What is the remedy? That must consist simply enough in attacking the grand simplicities directly; in recognizing, as we have clearly shown, that the bases of Chinese life having collapsed through Euro-Japanese pressure, the politico-economic relationship between the Republic and the world must be remodelled at the earliest possible opportunity, every agreement which has been made since the Treaties of 1860 being carefully and completely revised.[[28]]
To say this is to give utterance to nothing very new or brilliant: it is the thought which has been present in everyone's mind for a number of years. So far back as 1902, when Great Britain negotiated with China the inoperative Mackay Commercial Treaty, provision was not only made for a complete reform of the Tariff—import duties to be made two and a half times as large in return for a complete abolition of likin or inter-provincial trade-taxation—but for the abolition of extraterritoriality when China should have erected a modern and efficient judicial system. And although matters equally important, such as the funding of all Chinese indemnities and loans into one Consolidated Debt, as well as the withdrawal of the right of foreign banks to make banknote issues in China, were not touched upon, the same principles would undoubtedly have been applied in these instances, as being conducive to the re-establishment of Chinese autonomy, had Chinese negotiators been clever enough to urge them as being of equal importance to the older issues. For it is primarily debt, and the manipulation of debt, which is the great enemy.
Three groups of indebtedness and three groups of restrictions, corresponding with the three vital periods in Chinese history, lie to-day like three great weights on the body of the Chinese giant. First, there is the imbroglio of the Japanese war of 1894-5; second, the settlement following the Boxer explosion of 1900; and third, the cost of the revolution of 1911-1912. We have already discussed so exhaustively the Boxer Settlement and the finance of the Revolutionary period that it is necessary to deal with the first period only.
In that first period China, having been rudely handled by Japan, recovered herself only by indulging in the sort of diplomacy which had become traditional under the Manchus. Thankful for any help in her distress, she invited and welcomed the intervention of Russia, which gave her back the Liaotung Peninsula and preserved for her the shadow of her power when the substance had already been so sensationally lost. Men are apt to forget to-day that the financial accommodation which allowed China to liquidate the Japanese war-debt was a remarkable transaction in which Russia formed the controlling element. In 1895 the Tsar's Government had intervened for precisely the same motives that animate every State at critical times in history, that is, for reasons of self-interest. The rapid victory which Japan had won had revived in an acute form the whole question of the future of the vast block of territory which lies south of the Amur regions and is bathed by the Yellow Sea. Russian statesmen suddenly became conscious that the policy of which Muravieff-Amurski in the middle of the nineteenth century had been the most brilliant exponent—the policy of reaching "warm water"—was in danger of being crucified, and the work of many years thrown away. Action on Russia's part was imperative; she was great enough to see that; and so that it should not be said that she was merely depriving a gallant nation of the fruits of victory and thereby issuing to her a direct challenge, she invited the chief Powers in Treaty relations with China to co-operate with her in readjusting what she described as the threatened balance. France and Germany responded to that invitation; England demurred. France did so because she was already the devoted Ally of a nation that was a guarantee for the security of her European frontiers: Germany because she was anxious to see that Russia should be pushed into Asiatic commitments and drawn away from the problems of the Near East. England on her part very prudently declined to be associated with a transaction which, while not opposed to her interests, was filled with many dubious elements.
It was in Petrograd that this account was liquidated. The extraordinary chapter which only closed with the disastrous Peace of Portsmouth opened for Russia in a very brilliant way. The presence in Moscow of the veteran statesman Li Hung-chang on the occasion of the Tsar's Coronation afforded an opportunity for exhaustively discussing the whole problem of the Far East. China required money: Russia required the acceptance of plans which ultimately proved so disastrous to her. Under Article IV of the Treaty of Shimonoseki (April, 1895) China had agreed to pay Japan as a war-indemnity 200 million Treasury taels in eight instalments: that is 50 million taels within six months, a further 50 millions within twelve months, and the remaining 100 millions in six equal instalments spread over seven years, as well as an additional sum of 50 millions for the retrocession of the Liaotung Peninsula.
