The financing was curious; the proceeds were presumably to be used to complete the port works at Pukow, on the Yangtse River, and to establish the tramways of Peking. However, it was plain that the loan had been made really for administrative or political purposes, its industrial character being secondary, as the work was indefinitely postponed. This subterfuge of so-called "industrial loans," of which the proceeds were to be used for politics, was later very extensively resorted to, particularly in the Japanese loans of 1918.
Learning of this state of affairs, Mr. Gest turned his attention to the problem of Chinese domestic financing, and at the close of his short residence in Peking he had obtained an option for the Bank of China loan contract, which he followed up with energy upon his return to the United States.
American attention had been drawn to the contracts for the Hwai River conservancy and for petroleum exploration, and American commercial journals and bankers were again giving thought to the financing of projects in China. To show the attitude of New York bankers at this time, of their difficulties, doubts, and inclinations, I shall cite portions of a letter written me by Mr. Willard Straight, dated April 29, 1914. While I did not agree with Mr. Straight on several matters of detail, especially the withdrawal from the Consortium, we were both agreed as to the importance of continued American participation in Chinese finance and industry. The letter follows:
As regards the Hwai River conservancy, you have doubtless already been advised that the Red Cross has made an arrangement with J.G. White & Company, whereby an engineering board will be despatched to China to make a detailed survey. The matter of financing was brought to the Group, who felt it impossible satisfactorily to discuss this question without more definite information regarding actual conditions and the probable cost of the work contemplated.
When, upon receipt of the report of the engineering board, we take up the discussion of the financial problem, the suggestions contained in your letter of the 24th of March will be very valuable. It might, as you say, be comparatively easy to issue a loan of ten million dollars at almost any time. That would depend, however, not on the size but on the nature of the loan. There is no market for Chinese securities in this country at this time, and it would be difficult if not impossible for the bankers to create one within any reasonable time without the active and intelligent support or at least the declared approval of the Government....
When the American Group first entered upon negotiations for the Hukuang loan, conditions in this country were good. Business men were looking abroad for new trade openings, the Taft Administration was anxious to encourage the extension of foreign trade and the Chinese Governmental Bubble had not been pricked. During our four years of experience a not inconsiderable public interest in China and her development was aroused, and had we issued the Reorganization Loan, as we had hoped to do, in February, 1913, we probably could have sold our twenty-million-dollar share to investors throughout the country. This we would have been able to do despite the revolution and uncertain governmental conditions in China, because of public confidence due to the support of our own and the other interested governments.
Neither Mr. Taft nor Mr. Knox ever promised to send American battleships to threaten China, or to land marines to occupy Chinese territory, in case of default in interest payments. The public was misled by no false statements, but there was, nevertheless, a general belief that our Government was actively interested in the preservation of China's credit and in the development of that country.
This, as I told you in our conversation at the Century Club, was changed by the President's declaration of March 19, 1913. The fact that the President and the State Department felt that China, as a young republic, was entitled to extraordinary consideration and sympathy; the fact that our Government recognized Yuan Shih-kai's political machine, and the fact that the Administration subsequently gave out some general expressions regarding the Government's interest in the development of American trade, did not in any way restore in the mind of the investor the confidence which had been destroyed by the specific condemnation of the activities of the only American banking group which had had the enterprise, the courage, and the patience to enter and remain in the Chinese field and which, despite its unpopularity among certain yellow journals and a number of Western Congressmen, stood for integrity, fair dealing, and sound business in the minds of the bond-purchasing public, upon whose readiness to buy the success of any bond issue must depend.
This confidence which would have enabled us to sell Chinese bonds had been created by four years of hard work on the part of the bankers and the Government. Once destroyed, it can be restored only by general governmental declarations, which will probably have to be stronger than any of those made by the Taft Administration, or, in the absence thereof, by effective, consistent, and repeated specific proof of the Government's willingness to assist and encourage our merchants, contractors, and bankers. As you know, it is more difficult to correct a bad impression than it is originally to create a good one.
I quite appreciate that it will be difficult for the President to take any action which would seem to be a reversal of his former position, but I hope that the last paragraph of his declaration of last March, in which he stated that he would urge "all the legislative measures necessary to assure to contractors, engineers, etc., the banking and other financial facilities which they now lack" may be interpreted and developed along lines which will permit him actively to support the Red Cross plan.
If the Administration will publicly evidence its interest in and its support of this project during the next few months, so that when the matter is finally brought up to the bankers for decision they may be able to feel that the public has become interested and assured that our Government is behind the plan, it may prove to be the means by which we can again enter China. This I have pointed out to Miss Boardman who, I feel sure, fully understands the situation.
I sincerely trust that your great interest and your energy in endeavouring to extend our interests in China may have an effect upon our own Administration. I believe the bankers will always be willing to help if they are able to do so, but we are not, like our Continental friends, anxiously looking for chances to invest abroad, especially at the present time when we have so many troubles of our own, and instead of being merely shown the opportunity, we must be persuaded in the first place that it is sound business and in the second place that it is our patriotic duty to undertake it. And we must feel, in addition, that if we should undertake it our enterprise and energy will not serve merely to rouse a storm of jealousy on the part of those who will not assume any risks themselves, but who cry "monopoly" as soon as an interest capable of handling foreign business is given the active support of our Government.
I am sorry that it is impossible to give a more optimistic picture, but I assure you that I shall do all in my power to support you and your efforts, which I sincerely trust may be attended with the success they deserve.
The intelligent support promised in this letter continued until the untimely death of Mr. Straight in Paris, while he was with the American Peace Commission.
"SLOW AMERICANS"
"The Americans are altogether too slow!"