong Kong, even if stamped, unless such Hong Kong importers agreed to come into line. Mr. Ching also informed us that he would tighten up his detective force and make arrangements to protect our cargoes with gunboats if we agreed to co-operate with him. Mr. Ching was after- wards transferred to Nanking and the stamp tax farmed out to the Fuk Lee Company. The farmers have also approached us in regard to co-operation for the prevention of smuggling, but owing to obvious difficulties in regard to the use of Canton tax stamps in Hong Kong, nothing has, so far, been done.
Canton, December 8, 1927.
Enclosure 3 in No. 1.
G. M. D. D. WOLF.
New York
Extract from Article by Senator Hiram Bingham published in the
North China Herald of World" of October 16, and reproduced in November 19, 1927.
WHENEVER our diplomats find a regional de facto Government which in their opinion appears to have the elements of continuity and security, we ought to enter into negotiations looking toward new treaty relationships. While there are many demands which will be made and which we cannot grant, I am sure there will be found to be a number of very important matters, like tariff autonomy, which we can readily grant.
The more thoughtful Chinese realise that gunboats and marines promote law and order, and their presence does not really cause us to forfeit the high regard of the Chinese people, as we have been told by some. The more thoughtful Chinese recognise that the foreign concessions in the treaty ports constitute almost the only cities of refuge to which Chinese political offenders can escape when their enemies come into power and threaten them with loss of property and life.
Most of the countries bordering on the Pacific do not welcome Chinese refugees, or even permit them to remain as law-abiding aliens. In the present state of Chinese justice" and Chinese "courts," it would be utter folly for us to give up the rights
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