An American Diplomat in China

by Paul S. Reinsch

The State Department inquired whether the newly reported contract for a loan of $30,000,000 was identical with the older contract of the Bethlehem Steel Company. I was informed that the Japanese Government did not object to the loan, but to the construction of any new naval base in Fukien, and that the Department had been told that the Chinese Government itself did not wish to construct there because of the Japanese objection. It was intimated to me that I might encourage the Chinese in the idea that such building, while legitimate, would be unwise.

I reported to the Department that the original Bethlehem contract had no connection with the spurious document recently circulated; that only a very small sum was to be devoted to harbour work in China, the location of which had not been fixed; and that the execution of the entire contract had been postponed because of financial conditions. While the Chinese Government was not contemplating any construction at this time, I stated that the attempt of any other government to establish a claim of special rights of supervision must be considered derogatory to Chinese sovereignty and to American rights of equal opportunity; I urged, therefore, that we avoid any action or statement which would admit such a claim, or which would in any way encourage the making of it. The Chinese Government has never admitted that its right to plan the defence of its coastline is subject to veto by any other government. Such admission on our part that Japan has the right to claim special interests in Fukien would shake the confidence of the Chinese in our seriousness and consistency, and in our determination to protect our legitimate interests in an undivided China, freely open to the commerce of all nations, where Americans can do business without asking permission of any other outsiders.

Dr. Chen Chin-tao was then acting as Financial Commissioner of the Chinese Government in Europe and America. The danger of a further growth of the idea of spheres of influence in China had been accentuated. Railway concessions had been allocated to different nations according to territorial areas where the respective countries claimed certain priorities; if concessions were made otherwise, the combined influence of the powers seeking special spheres was used to defeat them. To meet this danger a plan was developed for granting a large construction contract to an international syndicate made up of British, American, French, and German companies, who would divide the construction on some basis other than localized national spheres of influence. Doctor Chen, with an American assistant, was charged to take up this proposal with various companies. On the part of France and Germany, contractors and governments seemed favourable to the idea. In Great Britain the firm approached was Paulding & Company, who had already in the preceding year received a railway concession in China extending through the Province of Hunan and to the south thereof. This firm would readily coöperate, but the British Government objected. It would accept the principle of the international company only on condition that all lines traversing the Yangtse Valley should be constructed by the British participant in the syndicate.

This suggests the extent to which the sphere-of-influence doctrine dominated at this time the thought and action of the British Foreign Office.

The American Government, on its part, took exception to the size and duration of the concession, which it feared might gain a monopolistic character. Probably the difficulty would have been cleared up, since, after all, a specific and limited, though considerable grant, was intended. But the preliminary discussion had not resulted in agreement before the Great War supervened.

When Mr. Gest returned to the United States, he took up the matter of a loan to China with American financial interests, but they hesitated to act until the American Government expressed its approval and willingness to give support. Mr. Gest thereupon laid siege to the Department of State. He succeeded on the 3rd of June in securing from the Secretary a letter to the effect that the Department would be gratified to have China receive any substantial assistance from Americans in the nature of a loan upon terms similar to the present agreement. "This Government," the letter stated, "will, in accordance with its usual policy, give all proper diplomatic support to any legitimate enterprise of that character."

There had been much talk about the supposed determination of the Department of State to let American interests abroad shift for themselves, quite without encouragement or special protection. The letter, though moderate in language, nevertheless attracted great attention and was taken to indicate a change of heart in the Administration. I may say at this point that the Department of State never at any time failed to back me in efforts to develop and protect American interests in China. But it was not always able, especially later on, when overburdened with the work of the war, to follow up matters which it had approved, when the opposition or indifference of other departments put other claims in the forefront.

I had for a season observed and worked with American commercial interests in China. I had definite conclusions as to what was needed in the way of organization to encourage American trade. The great defect lay in the absence of financial institutions for handling foreign loans, and for assisting in foreign industrial development, helpful to American commerce. The only American bank in China, the International Banking Corporation, then confined itself strictly to exchange business and to dealing in commercial paper; it had developed no policy of responding to local industrial needs and helping in the inner development of China. All the foreign banks had wholly the treaty-port point of view. They thought not at all of developing the interior regions upon which the commerce of the treaty ports after all depends. They were satisfied with scooping off the cream of international commercial transactions and exchange operations.

I strongly favoured creating banking institutions which would broadly represent American capital from various regions of our country, and would respond to the urgent need of China for a modern organization of local credit.

There were but few American commission houses. In most cases American-manufactured goods were handled by houses of other nationality, who often gave scant attention to promoting American trade and used American products only when those of their own nation could not be obtained. It seemed worth while to establish additional trading companies, especially coöperative organizations among exporters, after the fashion of the "Representation for British Manufacturers, Ltd." Further, I strongly urged the American Government to station a commercial attaché in China. I was gratified by the appointment during the year of a commercial attaché in the person of Consul-General Julean Arnold, an official of great intelligence, wide knowledge, and untiring energy.