China, therefore, needed at once 80 million taels. Russia undertook to lend her at the phenomenally low rate of 4 per cent. the sum of £16,000,000 sterling—the interest and capital of which the Tsar's Government guaranteed to the French bankers undertaking the flotation. In return for this accommodation, the well known Russo-Chinese Declaration of the 24th June (6th July), 1895, was made in which the vital article IX states that—"In consideration of this Loan the Chinese Government declares that it will not grant to any foreign Power any right or privilege of no matter what description touching the control or administration of the revenues of the Chinese Empire. Should, however, the Chinese Government grant to any foreign Power rights of this nature, it is understood that the mere fact of having done so will extend those rights to the Russian Government."
This clause has a monumental significance: it started the scramble in China: and all the history of the past 22 years is piled like a pyramid on top of it. Now that the Romanoffs have been hurled from the throne, Russia must prove eager to reverse the policy which brought Japan to her Siberian frontiers and which pinned a brother democracy to the ground.
For China, instead of being nearly bankrupt as so many have asserted, has, thanks to the new scale of indebtedness which the war has established, become one of the most debt-free countries in the world, her entire national debt (exclusive of railway debt) amounting to less than 150 millions sterling, or seven shillings per head of population, which is certainly not very terrible. No student who has given due attention to the question can deny that it is primarily on the proper handling of this nexus of financial interests, and not by establishing any artificial balance of power between foreign nations, that the peace of the Far East really hinges. The method of securing national redemption is ready-made: Western nations should use the Parliament of China as an instrument of reform, and by limiting themselves to this one method secure that civil authority is reinforced to such a point that its behests have behind them all the wealth of the West. In questions of currency, taxation, railways and every other vexatious problem, it is solely by using this instrument that satisfactory results can be attained.[[29]] For once Chinese realize that parliamentary government is not merely an experimental thing but the last chance the country is to be given to govern itself, they will rally to the call and prove that much of the trouble and turmoil of past years has been due to the misunderstanding of the internal problem by Western minds which has incited the population to intrigue against one another and remain disunited. And if we insist that there is urgent need for a settlement of these matters in the terms we have indicated, it is because we know very precisely what Japanese thought on this subject really is.
What is that thought—whither does it lead?
It may be broadly said that Japanese activities throughout the Far East are based on a thorough and adequate appreciation of the fact that apart from the winning of the hegemony of China, there is the far more difficult and knotty problem of overshadowing and ultimately dislodging the huge network of foreign interests—particularly British interests—which seventy-five years of Treaty intercourse have entwined about the country. These interests, growing out of the seed planted in the early Canton Factory days, had their origin in the termination by the act of the British Government of the trading monopoly enjoyed until the thirties of last century by the East India Company. Left without proper definition until the Treaty of Nanking in 1842 had formally won the principle of trading-rights at five open ports, and thus established a first basis of agreement between England and China (to which all the trading powers hastened to subscribe), these interests expanded in a half-hearted way until 1860, when in order to terminate friction, the principle of extraterritoriality was boldly borrowed from the Turkish Capitulations, and made the rock on which the entire fabric of international dealings in China was based. These treaties, with their always-recurring "most-favoured nation" clause, and their implication of equal treatment for all Powers alike, constitute the Public Law of the Far East, just as much as the Treaties between the Nations constitute the Public Law of Europe; and any attempt to destroy, cripple, or limit their scope and function has been very generally deemed an assault on all the High Contracting Parties alike. By a thoroughly Machiavellian piece of reasoning, those who have been responsible for the framing of recent Japanese policy, have held it essential to their plan to keep the world chained to the principle of extraterritoriality and Chinese Tariff and economic subjection because these things, imposing as they necessarily do restrictions and limitations in many fields, leave it free to the Japanese to place themselves outside and beyond these restrictions and limitations; and, by means of special zones and secret encroachments, to extend their influence so widely that ultimately foreign treaty-ports and foreign interests may be left isolated and at the mercy of the "Higher machinery" which their hegemony is installing. The Chinese themselves, it is hoped, will be gradually cajoled into acquiescing in this very extraordinary state of affairs, because being unorganized and split into suspicious groups, they can be manipulated in such a way as to offer no effective mass resistance to the Japanese advance, and in the end may be induced to accept it as inevitable.